Court Opinion

ID: 6346097
Source: CourtListenerOpinion
Date Created: 2022-06-02 16:02:07.195721+00
Date Added: 2024-06-11T09:16:41.425666
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

KNIGHT BROADBAND LLC                )
                                    )
            Plaintiff,              )
                                    )
            v.                      )               C.A. No. N21C-07-076 EMD CCLD
                                    )
JEFFRY KNIGHT and JEFFRY            )
KNIGHT, INC. (d/b/a KNIGHT          )
ENTERPRISES),                       )
                                    )
            Defendants.             )
____________________________________)
                                    )
JEFFRY KNIGHT, INC.,                )
                                    )
            Counterclaim Plaintiff, )
                                    )
            v.                      )
                                    )
KNIGHT BROADBAND LLC,               )
                                    )
            and                     )
                                    )
FULL CIRCLE FIBER PARTNERS          )
and MILL POINT CAPITAL, LLC,        )
                                    )
            Third-Party Defendants. )

                                   Submitted: March 1, 20221
                                     Decided: June 2, 2022

       Upon Plaintiff/Counterclaim Defendant and Third-Party Defendant’s Motion to Dismiss
                                     Amended Counterclaim
                            GRANTED in part and DENIED in part

Kevin R. Shannon, Esquire, Christopher N. Kelly, Esquire, Daniel M. Rusk, IV, Esquire, Potter
Anderson & Corroon LLP, Wilmington, Delaware, William C. O’Neil, Esquire, Gretchen V.
Scavo, Esquire, A. Matthew Durkin, Esquire, Winston & Strawn LLP, Chicago, Illinois.
Attorneys for Plaintiff and Counterclaim Defendant Knight Broadband LLC and Third-Party
Defendants Full Circle Fiber Partners and Mill Point Capital, LLC.

1
    D.I. No. 38.
Melissa N. Donimirski, Esquire, Heyman Enerio Gattuso & Hirzel LLP, Wilmington, Delaware,
Timothy W. Weber, Esquire, Joseph P. Kenny, Weber, Crabb & Wein, P.A., St. Petersburg,
Florida. Attorneys for Defendants and Counterclaim Plaintiff Jeffry Knight, Inc.

DAVIS, J.
                                          I.       INTRODUCTION

         This is a breach of contract and fraud action assigned to the Court’s Complex

Commercial Litigation Division. Plaintiff Knight Broadband LLC (“Buyer” or “Broadband”)

purchased company assets from Defendants Jeffrey Knight2 and Jeffry Knight, Inc. (d/b/a Knight

Enterprises) (“Seller” or “Knight Enterprises”). Knight Enterprises sold the assets to Broadband

through the Purchase Agreement (as defined below). The claims and counterclaims in this civil

action arise in connection with the Purchase Agreement.

         Broadband initiated this civil action on July 12, 2021.3 Broadband filed an amended

complaint (the “Amended Complaint”) on September 15, 2021.4 The Amended Complaint

asserts fraud and breach of contract claims against Mr. Knight and Knight Enterprises. Knight

Enterprises answered and asserted counterclaims and third-party claims, alleging fraud

(“Counterclaim I”) by Buyer and Third-Party Defendant Mill Point Capital, LLC (“Mill Point”).5

In addition, Knight Enterprises brought a breach of contract claim (“Counterclaim II”) against

Broadband and Third-Party Defendant Full Circle Fiber Partners LLC (“Full Circle Fiber”) (Mill

Point and Full Circle Fiber are collectively referred to as the “Third-Party Defendants”).6

         On October 29, 2021, Broadband and Third-Party Defendants moved (the “Motion”)7 to

dismiss Counterclaim I and, in part, Counterclaim II. The Motion seeks to dismiss under two

2
  Under a stipulation and order, the Court dismissed Mr. Knight from this civil action. D.I. No. 19.
3
  D.I. No. 1.
4
  D.I. No. 16.
5
  D.I. No. 20.
6
  D.I. No. 20.
7
  D.I. No. 21.

                                                          2
distinct arguments. First, the Motion argues that the Court should dismiss Counterclaim I for

failure to state a claim and failure to plead fraud with the requisite particularity. Second, the

Motion seeks “to dismiss [Knight Enterprises’] breach of contract claim for lack of subject

matter jurisdiction to the extent the claim is based on allegations that Buyer failed to make

working capital and/or earn-out payments under the Asset Contribution and Purchase Agreement

among Jeffry Knight, Inc., Jeffry Knight, Full Circle Fiber [ ] and [] Broadband[.]”8 The Motion

contends the Court lacks subject matter jurisdiction because those disputes are controlled by an

alternative resolution process agreed to in the Purchase Agreement.9 Knight Enterprises opposed

the Motion.10 The Court held a hearing on the Motion on February 10, 2022 and took the Motion

under advisement.11

        For the reasons set forth below, the Court GRANTS the Motion with respect to

Counterclaim I. The Court DENIES the Motion as to Counterclaim II and the purchase

price/contingent consideration claim but GRANTS the Motion as to Counterclaim II and the

working capital provision issue.

                                      II.      RELEVANT FACTS

    A. THE PARTIES

        This dispute arises out of the sale of assets in a company doing business as Knight

Enterprises (now Broadband).12 Broadband provides broadband installation and construction

services.13 Full Circle Fiber is a holding company that owns Broadband.14 “Mill Point is a

8
  Counterclaim Defendant and Third-Party Defendants’ Opening Brief in Support of Motion to Dismiss the
Amended Counterclaims (hereinafter “Mot.”) at 1.
9
  Id.
10
   D.I. No. 27.
11
   D.I. No. 36.
12
   Am. Compl. ¶ 2.
13
   Id.
14
   Am. Counterclaim ¶ 1.

                                                       3
private equity sponsor that serves as the general partner of a fund that owns Full Circle

[Fiber].”15

     B. PRE-AGREEMENT NEGOTIATIONS

        Michael Duran was the President and Ben Rogers was a Vice President of Mill Point

during those times material to this dispute.16 Knight Enterprises alleges that in December 2019,

“Duran, on behalf of Mill Point, made a preemptive bid to purchase the stock of Knight

Enterprises from Jeffry D. Knight for $52 million.”17 As part of the sale process, Mr. Duran

purportedly made representations to Mr. Knight including: (i) “that Mill Point was a private

equity firm that engaged executive partners with deep industry expertise to provide additive

value to targeted investments while partnering with the existing management team;”18 (ii) “key

management of the company would stay in place and the executive partners would build upon

the legacy of Knight Enterprises by leveraging industry relationships and adding managerial

expertise;”19 and (iii) “Mill Point’s financial backing would allow it to use Knight Enterprises as

a platform company into which it would consolidate multiple contemplated acquisitions and that

Knight would remain as a consultant for the purpose of assisting in these acquisitions, earning

substantial additional revenue for doing so.”20

        Before the sale, Knight Enterprises alleges that “between December of 2019 and March

2020 both [Mr.] Rogers and [Mr.] Duran, while acting on behalf of Mill Point, repeatedly

assured [Mr.] Knight, a reluctant seller, that Mill Point intended to grow the business by

performing targeted acquisitions, that [Mr.] Knight would assist in these acquisitions, and that

15
   Mot. at 4.
16
   Am. Counterclaim. ¶¶ 2, 3.
17
   Id. ¶ 4.
18
   Id. ¶ 5.
19
   Id. ¶ 6.
20
   Id. ¶ 7.

                                                  4
[Mr. Knight] would continue to earn substantial revenue for doing so.”21 Knight Enterprises also

contends that “[d]uring this time, [Mr.] Rogers and [Mr.] Duran also told [Mr.] Knight that he

would receive stock in Full Circle Fiber, the holding company for entity that would eventually

acquire the assets of Knight Enterprises, which would substantially increase in value as Mill

Point completed targeted acquisitions. [Mr.] Rogers and [Mr.] Duran also told [Mr.] Knight he

would receive $ 5 million earn out payments for 2020 and 2021.”22

     C. THE PURCHASE AGREEMENT

        Knight Enterprises, Mr. Knight, Full Circle Fiber,23 and Broadband signed a purchase

agreement on April 10, 2020 (the “Purchase Agreement”).24 “The Purchase Agreement contains

a provision that governs the purchase price and contingent consideration (or earn-outs), including

how the parties are to resolve related disputes.”25 Under the Purchase Agreement “Seller

received $27 million in cash at closing, a promissory note in the amount of $5 million that

matures in 5 years, and the potential for additional earn-out consideration that is subject to

certain Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) targets

being met.”26 Knight Enterprises contends that in addition Mr. Knight “would receive a minority

stock interest in Full Circle Fiber[.]”27

        Purchase Agreement Section 1.05(c) details the process to determine whether the earn-

out targets for a particular period had been met and what the resulting earn-out compensation

21
   Id. ¶ 9.
22
   Id. ¶ 10.
23
   As a signatory to the Purchase Agreement, Full Circle is jointly and severally liable for any breach thereof by
Broadband. See Compl., Ex. A, Asset Contribution and Purchase Agreement § 6.03. The Court will hereafter refer
to the Asset Contribution and Purchase Agreement as the “Purchase Agreement.”
24
   See Purchase Agreement.
25
   Mot. at 4.
26
   Id. (citing Purchase Agreement § 1.05).
27
   Am. Counterclaim ¶ 12 (citing Purchase Agreement § 1.05 and Appendix A).

                                                         5
would be.28 Purchase Agreement Section 1.05(c)(i) controls contingent consideration/earn-out

provisions and provides:

        Within thirty (30) days following the end of the First Calculation Period and the
        Section Calculation Period, as applicable, Buyer shall prepare in good faith and
        deliver to the Seller a written statement (each, a “Contingent Consideration
        Calculation Statement”) setting forth in reasonable detail its determination of
        EBITDA for the applicable Contingent Consideration Measurement Period and its
        calculation of the resulting Contingent Consideration Payment for such Contingent
        Consideration Measurement Period (the “Contingent Consideration
        Calculation”), together with the financial statements and notes thereto, if
        appliable. Seller will have thirty (30) days after receipt of a Contingent
        Consideration Calculation Statement (each, a “Contingent Consideration Review
        Period”) to review . . . 29

Purchase Agreement Section 1.05(c)(i) further details the process when Knight Enterprises is

entitled to inspect Broadband’s books and records:

        During the Contingent Consideration Review Period, Seller . . . shall have the right
        to inspect Buyer’s books and records during normal business hours at Buyer’s
        offices, upon reasonable prior notice and solely for purposes reasonably related to
        the determinations of EBITDA for the applicable Contingent Consideration
        Measurement Period and the resulting Contingent Consideration Payment. 30

Purchase Agreement Section 1.05(c)(i) also provides a process if there is a dispute:

        Prior to the expiration of the Contingent Consideration Review Period, the Seller
        may object to the Contingent Consideration Calculation set forth in a Contingent
        Consideration Calculation Statement for a Contingent Consideration Measurement
        Period by delivering a written notice of objection (a “Contingent Consideration
        Calculation Objection Notice”) to Buyer. The Contingent Consideration
        Calculation Objection Notice shall specify the items in the applicable Contingent
        Consideration Calculation disputed by the Seller and shall describe in reasonable
        detail the basis for such objection, as well as the amount in dispute. If Seller fails
        to deliver a Contingent Consideration Calculation Objection Notice to Buyer prior
        to the expiration of a Contingent Consideration Review Period, then the Contingent
        Consideration Calculation set forth in the applicable Contingent Consideration
        Calculation Statement shall be final and binding on the parties (absent fraud or
        intentional misconduct). If Seller timely delivers a Contingent Consideration
        Calculation Objection Notice, Buyer and Seller shall negotiate in good faith to
        resolve the disputed items and agree upon the resulting amount of the EBITDA for

28
   Purchase Agreement § 1.05(c).
29
   Purchase Agreement § 1.05(c)(i).
30
   Id.

                                                  6
        the applicable Contingent Consideration Measurement Period and the Contingent
        Consideration Payment for the applicable Contingent Consideration Measurement
        Period. If Buyer and the Seller are unable to reach agreement within thirty (30)
        days after such a Contingent Consideration Calculation Objection Notice has
        been given, all unresolved disputed items shall be promptly referred to the
        Accounting Expert for resolution in accordance with the dispute mechanics set
        forth in Section 1.06(d).31

Purchase Agreement Section 1.05(c)(i) sets out the payment process after final determination of

the Contingent Consideration Payment:

        Upon the final determination of the Contingent Consideration Payment, if any,
        pursuant to the terms of this Section 1.05(c)(i), Buyer shall have five (5) Business
        Days to pay Seller the amount of such Contingent Consideration Payment, after
        which interest shall accrue on the amount of such Contingent Consideration
        Payment at the rate of eight and a half percent (8.5%). For the avoidance of doubt,
        the accrual of interest on the amount of the Contingent Consideration Payment shall
        be in addition to and not a limitation on Seller’s remedies against Buyer for Buyer’s
        failure to pay the Contingent Consideration Payment when due.32

        Purchase Agreement Section 1.06 establishes the process for determining the working

capital adjustment and related dispute resolution.33 Purchase Agreement Section 1.06(c) proves

how to prepare the Closing Statement and requires that:

        Within fifty (50) days after the Closing Date, Buyer shall prepare, or cause to be
        prepared, and deliver to the Seller a written statement (the “Closing Statement”)
        that shall include a balance sheet of Seller as of the Effective Time prepared in
        accordance with the Accounting Principles and a good-faith calculation of the
        following and a statement of the Net Adjustment Amount:

                 (i) the Closing Transaction Expenses;
                 (ii) the Closing Indebtedness;
                 (iii) the Closing Cash on Hand; and
                 (iv) the Closing Working Capital.34

Purchase Agreement Section 1.06(d)(i) controls the Review Period for the required dispute

resolution process and states:

31
   Id. (emphasis added).
32
   Id.
33
   See Purchase Agreement § 1.06(d).
34
   Purchase Agreement § 1.06(c).

                                                 7
           During the thirty (30) day period following Buyer’s delivery of the Closing
           Statement to Seller (the “Review Period”), Buyer shall provide Seller reasonable
           access to the relevant books and records and employees of Buyer for the purpose
           of facilitating Seller’s review of the Closing Statement. The Closing Statement shall
           become final and binding at the end of the last day of the Review Period (absent
           fraud), unless prior to the end of the Review Period, Seller delivers to Buyer a
           written notice of disagreement (a “Notice of Disagreement”) specifying the nature
           and amount of any and all items in dispute as to the amounts set forth in the Closing
           Statement. Seller shall be deemed to have agreed with all items and amounts in the
           Closing Statement not specifically referenced in a Notice of Disagreement provided
           prior to the end of the Review Period.35

Purchase Agreement Section 1.06(d)(ii) defines the Resolution Period and the Accounting

Expert. The subsection provides:

           During the thirty (30) day period following delivery of a Notice of Disagreement
           by Seller to Buyer (the “Resolution Period”), such parties in good faith shall seek
           to resolve in writing any differences that they may have with respect to the
           computation of the amounts as specified therein. . . . If Seller and Buyer have not
           resolved all such differences by the end of the Resolution Period, Seller and Buyer
           shall submit, in writing, such differences to the Accounting Expert. The
           “Accounting Expert” shall be Grant Thornton LLP, who is an expert in accounting
           for businesses that are similar to the Business and not an arbitrator, or, in the event
           not available or not a Neutral Accounting Firm, a Neutral Accounting Firm selected
           by mutual agreement of Buyer and Seller; provided, however, that: (i) if, within
           fifteen (15) days after the end of the Resolution Period, such parties are unable to
           agree on a Neutral Accounting Firm to act as the Accounting Expert, then each
           party shall select a Neutral Accounting Firm and such firms together shall select
           the Neutral Accounting Firm to act as the Accounting Expert, and (ii) if any party
           does not select a Neutral Accounting Firm within ten (10) days of written demand
           therefor by the other party, then the Neutral Accounting Firm selected by the other
           party shall act as the Accounting Expert. A “Neutral Accounting Firm” means an
           independent accounting firm of nationally recognized standing that is not at the
           time it is to be engaged hereunder rendering services to any party, or any Affiliate
           of either, and has not done so within the three (3) year-period prior thereto.36

Purchase Agreement Section 1.06(d)(iii) details how the Accounting Expert will resolve

disputes:

           The parties shall arrange for the Accounting Expert to agree in its engagement letter
           to act in accordance with this Section 1.06(d)(iii). Each party shall present a brief
           to the Accounting Expert (which brief shall also be concurrently provided to the

35
     Purchase Agreement § 1.06(d)(i).
36
     Purchase Agreement § 1.06(d)(ii).

                                                     8
           other party) within thirty (30) days of the appointment of the Accounting Expert
           detailing such party’s views as to the correct nature and amount of each item
           remaining in dispute from the Notice of Disagreement (and for the avoidance of
           doubt, no party may introduce a dispute to the Accounting Expert that was not
           originally set forth on the Notice of Disagreement). Within thirty (30) days of
           receipt of the brief, the receiving party may present a responsive brief to the
           Accounting Expert (which responsive brief shall also be concurrently provided to
           the other party). Each party may make an oral presentation to the Accounting
           Expert (in which case, such presenting party shall notify the other party of such
           presentation, and the other party shall have the right to be present (and speak) at
           such presentation), within forty-five (45) days of the appointment of the
           Accounting Expert. The Accounting Expert shall have the opportunity to present
           written questions to either party, a copy of which shall be provided to the other
           party. The Accounting Expert shall consider only those items and amounts in
           Seller’s and Buyer’s respective calculations that are identified as being items and
           amounts to which Seller and Buyer have been unable to agree. In resolving any
           disputed item, the Accounting Expert may not assign a value to any item greater
           than the greatest value for such item claimed by either party or less than the smallest
           value for such item claimed by either party. In resolving any disputed item, the
           Accounting Expert shall look solely to the definitions set forth in this Agreement,
           including the definitions of Closing Working Capital, Cash on Hand, Transaction
           Expenses and Indebtedness. The Accounting Expert shall make a written
           determination within sixty (60) days of its appointment as to each such
           disputed item, which determination shall be final and binding on the parties
           for all purposes hereunder absent manifest error. The fees and expenses of the
           Accounting Expert and of any enforcement of the determination thereof, shall be
           borne by Seller, on the one hand, and Buyer, on the other hand, in inverse
           proportion as they may prevail on the matters resolved by the Accounting Expert,
           which proportionate allocation shall be calculated on an aggregate basis based on
           the relative dollar values of the amounts in dispute and shall be determined by the
           Accounting Expert at the time the determination of such firm is rendered on the
           merits of the matters submitted.37

           Purchase Agreement Section 7.05 sets out an integration provision which provides in

part:

           Entire Agreement. This Agreement and the documents to be delivered hereunder
           constitute the sole and entire agreement of the parties to this Agreement with
           respect to the subject matter contained herein, and supersede all prior and
           contemporaneous understandings and agreements, both written and oral, with
           respect to such subject matter.38

37
     Purchase Agreement § 1.06(d)(iii) (emphasis added).
38
     Purchase Agreement § 7.05.

                                                           9
        Knight Enterprises alleges that it entered into the Purchase Agreement “based upon the

knowingly false representations of [Buyer], [Mr.] Duran, and [Mr.] Rogers concerning their

intentions to retain the management, carry through on targeted acquisitions, and, importantly,

pay Knight Enterprises the purchase price agreed to for the Business -- $52 million.”39 Further,

Knight Enterprises asserts that “[i]mmediately after closing, [Broadband] refused to carry out the

targeting acquisition of Kablelink, and forced out the existing management team, despite

repeated assurances to the contrary.”40

        Knight Enterprises states that Broadband delivered approximately $27 million at closing

in accordance with the Purchase Agreement.41 Knight Enterprises then claims that Broadband

materially breached the Purchase Agreement as to Working Capital Adjustments by providing

fraudulent and false financial statements to Knight Enterprises while simultaneously refusing to

provide access to Broadband’s financials.42 Knight Enterprises also asserts that Broadband

materially breached the Purchase Agreement as to first earn-out payments by failing to: (i)

deliver any financial statements, and (ii) remit payment within the designated timeframe.43

     D. CURRENT LITIGATION

        Broadband filed a complaint (the “Complaint”) against Knight Enterprises and its

controlling member, Mr. Knight, alleging claims for fraud and breach of the Purchase Agreement

on July 12, 2021.44 On August 16, 2021, Broadband answered the Complaint and asserted two

counterclaims.45 Mr. Knight moved to dismiss the Complaint on August 16, 2021.46 On

39
   Am. Counterclaim ¶ 11.
40
   Opp. at 2.
41
   Id. at 3.
42
   Id.
43
   Id.
44
   D.I. No. 1.
45
   D.I. No. 9.
46
   D.I. No. 10.

                                               10
September 15, 2021, Broadband and Third-Party Defendants filed a Motion to Dismiss

Counterclaim47 and the Amended Complaint.48 On September 24, 2021, by stipulation and

order, the parties stipulated to a partial dismissal as to Mr. Knight.49

         On October 15, 2021, Knight Enterprises answered the Amended Complaint and asserted

two Amended Counterclaims: (i) Counterclaim I: fraud against Broadband and Mill Point based

on alleged pre-contractual and contractual misrepresentations that induced Seller into entering

the Purchase Agreement for the sale of the business; and (ii) Counterclaim II: breach of contract

against Broadband and Full Circle based on Buyer’s alleged failure to pay monies owed under

the Purchase Agreement, failure to participate in good faith in the process for disputing payment

was due, making unauthorized public announcement, and refusing access to the Books and

Records of the business.50

         On October 29, 2021, Broadband filed the Motion and asked the Court to dismiss

Counterclaim I and a portion of Counterclaim II.51 Knight Enterprises filed its Answering Brief

in Opposition to the Motion (the “Opposition”) on December 6, 2021.52 On December 20, 2021,

Broadband and Third-Party Defendants filed a Reply Brief in Support of the Motion.53 The

Court held a hearing on February 10, 2022.54 At the conclusion of the hearing, the Court took

the Motion under advisement.55

47
   D.I. No. 15.
48
   D.I. No. 16.
49
   D.I. Nos. 17, 19.
50
   D.I. No. 20.
51
   D.I. No. 21.
52
   D.I. No. 27.
53
   D.I. No. 30.
54
   D.I. No. 36.
55
   D.I. No. 36.

                                                  11
                                    III.   PARTIES’ CONTENTIONS

       A.          THE MOTION

            Broadband asks that the Court to dismiss Counterclaim I and dismiss that part of

Counterclaim II based on the purchase price/contingent consideration and working capital

provisions of the Purchase Agreement. Broadband contends that Counterclaim I should be

dismissed for failure to state a claim under Civil Rule 12(b)(6), and for failure to plead fraud

with the requisite particularity under Civil Rule 9(b). Specifically, Broadband argues that Knight

Enterprises fails to allege to all elements of a fraud claim—a false statement and knowledge or

belief that the representation was false.56 Further, Broadband contends that “to the extent

Seller’s fraud claim is based upon [Buyer’s] alleged failure to perform its payment obligations

under the Purchase Agreement,” that claim is a replication of the breach of contract claim and

those claims seek the same damages and therefore should be dismissed.57

            Broadband argues that the Court should dismiss Counterclaim II, to the extent it is based

on a purported breach of the earn-out or working capital provisions, because the Court lacks

jurisdiction to decide those issues. Broadband contends that these issues, under the Purchase

Agreement, must be resolved by the Accounting Expert and not the Court.

            Broadband claims that dismissal should be with prejudice because Knight Enterprises has

already had the opportunity to amend the Counterclaims.

       B.          THE OPPOSITION

            Knight Enterprises argues that the Motion should be denied because the fraud allegations

are pled with the requisite particularity and are separate and distinct from the breach of contract

claim. Further, Knight Enterprises contends that Count II does not concern a dispute regarding

56
     Opp. at 21.
57
     Opp. at 23.

                                                    12
Purchase Agreement calculations. Instead, Knight Enterprises claims that Count II rests on

Broadband’s failure to satisfy contractual obligations and these are issues beyond the Accounting

Expert’s authority.

                                  IV.      STANDARD OF REVIEW

     A. CIVIL RULE 12(B)(6) FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE
        GRANTED

        Upon a motion to dismiss, the Court (i) accepts all well-pled factual allegations as true,

(ii) accepts even vague allegations as well-pled if they give the opposing party notice of the

claim, (iii) draws all reasonable inferences in favor of the non-moving party, and (iv) only

dismisses a case where the plaintiff would not be entitled to recover under any reasonably

conceivable set of circumstances.58 However, the court must “ignore conclusory allegations that

lack specific supporting factual allegations.”59

        In considering a motion to dismiss under Civil Rule 12(b)(6), the court generally may not

consider matters outside the complaint.60 However, documents that are integral to or

incorporated by reference in the complaint may be considered.61 “If . . . matters outside the

pleading are presented to and not excluded by the Court, the motion shall be treated as one for

summary judgment and disposed of as provided in Rule 56, and all parties shall be given

reasonable opportunity to present all material made pertinent to such a motion by Rule 56.”62

     B. Civil Rule 9(B) PLEADING FRAUD WITH PARTICULARITY

58
   See Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Holdings LLC, 227 A.3d 531, 536 (Del. 2011); Doe v.
Cedars Acad., 2010 WL 5825343, at *3 (Del. Super. Oct. 27, 2010).
59
   Ramunno v. Crawley, 705 A.2d 1029, 1034 (Del. 1998).
60
   Super. Ct. Civ. R. 12(b).
61
   In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 70 (Del. 1995).
62
   Super. Ct. Civ. R. 12(b).

                                                      13
          Under Civil Rule 9(b), a party must plead fraud and negligence with particularity.63 The

purpose of [Rule 9(b)] is to apprise the adversary of the acts or omissions by which it is alleged

that a duty has been violated.64 To plead fraud or negligence with the particularity required by

Rule 9(b), a party must include the “time, place, contents of the alleged fraud or negligence, as

well as the individual accused of committing the fraud” or negligence.65

     C. CIVIL RULE 12(B)(1) LACK OF SUBJECT MATTER JURISDICTION

          The Court will dismiss an action under Civil Rule 12(b)(1) if the record, which may

include evidence outside the pleadings, demonstrates that the Court does not have subject matter

jurisdiction over the plaintiff's claims.66 The plaintiff bears the burden of establishing subject

matter jurisdiction, and “where the plaintiff's jurisdictional allegations are challenged through the

introduction of material extrinsic to the pleadings, [the plaintiff] must support those allegations

with competent proof.”67

                                           V.       DISCUSSION

     A.      COUNTERCLAIM I

          Knight Enterprises alleges two theories of fraud in Count I of the Counterclaims. Seller

claims that: (i) Mr. Duran and Mr. Rogers, Mill Point representatives, made pre-contractual

misrepresentations about plans for the business to fraudulently induce Mr. Knight to sell the

company;68 (ii) Broadband made “promises of future performance” regarding payments “in the

Purchase Agreement without the present intention of performing them.”69

63
   Super. Ct. Civ. R. 9(b).
64
   Mancino v. Webb, 274 A.2d 711, 713 (Del. Super. 1971).
65
   See TrueBlue, Inc. v. Leeds Equity Partners IV, LP, 2015 WL 5968726, at *6 (Del. Super. Sept. 25, 2015)
(quoting Universal Cap. Mgmt., Inc. v. Micco World, Inc, 2012 WL 1313598, at *2 (Del. Super. Feb. 1, 2012).
66
   See, e.g., Pitts v. City of Wilm., 2009 WL 1204492, at *5 (Del. Ch. Apr. 27, 2009).
67
   Id.
68
   Am. Counterclaim ¶¶ 35-40. The Amended Counterclaim contains two separate paragraphs labeled 35, the
allegations are contained in the second paragraph labeled 35.
69
   Id. ¶ 36.

                                                       14
         Broadband argues that Counterclaim II should be dismissed for two reasons. “First,

[Knight Enterprises] fails to sufficiently plead the elements of fraud or plead them with the

requisite particularity as to both the pre-contractual statements and the promise to pay in the

Purchase Agreement.”70 “Second, [Knight Enterprises’] fraud claim based upon [Broadband’s]

promise to pay in the Purchase Agreement is entirely duplicative of, and indistinguishable from,

its claim for breach of contract.”71 Broadband also notes that the damages sought in

Counterclaim I are identical to those sought in Counterclaim II.72 Broadband contends that

Knight Enterprises fails to plead the elements of fraud with the requisite particularity because

Knight Enterprises fails to allege: (i) a false statement; and (ii) knowledge that Broadband knew

or believed that the representation was false.

         Knight Enterprises counters and argues that Counterclaim I pleads all elements of fraud

with sufficient particularity.73 In addition, Knight Enterprises submits that the details alleged are

sufficient to apprise the counterclaim-defendants of the basis for the fraud claim under Delaware

law.74

         To plead a claim of fraud, plaintiff must show:

         1) a false representation, usually one of fact . . .; 2) the defendant's knowledge or
         belief that the representation was false, or was made with reckless indifference to
         the truth; 3) an intent to induce the plaintiff to act or to refrain from acting; 4) the
         plaintiff's action or inaction taken in justifiable reliance upon the representation;
         and 5) damage to the plaintiff as a result of such reliance.75

70
   Mot. at 13.
71
   Id.
72
   Id.
73
   Opp. at 5.
74
   Id.
75
   Hauspie v. Stonington Partners, Inc., 945 A.2d 584, 586 (Del. 2008) (quoting Gaffin v. Teledyne, Inc., 611 A.2d
467, 472 (Del.1992)).

                                                        15
Under Civil Rule 9(b), a plaintiff must plead fraud and negligence with particularity.76 The

plaintiff must include the “time, place, contents of the alleged fraud or negligence, as well as the

individual accused of committing the fraud” or negligence.77 “Essentially, ... the plaintiff must

allege circumstances sufficient to fairly apprise the defendant of the basis for the claim.”78

        Fortis Advisors LLC v. Dialog Semiconductor PLC79 provides additional guidance when

a fraud claim is based on promises of future performance. The plaintiff in Fortis alleged that

unidentified employees of the defendant made four materially false statements during the parties

3.5-month negotiation period which induced the plaintiff to enter into an agreement.80

Specifically, the plaintiff contended that the defendant made four materially false statements

during the negotiations: (i) defendant would keep the existing sales force; (ii) only reduce the

sales force if defendant’s sales force could service existing customers; (iii) increase investments,

add new products to accelerate growth; and (iv) use defendant’s existing relationships to increase

sales after the acquisition.81 The plaintiff then contended that the defendant “had no intention to

keep those promises a the time they were made” and, as evidence, pointed to the fact that the

defendant reduced staffing and support for existing products once the transaction closed.82

        In dismissing the fraud claim, the Court of Chancery opined that alleging

misrepresentations were made during negotiations without specificity “is the functional

equivalent to providing no time parameter at all because the misrepresentations logically could

not have occurred during any other period of time[,]” leaving defendant “to guess when

76
   Super. Ct. Civ. R. 9(b).
77
   See TrueBlue, Inc. v. Leeds Equity Partners IV, LP, 2015 WL 5968726, at *6 (Del. Super. Sept. 25, 2015)
(quoting Universal Cap. Mgmt., Inc. v. Micco World, Inc., 2012 WL 1413598, at *2 (Del. Super. Feb. 1, 2012)).
78
   H–M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 145 (Del. Ch. 2003).
79
   2015 WL 401371, at *8 (Del. Ch. Jan. 30, 2015).
80
   Id. at *6.
81
   Id.
82
   Id.

                                                       16
[plaintiff] contends that it allegedly made any of the four false statements attributed to it.”83

When the alleged misrepresentations were for future performance, the Court of Chancery

explains that:

        Pleading when the alleged misrepresentations occurred is especially important
        where, as here, the alleged promises are of future performance. When a fraud claim
        is premised on promises of future performance, a plaintiff must demonstrate that
        the defendant had no intention of keeping its promises at the time they were made.
        To defend against such assertions, a defendant logically must be apprised when the
        alleged statements were made in order to counter the assertion that it did not intend
        to keep its promise at that time.84

To survive dismissal, the Court of Chancery held that there must be meaningful allegations

regarding the representations, and where, when or by what means the representations were

made.85

        The main difference between Fortis and the present case is that in Fortis there was a

failure to identify who specifically was alleged to have made the misrepresentation. Knight

Enterprises have alleged that Mr. Duran and Mr. Rogers made the misrepresentations. Despite

knowing who made the alleged misrepresentations, Knight Enterprises fails to provide specific

timeframes. In addition, Knight Enterprises does not allege where or by what means the alleged

misrepresentations occurred. As discussed below, given the absence of these facts taken

together, Knight Enterprises does not allege circumstances sufficient to apprise Broadband of the

basis of the claim.86 Accordingly, the Court will grant the Motion as to Counterclaim I.

83
   Id. at *7.
84
   Id.
85
   Id. at *7-8.
86
   See H–M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 145 (Del. Ch. 2003).

                                                      17
         i.      Knight Enterprises does not allege an actionable false representation of existing
                 fact.

         With respect to the pre-contractual representations, Broadband contends that the

Counterclaim I’s allegations “consist of a handful of generic statements about Mill Point’s

qualifications and plans for the business if it were to be acquired.”87 Broadband argues that even

accepting the allegations as true, “none of these statements are false statements of existing fact, .

. . [i]nstead, they are forward-looking statements about general post-acquisition plans and

aspirations. . .”88 Broadband contends that forward-looking statements do not constitute fraud

under Delaware law absent factual allegations that they were knowingly false or made in bad

faith and Knight Enterprises does not adequately plead either situation.89 “The only allegations

in the Amended Counterclaim to suggest that Mill Point knew the representations were false

when made are entirely conclusory and, even then, cite only to post-closing events.”90

         Knight Enterprises provides that the alleged representations made were not aspirational

but instead were “a promise to a partner with existing management where the names and

identities of management personnel are known and identified and carried over, but then

intentionally driven out.”91 Further, Knight Enterprises argues that “[t]here is nothing

aspirational about an affirmative statement to utilize Mr. Knight as a consultant in acquisition

deals.”92

         The first element of fraud, a “false representation” can take several forms, including: an

“overt misrepresentation (i.e., a lie), a deliberate concealment of material facts, or . . . silence in

87
   Mot. at 15.
88
   Id.
89
   Id. at 16.
90
   Id.
91
   Opp. at 7.
92
   Id.

                                                   18
the face of a duty to speak.”93 Knight Enterprises alleges overt misrepresentations. The pre-

contractual statements in dispute are as follows:

        •    Mr. Duran allegedly represented to Mr. Knight that “Mill Point was a private
             equity firm that engaged executive partners with deep industry expertise to
             provide additive value to targeted investments while partnering with the
             existing management team.”94

        •    Mr. Duran allegedly represented that “key management of the company would
             stay in place [post-acquisition] and the executive partners would build upon the
             legacy of Knight Enterprises by leveraging industry relationships and adding
             managerial expertise.”95

        •    Mr. Duran allegedly represented that “Mill Point’s financial backing would
             allow it to use Knight Enterprises as a platform company into which it would
             consolidate multiple contemplated acquisitions and that Knight would remain
             as a consultant for the purpose of assisting in these acquisitions, earning
             substantial additional revenue for doing so.”96

        •    Mr. Duran and Mr. Rogers allegedly told Mr. Knight “that Mill Point intended
             to grow the business by performing targeted acquisitions, that [Mr.] Knight
             would assist in these acquisitions, and that he would continue to earn substantial
             revenue for doing so.”97

        •    Mr. Rogers and Mr. Duran also allegedly told Mr. Knight that he would receive
             stock in Full Circle Fiber, which would substantially increase in value as Mill
             Point completed targeted acquisitions, and that he would receive $5 million in
             earn out payments for 2020 and 2021.98

The Court will look to Knight Enterprises’ actual allegations made in support of Counterclaim I.

Knight Enterprises states that paragraphs 8, 10, 13, and 14 support Counterclaim I. These

allegations are:

93
   Maverick Therapeutics, Inc. v. Harpoon Therapeutics, Inc., 2020 WL 1655948, at *26 (Del. Ch. Apr. 3, 2020).
94
   Am. Counterclaim ¶ 5. “[A] company's optimistic statements praising its own ‘skills, experience, and resources’
are ‘mere puffery and cannot form the basis for a fraud claim.’” Airborne Health, Inc. v. Squid Soap, LP, 2010 WL
2836391, at *8 (Del. Ch. July 20, 2010) (citing cases where courts found representations of expertise and unique
resources to be mere non-actionable puffery). The alleged statements in this paragraph are the kind of “vague
statements that a commercial party routinely makes during a deal-making courtship.” Id. Therefore, the alleged
statements about Mill Point’s experience are not actionable.
95
   Am. Counterclaim ¶ 6.
96
   Id. ¶ 7.
97
   Id. ¶ 9.
98
   Id. ¶ 10.

                                                        19
         8. Duran knew these representations to be false at the time they were made, because
         Mill Point never intended to carry out any targeted acquisitions or to allow Knight
         to have any meaningful involvement in the company after the sale.

         10. . . . However at the time these statements were made, Rogers, Duran and Mill
         Point had no intention of ever following through on their assurances to Knight.
         There were never going to be any targeted acquisitions, no increasing stock value,
         and no earn out payments.

         13. At the time Duran and Rogers caused Mill Point and Knight Broadband to enter
         into the Purchase Agreement, Mill Point and Knight Broadband had no intention of
         ever making any earn out payments and instead intended to acquire Knight
         Enterprises by leveraging its own assets and not paying Knight Enterprises any
         more monies. In addition, Mill Point and Knight Broadband intended to defraud
         Knight Enterprises out of its working capital and those portions of the sales
         proceeds that were held back for escrows.

         14. Immediately after the closing of this transaction, Knight Broadband refused to
         acquire Kablelink, making clear that it had no intention of acquiring the targeted
         companies. In addition, it had no intention of consulting with Mr. Knight for the
         purpose of pursuing acquisitions and frustrated all efforts to do so. Finally, in
         addition to pushing out the existing management Knight Broadband demonstrated
         that it had every intention to cheat Knight out of the sales proceeds that were
         promised for the Business.99

         “Statements of opinion and predictions about the future usually are not actionable as

fraud under Delaware law.”100 This is particularly “true in the context of statements regarding

management’s expectations for a company’s future performance.”101 However, “a promise of

future conduct can be actionable in fraud” if the plaintiff “plead[s] specific facts that lead to a

reasonable inference that the promisor had no intention of performing at the time the promise

was made.”102 “Forward-looking statements of opinion are actionable as fraudulent only if they

were known to be false when made or were made with a lack of good faith.”103

99
   Id. ¶¶ 8, 10, 13, 14.
100
    Mooney v. E.I. du Pont de Nemours and Co., 2017 WL 5713308, at *6 (Del. Super. Nov. 28, 2017) (citing
Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168, 209 (Del. Ch. 2006)).
101
    Id.
102
    See Edinburgh Holdings, Inc. v. Educ. Affiliates, Inc., 2018 WL 2727542, at *12 (Del. Ch. June 6, 2018) (internal
quotation marks and emphasis omitted).
103
    Mooney v. E.I. du Pont de Nemours and Co., 2017 WL 5713308, at *6 (Del. Super. Nov. 28, 2017)

                                                         20
           Here, the Court finds that Knight Enterprises has failed to allege specific facts that make

the allegations actionable. Knight Enterprises relies upon Paragraph 8 to stand as factual support

for what happens in Paragraphs 10, 13 and 14. However, Knight Enterprises does not

sufficiently plead contemporaneous facts supporting an inference that Mr. Duran or Mr. Rogers

knew their statements were false when made or lacked a good faith belief in their truth. Rather,

Knight Enterprises cites to events arising after the statements were made. Specifically, Knight

Enterprises argues the subsequent failure to acquire Kablelink, consult with Mr. Knight post-

acquisition, and “pushing out the existing management” is proof that Mr. Duran and Mr. Rogers

earlier statements were false. However, these allegations fail to demonstrate that Mill Point

representatives had no intention to follow through with the pre-acquisition representations when

they were made.

           Knight Enterprises arguments are made entirely of conclusory statements and circular

arguments which cite only to post-acquisition events. For instance, Knight Enterprises contends

that Mr. Duran and Mr. Rogers allegedly told Mr. Knight “that Mill Point intended to grow the

business by performing targeted acquisitions, that [Mr.] Knight would assist in these

acquisitions, and that he would continue to earn substantial revenue for doing so.”104 However

these statements were purportedly false because “. . . at the time these statements were made,

Rogers, Duran and Mill Point had no intention of ever following through on their assurances to

Knight. There were never going to be any targeted acquisitions, no increasing stock value, and

no earn out payments.”105 Knight Enterprises cannot allege that Mr. Rogers and Mr. Duran

fraudulently misrepresented Mill Point’s plans regarding acquisitions and Mr. Knights role by

104
      Am. Counterclaim ¶ 9.
105
      Id. ¶ 10.

                                                    21
arguing that the statements were false without any facts that the statements were knowingly false

when made or were made in bad faith.

        ii.      Time, Place, Contents

        Even if the Court were to find that Knight Enterprises alleged actionable false

representations of existing fact, the Court also finds that Counterclaim I fails to satisfy the

heightened pleading requirements of Civil Rule 9(b).

        Broadband argues that the alleged pre-contractual statements at issue are not actionable

because Counterclaim I does not allege the date or time of the alleged misrepresentations,106 or

how or where the statements were made.107 Broadband, therefore, contends that even if the

Court were to find that the alleged statements are actionable, they still fail because they are not

pled with particularity as to time, place, and contents.108

        Knight Enterprises states that “a failure to describe exactly where (business office, city

park, etc.) a conversation occurred and how (via phone, in person) a conversation occurred does

not in and of itself warrant dismissal unless the failure to provide these details is combined with

a failure to state who made the representations and when they were made[.]”109 More

specifically, Knight Enterprises argues that Counterclaim I identifies the persons making the

false representations as Mr. Duran and Mr. Rogers and alleges the dates of the

misrepresentations to be between December 2019 and March 2020.110 Knight Enterprises argues

these details are more than sufficient to put Broadband on notice of the circumstances of the

alleged fraud and the basis.

106
    Noting that Sellers refer to a four-month period before the Purchase Agreement was signed.
107
    Mot. at 18.
108
    See Reply at 6-7.
109
    Opp. at 8.
110
    Id. (citing Am. Counterclaim ¶¶ 5-7, 9).

                                                        22
        The plaintiff must include the “time, place, contents of the alleged fraud or negligence, as

well as the individual accused of committing the fraud” or negligence.111 “Essentially, ... the

plaintiff must allege circumstances sufficient to apprise the defendant of the basis of the

claim.”112 Otherwise, the fraud claim fails to rely on any meaningful allegations as to when the

alleged misrepresentations were made and their impact. 113

        Despite knowing who made the alleged misrepresentations, Knight Enterprises fails to

provide specific timeframes. In addition, Knight Enterprises does not allege where or by what

means the alleged misrepresentations occurred. Given the absence of these facts taken together,

Knight Enterprises does not allege circumstances sufficient to apprise Broadband of the basis of

the claim.114

        iii.     Knowledge

        Broadband argues that Knight Enterprises fails to allege knowledge because the

“Amended Counterclaim is devoid of any contemporaneous factual allegations that Mill Point or

Buyer knew that the alleged statements at issue were false at the time they were made.”115

Further, Broadband claims that “[a]lthough knowledge and intent may typically be averred

generally under Rule 9(b), that is not the case where, as here, a fraud claim is based upon

promises of future intent.”116

        Knight Enterprises argues that the other elements of fraud are sufficiently pled because

Mr. Duran and Mr. Rogers knew the representations were false when made.117 Knight

111
    See TrueBlue, Inc. v. Leeds Equity Partners IV, LP, 2015 WL 5968726, at *6 (Del. Super. Sept. 25, 2015)
(quoting Universal Capital Mgmt., Inc. v. Micco World, Inc., 2012 WL 1413598, at *2 (Del. Super. Feb. 1, 2012)).
112
    H–M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 145 (Del. Ch. 2003).
113
    Fortis, 2015 WL 401371, at *7.
114
    See H–M Wexford LLC, 832 A.2d at 145.
115
    Mot. at 20-21.
116
    Reply at 9.
117
    Opp. at 9.

                                                       23
Enterprises relies on the caselaw finding that “‘state of mind’ including knowledge and intent,

‘may be averred generally’” and the pleader “need only point to factual allegations making it

reasonably conceivable that” the party charged with fraud “knew the statement was false.”118

Knight Enterprises argues that it is reasonably conceivable that Mr. Rogers and Mr. Duran knew

their statements were false when made and the Amended Counterclaim alleges multiple factual

allegations to demonstrate this point.119 To demonstrate knowledge, Knight Enterprises notes

that Mill Point, immediately after closing, refused to acquire another company “Kablelink”

which “is evidence that Mill Point never intended to carry out the targeted acquisitions.”120

Knight Enterprises also claims that Mill Point “‘decimated the ranks of existing management,’

created a hostile work environment, forced managers to take pay cuts while bringing on new

senior personnel, and forced ‘the CEO, COO, CFO, regional managers, corporate personnel, and

others to leave the company’ because Mill Point never intended to keep the existing management

team in place.”121

         Knight Enterprises argues that intent to induce, or state of mind, may be averred

generally. Knight Enterprises aver that “the fraudulent inducement was monetarily driven” and

was “to induce Buyer to enter into a business deal that would deprive it of the full value he

bargained for and to swingle it out of its successful business.”122 Knight Enterprises argue that

the other elements of fraud, justifiable reliance and damages exist here.123

118
    Id. (citing Prairie Capital III, L.P. v. Double E Holding Corp., 132 A.3d 35, 62 (Del. Ch. 2015)).
119
    Id. The factual allegations Seller argues supports this contention are contained in paragraphs 8, 10, and 13. Am.
Counterclaim ¶¶ 8, 10, 13.
120
    Opp. at 10.
121
    Id. (citing Am. Counterclaim ¶ 27).
122
    Id. at 11.
123
    Id.

                                                          24
        “Malice, intent, knowledge and other condition of mind of a person may be averred

generally.”124 “At the motion to dismiss stage, a plaintiff ‘need only point to factual allegations

making it reasonably conceivable that the defendants charged with fraud knew the statement was

false.’”125 Essentially, the plaintiff must allege fraud “with detail sufficient to apprise the

defendant of the basis for the claim.”126

        The Court finds that Knight Enterprises’ pleading lacks the specific factual allegations

required to support a reasonable inference that Mr. Duran and Mr. Rogers never intended to

comply with their alleged promises and that, in fact, their statements were a lie when made.127

The allegations supporting the assertions in the Amended Counterclaim are conclusory. For

example: “Duran knew these representations to be false at the time they were made, because Mill

Point never intended to carry out any targeted acquisitions to or allow Knight to have any

meaningful involvement in the company after the sale.”128 As noted in Fortis, when the

allegations involve future performance, Knight Enterprises needs to be more factual specific as

to its allegations regarding fraud.

        iv.      Bootstrapping Doctrine

        Broadband argues that “to the extent the fraud claim is based on [Buyer’s] alleged failure

to perform its obligations under the Purchase Agreement, it is duplicative of, and subsumed by,

its contract claim.”129 Specifically, Broadband contends that “Seller attempts to bootstrap the

fraud claim onto the contract claim by alleging that Mill Point had ‘no intention of ever making

124
    Super. Ct. Civ. R. 9(b).
125
    In re Bracket Holding Corp. Litigation, 2017 WL 3283169, at *10 (Del. Super. Jul. 31, 2017) (citing Prairie
Capital III, L.P. v. Double E Holding Corp., 132 A.3d 35, 61 (Del. Ch. 2015)).
126
    Abry Partners V., L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1050 (Del. Ch. 2006).
127
    See CSH Theatres, LLC v. Nederlander of San Francisco Assocs., 2015 WL 1839684, at *22 (Del. Ch. Apr. 21,
2015).
128
    Am. Counterclaim ¶ 8.
129
    Mot. at 21.

                                                       25
any earn out payments and instead intended to acquire Knight Enterprises by leveraging its own

assets and not paying Enterprises any more monies [than the cash at closing].’”130 Broadband

states that this allegation is insufficient to convert a breach of contract claim into a fraud claim

because it merely asserts the same facts and seeks the same damages.131

        Knight Enterprises argues that the breach of contract claim is entirely separate from the

fraud claim and “such claims do not seek the same damages just because Counterclaim I states

that the amount of damages for each cause of action should be determined at trial.”132 Knight

Enterprises contends that the damages are not identical but instead have yet to be determined.

        Knight Enterprises argues that “[t]he fraud that occurred prior to entering into the

agreement (false statements to induct Knight Enterprises to sell) is entirely separate from the

fraud that occurred in connection with the breach of contract claim (falsification of financial

documents in relation to payouts under the Purchase Agreement), and the resulting damages are

not the same.”133 To demonstrate this, Knight Enterprises argues that “damages under the fraud

claim involve losses related to the consulting services and value of the stock, whereas losses

under the breach of contract action involve the Contingent Consideration Tranche 1 payment and

Escrow money.”134

        Delaware courts have consistently held that to successfully plead a fraud claim, the

allegedly defrauded plaintiff must have sustained damages as a result of a defendant's action.135

The damages allegations, however, may not simply rehash the damages allegedly caused by

130
    Id. at 21-22 (citing Am. Counterclaim ¶ 13).
131
    Id. at 23-24.
132
    Opp. at 12.
133
    Id.
134
    Id.
135
    Novipax Holdings LLC v. Sealed Air Corp., 2017 WL 5713307, at *14 (Del. Super. Nov. 28, 2017) (citing ITW
Glob. Invest. Inc. v. Am. Indus. Partners Cap. Fund IV, L.P., 2015 WL 3970908, at *5 (Del. Super. June 24, 2015)).

                                                       26
breach of contract.136 Moreover, plaintiff cannot “bootstrap a claim of breach of contract into a

claim for fraud by alleging that a contracting party never intended to perform its obligations.”137

In other words, plaintiff cannot adequately state a fraud claim merely by adding the term

“fraudulently induced” to a claim for breach of contract.138

           The Court finds that Counterclaim I is not a contract claim “disguised” as a fraud claim.

Counterclaim I seeks recovery based on alleged misrepresentations relating to future earnings for

work in connection with additional acquisitions and stock in Full Circle Fiber, and enticing Mr.

Knight into selling due to these misrepresentations. Counterclaim I, therefore, is not duplicative

of, and subsumed by a contract claim. The problem with Counterclaim I is not bootstrapping but

whether Counterclaim I is a viable fraud claim and was it sufficiently pled.

      B.      COUNTERCLAIM II

           Broadband argues that the “Seller’s breach of contract claim fails to the extent it is based

on a purported breach of the earn-out or working capital provisions because the court lacks

jurisdiction to decide those issues.”139 Broadband relies upon the Purchase Agreement and notes

that the parties unambiguously agreed in the Purchase Agreement that an independent third-party

Accounting Expert would resolve disputes relating to earn-out/contingent consideration and

working capital issues and Seller’s claim for breach of contract based on disputes relating to

those issues must be dismissed for lack of jurisdiction.140

           Knight Enterprises argues that the breach of contract claim is beyond the scope of the

Accounting Expert’s authority.141 Knight Enterprises contends that Counterclaim II does not

136
    Id.
137
    Id. (quoting Narrowstep, Inc. v. Onstream Media Corp., 2010 WL 5422405, at *15 (Del. Ch. Dec. 22, 2010)).
138
    Novipax Hldg., 2017 WL 5713307, at *14.
139
    Mot. at 24.
140
    Id.
141
    Opp. at 13.

                                                       27
turn on a dispute over computations, but rather a failure to comply with contractual obligations.

Knight Enterprises argues that a designated expert, such as the Accounting Expert in this case, is

not an arbitrator, and therefore does not have the authority to resolve legal disputes.142 Knight

Enterprises contends that the breach of contract disputes are legal in nature:

        Seller’s Amended Counterclaim alleges that when Buyer failed to provide the
        Contingent Consideration Calculation Statement by required deadline, the full
        Tranche 1 payment became due and payable at that time, so Buyer breached when
        it failed to make the payment as required. This is not a computation issue for the
        Accounting Expert to decide, but one of contractual interpretation for the Court.
        Similarly, Buyer breached its obligations under the working capital provisions
        when it intentionally provided false and fraudulent and false financial statements in
        bad faith, and then refused to provide Seller access to Buyer’s financials as it is
        required to do under the Purchase Agreement.143

        Purchase Agreement Section 1.05(c) details the process by which the parties were to

determine whether the earn-out targets for a particular period had been met and what the

resulting earn-out compensation would be.144 The first sentence of Section 1.05(c)(1) states:

        Within thirty (30) days following the end of the First Calculation Period and the
        Section Calculation Period, as applicable, Buyer shall prepare in good faith and
        deliver to the Seller a written statement (each, a “Contingent Consideration
        Calculation Statement”) setting forth in reasonable detail its determination of
        EBITDA for the applicable Contingent Consideration Measurement Period and its
        calculation of the resulting Contingent Consideration Payment for such Contingent
        Consideration Measurement Period (the “Contingent Consideration
        Calculation”), together with the financial statements and notes thereto, if
        appliable. 145

        After the Contingent Consideration Calculation Statement is prepared and delivered to

Knight Enterprises a series of steps occur which includes Knight Enterprises having the

opportunity to inspect Broadband’s books and records, and then if Knight Enterprises has any

142
    Id.
143
    Id. at 14.
144
    Purchase Agreement § 1.05(c).
145
    Purchase Agreement § 1.05(c)(i).

                                                 28
objections, delivering a written objection notice.146 If the parties are unable to agree on their

dispute within 30 days after Knight Enterprises delivers its objection notice, “all unresolved

disputed items shall be promptly referred to the Accounting Expert147 for resolution in

accordance with the dispute mechanics set forth in Section 1.06(d).”148

         Section 1.06(d)(ii) details who the Accounting Expert shall be and provides in part:
         (ii) During the thirty (30) day period following delivery of a Notice of
         Disagreement by Seller to Buyer (the “Resolution Period”), such parties in good
         faith shall seek to resolve in writing any differences that they may have with respect
         to the computation of the amounts as specified therein. . . . If Seller and Buyer have
         not resolved all such differences by the end of the Resolution Period, Seller and
         Buyer shall submit, in writing, such differences to the Accounting Expert. The
         “Accounting Expert” shall be Grant Thornton LLP, who is an expert in accounting
         for businesses that are similar to the Business and not an arbitrator[.] . . .149

Purchase Agreement Section 1.06(d)(iii) goes on to describe the process by which the

Accounting Expert will resolve disputes. At the end of the process “[t]he Accounting Expert

shall make a written determination within sixty (60) days of its appointment as to each such

disputed item, which determination shall be final and binding on the parties for all purposes

hereunder absent manifest error.” 150

         This Court and the Court of Chancery have discussed the matter of an Accounting

Expert’s role at length in a series of recent cases.151 The Court of Chancery has found that an

146
    See id.
147
    The “Accounting Expert” is defined in Section 1.06(d) as Grant Thornton LLP or, in the event not available or
not a Neutral Accounting Firm, a Neutral Accounting Firm selected by mutual agreement of Buyer and Seller,
subject to certain exceptions. A Neutral Accounting Firm is defined, in turn, as an “independent accounting firm of
nationally recognized standing that is not at the time it is to be engaged hereunder rendering services to any party, or
any Affiliate of either, and has not done so within the three (3) year-period prior thereto.” (Purchase Agreement §
1.06(d)(ii)).
148
    Mot. at 5 (citing Purchase Agreement § 1.05(c)).
149
    Purchase Agreement § 1.06(d)(ii).
150
    Id. (emphasis added).
151
    See LDC Parent, LLC v. Essential Utilities, Inc., 2021 WL 1884847 (Del. Super. Apr. 28, 2021); Stone v.
Nationstar Mort. LLC, 2020 WL 4037337 (Del. Ch. July 6, 2020); Ray Beyond Corp. v. Trimaran Fund Mgmt,
L.L.C., 2019 WL 366614 (Del. Ch. Jan. 29, 2019). See also Chicago Bridge & Iron Co. N.V. v. Westinghouse Elec.
Co. LLC, 166 A.3d 912 (Del. 2017) (discussing the role of an independent auditor as an expert and not an arbitrator
when the scope of the review was limited to a discrete set of issues).

                                                          29
Independent Accountant is an expert and not an arbitrator even when the language of the

Purchase Agreement does not expressly state so.152 Here, the Purchase Agreement makes clear

that the Accounting Expert is not an arbitrator. 153

         The Accounting Expert’s role is limited to resolving disputes once they are submitted

using the processes detailed in Purchase Agreement Section 1.06(d). The Accounting Expert is

not a mediator or arbitrator divesting this Court of jurisdiction.154 Although the parties could

give an expert the authority to interpret the contract, they did not here, and instead the Court

must interpret the contract.

         When an Accounting Expert is an expert and not an arbitrator the Court of Chancery has

provided guidance noting that:

         There is no general principle either that the expert always has exclusive jurisdiction
         to decide the meaning of the terms of the contract, or that the expert never has
         exclusive jurisdiction to do so. Rather, in each case it is necessary to examine the
         contract itself in order to decide what the parties intended should be a matter for
         the exclusive decision of the expert.155

         The Amended Counterclaim alleges that “Knight Broadband did not furnish a Contingent

Consideration Calculation Statement on or before January 30, 2021.”156 As such “[i]n mid-

February of 2021, Knight Enterprises advised Knight Broadband that it deemed the full amount

due and would expect payment in accordance with the timelines provided in the Purchase

Agreement.”157 Knight Enterprises’ claim as it relates to earn-out provisions is that Broadband

152
    Stone v. Nationstar Mort. LLC, 2020 WL 4037337, *8 (Del. Ch. July 6, 2020).
153
    Purchase Agreement § 1.06(d)(ii).
154
    See Ray Beyond Corp. 2019 WL 366614, at *16-17 (“Expert determination and arbitration provisions confer
fundamentally different scopes of authority to third-party decision makers. A typical expert determination provision
limits the decision maker’s authority to deciding a specific factual dispute within the decision maker’s expertise. In
contrast, the scope of authority conferred on an arbitrator is analogous to the authority conferred on a judicial
officer.”).
155
    Penton Bus. Media Holdings LLC v. Informa PLC, 252 A.3d 445, 465 (Del. Ch. 2018) (quotations omitted).
156
    Am. Counterclaim ¶ 21.
157
    Id. ¶ 22.

                                                          30
never began the process to engage the Accounting Expert in a dispute resolution calculation.

Based on the pleadings and the Purchase Agreement, the Court finds that Knight Enterprises’

raises an issue of law and not a computation.

        The analysis is less clear for the working capital provisions. In Knight Enterprises’

Opposition, it argues that as with the earn-out claims, the claims regarding breach of working

capital provisions also fall outside the scope of the Accounting Expert’s authority.158 To support

this, Seller’s point to Amended Counterclaim paragraphs 15 through 18 which state in part:

        . . . 50 days after the Closing Date, Buyer was to prepare and furnish to [Seller] a
        good-faith calculation of the actual working capital delivered for purposes of
        adjusting any differences in the working capital and, if necessary, remitting the
        excess working capital to Seller.159

Knight Enterprises then contends that Broadband submitted financial statements that were false

and fraudulent which forced Knight Enterprises to hire lawyers and accountants to dispute those

claims.160

        Unlike the earn-out provisions, the Court finds that the claims related to the working

capital payments seem to be entirely premised on the argument that Broadband submitted a false

and fraudulent Closing Statement, not that Broadband failed to submit documents as required by

the Purchase Agreement. Knight Enterprises’ claim as it relates to working payment seems to be

entirely premised on an accounting issue (the correctness of numbers) and it is unclear how that

dispute implicates an issue of law for the Court to determine.

        The Court therefore denies the Motion as it relates to Counterclaim II to the extent that

claim is based on the purchase price/contingent consideration and grants the Motion as it relates

158
    Opp. at 16.
159
    Am. Counterclaim ¶ 15.
160
    Id. ¶ 16-18.

                                                 31
to Counterclaim II to the extent that claim is based on the working capital provision of the

Purchase Agreement.

                                     VI.    CONCLUSION

       For the reasons stated above, the Court GRANTS the Motion as to Counterclaim I. In

addition, the Court DENIES, in part, and GRANTS, in part, the Motion as to Counterclaim II.

June 2, 2022
Wilmington, Delaware

                                                     /s/ Eric M. Davis
                                                     Eric M. Davis, Judge

cc: File&ServeXpress

                                                32