MEGHAN A. ADAMS, JUDGE

Submitted: June 30, 2023

Upon Defendants' Motion to Dismiss: DENIED in part and GRANTED in part.

David E. Ross, Esquire, Adam D. Gold, Esquire, and A. Gage Whirley, Esquire, of ROSS ARONSTAM &MORITZ, LLP, Wilmington, Delaware, and Mark W. Premo-Hopkins, Esquire (Argued), and Katie Lencioni, Esquire, of KIRKLAND & ELLIS, LLP, Chicago, Illinois, Attorneys for Plaintiff.

Henry E. Gallagher, Jr., Esquire, Lauren DeLuca, Esquire, and Jarrett W. Horowitz, Esquire, of CONNOLLY GALLAGHER, LLP, Wilmington, Delaware, and Lazar P. Raynal, Esquire (Argued), Melanie Burke, Esquire, and Tatum Ellis, Esquire, of KING & SPALDING, LLP, Chicago, Illinois, Attorneys for Defendant.

MEMORANDUM OPINION

MEGHAN A. ADAMS, JUDGE

INTRODUCTION

Pending before the Court is Defendant Jeffrey Powell's ("Powell") Motion to Dismiss Plaintiff Adviser Investments, LLC's ("Adviser") Complaint. This action, and its companion action pending in the Superior Court of Delaware's Complex Commercial Litigation Division, arise out of Adviser's acquisition of Polaris Wealth Advisory Group, LLC ("Polaris") for nearly $100 million in cash and equity. Adviser and Powell advance two very different versions of the events leading up to, and after, the closing of the transaction.

Adviser alleges in its Complaint in the Court of Chancery that Powell, Polaris's founder, former managing partner and chief investment officer, knowingly sold Adviser a risk-laden company that it would never have purchased but for Powell's fraudulent conduct. Adviser brings claims for fraud, breach of contract, unjust enrichment, tortious interference with contractual relations, and attorneys' fees and investigative costs.

Powell argues all of Adviser's claims should be dismissed for failure to state a claim pursuant to Court of Chancery Rules 9(b) and 12(b)(6). Adviser's fraud claims turn on whether the Securities Purchase Agreement ("SPA") unambiguously bars claims based on extra-contractual statements. The Court finds that the SPA does not, and that Adviser meets the pleading standard for fraud. The remainder of Adviser's claims, except for its claim for tortious interference with contractual relations, also survive considering the plaintiff-friendly pleading standards on a motion to dismiss.

FACTS ^{[ ]}

A. Background

Powell created Polaris in 1998 to provide wealth management services to individual investors. Powell also founded Polaris Equity Management ("PEM"), a separate investment firm providing a variety of portfolio management services.PEM's assets were invested exclusively within Polaris NMX Fund, LLC ("NMX Fund"). "NMX Fund was created for the singular purpose of purchasing a minority interest (or up to 40%) of Preferred A Shares in NovaMetallix, Inc. [], a mine tailing company that promised investors billions in recoverable precious and base metals."Powell registered PEM with the Securities and Exchange Commission as a "related advisor" to Polaris, and allegedly held both firms out as "one and the same."

Adviser is a wealth management company headquartered in Newton, Massachusetts. Advisor and Powell began negotiations regarding the potential purchase of Polaris in late 2021. Following months of due diligence and negotiations, Advisor purchased Polaris in 2022 for $97,672,387.88.

B. The Parties' Negotiation and Execution of the SPA

Shortly before closing, Powell discovered that a Polaris employee, Brandon Berman ("Berman"), attempted to steal 35 clients, proprietary information, and data on more than 150 company contacts from Polaris. Powell alerted Adviser of the issue and both parties "worked together" to file two actions against Berman (the "Berman Actions").

On April 6, 2022, the parties executed the SPA. Advisor alleges that "[d]uring negotiations and the interim period, unbeknownst to Adviser, Powell defrauded clients and concealed material information regarding PEM and the NMX Fund; made multiple misrepresentations regarding the Company; and breached interim covenants, closing conditions, and other provisions in the SPA."

Relevant to this dispute, the SPA included several protective terms, including a guarantee by Powell that he "complied with all legal requirements;" that "no Polaris employees were infringing on the company's intellectual property or violating their employment agreements;" and that Powell would maintain the business between the SPA's execution and closing and provide accurate financial information through closing.

The SPA also included three clauses that Powell argues bar all fraud claims: Section 1.1 ("Purchase and Sale"), Section 2.22 ("Exclusivity of Representations and Warranties"), and Section 11.7 ("Entire Agreement") at the center of this decision.

After closing in May 2022, Adviser alleges that it discovered Polaris was only worth a fraction of the price for which it paid. Adviser also discovered that Powell concealed from Adviser "critical contemporaneous information" regarding the NMX Fund and PEM during negotiations, which Adviser alleges influenced its decision to purchase Polaris. In August 2022, following Adviser's investigation into Powell's representations and inquiries regarding Powell from the NMX Fund investors, Adviser placed Powell on administrative leave. Adviser also withheld $30 million from the closing proceeds payable to Powell. Adviser subsequently terminated Powell.

In its complaint, Adviser alleges Powell committed fraud in the following ways:

• Powell did not disclose his "investment scam" with the NMX Fund, including his false promises of a twentyfold return;

• Powell did not disclose that he gave over $4 million in client funds to a company run by "known fraudsters;"

• Powell did not disclose that the NMX Fund's audit and valuation firms were raising serious issues and refusing to work;

• Powell did not disclose that PEM, the NMX Fund, and Polaris were intertwined;

• Powell misrepresented that Polaris' business was strong, despite knowing that Polaris' profits were plummeting;

• Powell called the Schwab partnership a "golden goose" for the business, while knowing the transition from TD Ameritrade to Schwab would severely limit Polaris' ability to source business from the referral network;

• Powell misrepresented that the NMX Fund and PEM were an entirely "separate side business," when they were actually commingled with Polaris;

• Powell represented falsely that the NMX Fund made in-kind distributions to its investors;

• Powell withheld any information that could reveal his "investment scam" with the NMX Fund; and

• Powell suppressed information and gave incomplete financial data to hide Polaris' negative performance.

Along with its fraud claims, Adviser alleges Powell breached the SPA in the following ways:

• breaches of interim covenants: Section 5.2(a)(iii) and (iv) ("Conduct of Business), Section 5.4 ("Stub Period Financial Statements"), and Section 5.13 ("Notification of Certain Matters");

• breaches of representations and warranties: Section 2.5(a) (regarding financial statements), Section 2.6 (absence of certain changes), Section 2.9(a) (regarding compliance with Legal Requirements), and Sections 2.10(c) and 2.11(e) (relating primarily to the Berman Actions); and

• breach of Section 8.1 regarding failure to satisfy closing conditions.

PROCEDURAL HISTORY

Powell filed a Complaint in the Superior Court of Delaware on December 9, 2022, captioned Jeffrey Powell v. Adviser Investments, LLC et al., C. A. No. N22C-12-096 AML (CCLD) ("Superior Court Action") based on Adviser's alleged violations of the SPA and Powell's employment agreement. On December 13, 2022, Adviser filed a Complaint in the Court of Chancery captioned Adviser Investments, LLC v. Jeffrey Powell, C. A. No. 2022-1149-PAF ("Court of Chancery Action") for fraud, breach of contract, unjust enrichment, and tortious interference with contract.

On February 2, 2023, Chief Justice Seitz designated former Judge Abigail M. LeGrow to sit as Vice Chancellor on the Court of Chancery to hear and decide all issues in the Court of Chancery Action. On February 17, 2023, Powell moved to dismiss Adviser's complaint (the "Motion to Dismiss"). After Justice LeGrow's elevation to the Supreme Court of Delaware, Chief Justice Seitz designated the undersigned to sit as a Vice Chancellor on the Court of Chancery to hear and decide all issues in the Court of Chancery Action. The parties completed briefing on the Motion to Dismiss on May 22, 2023, and the Court heard oral argument on June 30, 2023.

STANDARD OF REVIEW

A. Rule 12(b)(6) Pleading Standards

The pleading standards on a motion to dismiss pursuant to Court of Chancery Rule 12(b)(6) are minimal and plaintiff friendly. When the Court considers such a motion:

(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are well-pleaded if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the non-moving party; and (iv) dismissal is inappropriate

unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.

Thus, although the Court need not "'blindly accept conclusory allegations unsupported by specific facts,' or to 'draw unreasonable inferences in the plaintiffs' favor[,]'" the Court must deny a motion to dismiss where "the well-pled factual allegations of the complaint would entitle the plaintiff to relief under a reasonably conceivable set of circumstances."

Although, "as a factual matter, [it may] ultimately prove impossible for the plaintiff to prove [its] claims at a later stage of a proceeding, . . . that is not the test to survive a motion to dismiss." The Court, however, "need not accept conclusory allegations unsupported by specific facts or draw unreasonable inferences in favor of the nonmoving party." The Court is also "not required to accept every strained interpretation of the allegations proposed by the plaintiff."

B. Rule 9(b) Pleading Standards

To state a claim for fraud, the plaintiff must plead facts supporting an inference regarding:

(i) a false representation, (ii) the defendant's knowledge of or belief in its falsity or the defendant's reckless indifference to its truth, (iii) the defendant's intention to induce action based on the representation, (iv) reasonable reliance by the plaintiff on the representation, and (v) causally related damages.

The heightened pleading standard of Rule 9(b) requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge and other condition[s] of mind of a person may be averred generally." Such particularity of circumstances refers to "time, place and contents of the false representations, the facts misrepresented, [and] the identity of the person making the misrepresentation and what he obtained [from it]." Essentially, "the plaintiff is required to allege the circumstances of the fraud with detail sufficient to apprise the defendant of the basis for the claim."

ANALYSIS

I. The Complaint States a Claim for Fraud

A. The Language of the SPA Does Not Bar Adviser's Fraud Claims

Much of Powell's Motion to Dismiss focuses on his argument that SPA Sections 1.1, 11.7, and 2.22 bar all fraud claims. The Court, therefore, focuses on this argument first.

"[A] party cannot promise, in a clear integration clause of a negotiated agreement, that it will not rely on promises and representations outside of the agreement and then shirk its own bargain in favor of a 'but we did rely on those other representations' fraudulent inducement claim." Delaware courts have been clear, however, that an aggrieved buyer must clearly and unambiguously disclaim on extra-contractual representations to bar fraud claims.

To be effective, a contract "must contain language that, when read together, can be said to add up to a clear anti-reliance clause by which the plaintiff has contractually promised that it did not rely upon statements outside the contract's four corners in deciding to sign the contract." Such provisions must "identify the specific information on which a party has relied and which foreclose reliance on other information." A disclaimer must also unambiguously "ensure the preclusion of fraud claims for extra-contractual statements." Moreover, because of public policy guarding against fraud, the Court will not protect a defendant from liability for a plaintiff's reliance on fraudulent statements made outside of an agreement "absent a clear statement by that counterparty-that is, the one who is seeking to rely on extra-contractual statements-disclaiming such reliance."

The relevant provisions in the SPA are as follows:

1.1 Purchase and Sale. In reliance upon the representations and warranties contained herein, and subject to the terms and conditions hereof, at the Closing the Sellers agree to sell, assign, transfer, and deliver to the Buyer, and the Buyer agrees to purchase, acquire, and accept from the Sellers, the Purchased Securities....

* * *

11.7 Entire Agreement. This Agreement, the attached exhibits and schedules, the Side Letter, and the other Transaction Documents contain the entire understanding of the parties, and there are no further or other agreements or understandings, written or oral, in effect among the parties relating to the subject matter hereof unless expressly referred to herein.

* * *

2.22 Exclusivity of Representations and Warranties. Neither the Company nor any of its Affiliates or representatives is making any representation or warranty on behalf of the Company of any kind or nature whatsoever, oral or written, express or implied (including, but not limited to, any relating to financial condition, results of operations, assets or liabilities of the Company or with respect to any other information provided to the Buyer at any time and by any means), except as expressly set forth in this Article 2, in any Transaction Document or in any certificate delivered at Closing, and the Company hereby disclaims any such other representations or warranties whether made by the Company or any of its Affiliates, managers, officers, employees, agents or representatives however made, directly or indirectly. Neither the Company nor any other Person shall have or subject to any liability to the Buyer or any other Person resulting from the distribution to the Buyer or any Person acting on its behalf, or the Buyer's or such other Person's use of, any such information, including any information, documents, projections, forecasts or other material made available to the Buyer or such other Person or their respective representatives in certain "data rooms" or management presentations or otherwise in expectation of the transactions contemplated by this Agreement or the Transaction Documents. Notwithstanding anything to the contrary, nothing shall limit or impair any Person's remedies or rights, or be deemed to be a waiver of, any claims related to actual fraud.

Sections 1.1, 11.7, and 2.22 do not clearly and unambiguously disclaim reliance by Adviser on extra-contractual representations. As in FdG and Anvil Holding Corporation, Section 2.22 is a disclaimer by "the Company" (Polaris) and "its Affiliates or representatives" of what it was and was not representing and warranting. Although Section 2.22 contains language that "[n]either [Polaris] nor any other Person shall have or be subject to any liability" to Adviser or any Person due to Adviser's use of "any information, documents, projections, forecasts or other material made available to [Adviser] . . . in certain 'data rooms' or management presentations," this language does not purport to state the universe of information relied upon by Adviser when entering into the SPA.

This is especially so given the last clause of Section 2.22, which specifically states that "[n]otwithstanding anything to the contrary, nothing shall limit or impair any Person's remedies or rights, or be deemed to be a waiver of, any claims related to actual fraud." The language of Section 2.22 is virtually identical to that in Sandbox, where the Court held that anti-reliance provision in that action "[could not] operate to bar Plaintiff's fraud claim because it does not unambiguously disclaim reliance on extra-contractual relations in the event of fraud." To the contrary: the anti-reliance provision "expressly exclude[d] fraud from its purview." Also, like Sandbox, the fraud exception in Section 22.2 is consistent with other SPA provisions that limit rights and remedies in the event of fraud.

For these reasons, Advisor did not unambiguously disclaim reliance on extra-contractual statements in the SPA. Thus, the SPA does not bar Adviser's fraud claims.

B. Plaintiff does not Impermissibly Bootstrap its Breach of Contract Claim into a Fraud Claim

Delaware law provides that "one cannot 'bootstrap' a claim of breach of contract into a claim of fraud merely by alleging that a contracting party never intended to perform its obligations." Accordingly, "a plaintiff cannot state a claim for fraud simply by adding the term 'fraudulently induced' to a complaint or alleging that the defendant never intended to comply with the agreement at issue at the time the parties entered into it."

This Court recently synthesized the "anti-bootstrapping" rule in Levy Family Investors, LLC v. Oars + Alps LLC. In Levy Family, the Court held that the "anti-bootstrapping rule:

does not prevent parties from bringing a fraud claim if (1) the plaintiff alleges the seller knowingly made false contractual representations, (2) damages for plaintiff's fraud claim [are] different from plaintiff's breach of contract claim, (3) the conduct occurs prior to the execution of the contract and thus with the goal of inducing the plaintiff's signature and willingness to close on the transaction, or (4) the breach of contract claim is not well-pled such that there is no breach claim on which to bootstrap the fraud claim.

Here, Adviser easily overcomes the "anti-bootstrapping rule." The Complaint alleges different damages for fraud and breach of contract and allegations of pre-contractual conduct. Thus, Adviser's fraud claims are not barred by the anti-bootstrapping rule.

C. The Complaint Meets the Pleading Standard for Fraud

Adviser's claims for fraud fall into three buckets: Fraud by Omission (Count I), Fraudulent Misrepresentation (Count II), and Fraudulent Concealment (Count III). The Court, having already found that the SPA carves out claims for fraud and does not disclaim extra-contractual statements, finds that the Complaint states a claim based on the plaintiff-friendly motion to dismiss standard.

Most of Powell's arguments in both his briefing and during oral argument attempt to hold Adviser to a higher pleading standard than is required on a motion to dismiss. While Adviser may be unsuccessful at summary judgment or at trial regarding its claims for fraud, the detailed factual allegations contained in the Complaint state actionable claims for fraud. Therefore, Powell's Motion to Dismiss Adviser's fraud claims is DENIED.

II. The Complaint States a Claim for Breach of Contract

The elements for breach of contract under Delaware law are: "(1) the existence of a contract; (2) a breach of an obligation imposed by that contract; and (3) [] damages." Adviser's breach of contract claims, like its fraud claims, easily clear the hurdle on a motion to dismiss.

There is no dispute that a contract exists or that Adviser has alleged damages. Rather, Adviser alleges "no factual allegations" to support its breach of contract claims. Again, Powell attempts to hold Adviser to a higher standard than is required at this stage. The facts alleged in the Complaint give notice of the claims therein to Powell. Thus, Powell's Motion to Dismiss Adviser's contract claims is DENIED.

III. The Complaint States a Claim for Unjust Enrichment

Adviser claims, in the alternative, that Powell's alleged fraud allowed him to pocket tens of millions of dollars that he would have otherwise never received."Unjust enrichment is 'the unjust retention of a benefit to the loss of another, or the retention of money or property of another against the fundamental principles of justice or equity and good conscience.'" The elements of unjust enrichment are: "(1) an enrichment, (2) an impoverishment, (3) a relation between the enrichment and impoverishment, (4) the absence of justification, and (5) the absence of a remedy provided by law."

According to Powell, Adviser's unjust enrichment claim should be dismissed because all claims are governed by the SPA. This Court rejected a similar argument in LVI Group Investments, LLC v. NCM Group Holdings, LLC. In LVI, the Court declined to dismiss an unjust enrichment claim, pled in the alternative, where the plaintiff alleged that the contract at issue itself arose from the defendants' fraud. The same is true here. Therefore, Powell's motion to dismiss Adviser's unjust enrichment claim is DENIED.

IV. The Complaint Does Not State a Claim for Tortious Interference

"To state a claim for tortious interference with contract, a plaintiff must allege that the defendant 'intentionally and improperly interfere[d] with the performance of a contract' between the plaintiff 'and a third person by inducing or otherwise causing the third person not to perform the contract.'"

Here, Adviser does not state a claim for tortious interference with contract. Adviser cannot state a claim for alleged conduct that occurred before the transaction closed, when Adviser had no contractual relationship with any client. Adviser also does not state a claim for conduct allegedly occurring after the transaction closed. Adviser argues in opposition to the Motion to Dismiss that Powell's actions "were both outside the bounds of his employment and unjustifiable." Although an employee is liable for interfering with its employer's contracts when "they exceed the scope of their authority," Adviser's vague and general allegations in the Complaint regarding the contracts it alleges Powell interfered with and how Powell acted outside the scope of his authority do not meet the pleading standards on a motion to dismiss. Therefore, Adviser's claim for tortious interference with contractual relations is GRANTED.

V. The Complaint States a Claim for Attorneys' Fees and Costs of Investigation

Adviser states a claim for fraud and breach of contract. Therefore, pursuant to SPA § 10.3, Adviser states a claim for attorneys' fees and costs of investigation. Powell's motion to dismiss Adviser's claim for attorneys' fees and investigation costs is DENIED.

CONCLUSION

For the foregoing reasons, Powell's Motion to Dismiss Counts I-VII and IX of Adviser's Complaint is DENIED. Powell's Motion to Dismiss Count VIII of Adviser's Complaint is GRANTED. The parties shall confer on a proposed case management order and submit for the Court's consideration within fourteen days of this order.

IT IS SO ORDERED.