Opinion
C.A. No. 20168
Submitted: July 31, 2003
Decided: October 17, 2003
Court of Chancery of Delaware and for New Castle County.
Daniel A. Dreisbach, Esquire, Lisa A. Schmidt, Esquire, James H. McMackin, III, Esquire, RICHARDS. LAYTON FINGER, Wilmington, Delaware; Daniel J. Lefell, Esquire, Stacey A. Shortall, Esquire, Ariel Cannon, Esquire, PAUL, WEISS, RIFKIN[, WHARTON GARRISON LLP, New York, New York, Attorneys for the Plaintiffs.
Neal J. Levitsky, Esquire, FOX ROTHSCHILD LLP, Wilmington, Delaware; Sigmund S. Wissner-Gross, Esquire, May Orenstein, Esquire, Clifford J. Bond, Esquire, HELLER, HOROWITZ FEIT, P.C., New York, New York, Attorneys for the Defendant.
MEMORANDUM OPINION AND ORDER I.
A Delaware corporation and its wholly owned foreign subsidiary sued their former Chairman and CEO, a non-US resident, for breach of fiduciary duty and misappropriation of monies. On a motion to dismiss, the court concludes that it has properly obtained jurisdiction over the non-resident defendant by means of the director service statute, 10 Del. C. § 3114. The court also concludes that the use of that statute to obtain jurisdiction over a foreign resident does not involve the service of process outside the United States and, therefore, does not require compliance with the Hague Convention governing service abroad of judicial writs. The court also concludes that the matters asserted in the complaint are properly within its jurisdiction and that the complaint should neither be dismissed nor stayed in favor of a substantially different action pending in the Cayman Islands.
II.
A. The Parties
The plaintiff, Actrade Financial Technologies Ltd. ("Actrade DE"), is a Delaware corporation. Actrade DE wholly owns several subsidiary companies whose business is selling short-term financing agreements. Actrade Commerce Ltd. ("Actrade Commerce"), an Antiguan corporation, is one of these subsidiaries and is also a plaintiff in this action. Actrade DE and Actrade Commerce are sometimes hereinafter referred to as "Actrade" or "the plaintiff."
Actrade DE wholly owns Actrade International, a New York corporation. Actrade International wholly owns Antiguan corporation Actrade S.A. Actrade S.A. wholly owns Bahamian corporation Actrade Resources and Antiguan corporation Actrade Commerce Ltd.
The defendant, Amos Aharoni, a resident of the State of Israel, was the Chairman of the Board of Actrade DE and one of the company's founders. He was also the sole director and officer of Actrade Commerce, as well as other directly and indirectly owned subsidiaries of Actrade DE.
B. The Disputed Transfers
The complaint alleges that, on or about June 25, 2002, Aharoni faxed a wire transfer instruction to Banco Comercial Portuguese ("BCP") in the Cayman Islands directing BCP to transfer $10,009,200 from Actrade Commerce's account at BCP to International Clearing Corporation ("ICC"). The complaint further alleges that, on or about July 12, 2002, Aharoni faxed another wire transfer instruction from Israel to BCP in the Cayman Islands ordering it to transfer $21,656,700 from Actrade Commerce's account at BCP to the account of an entity called Fort. The total amount of these transfers ("disputed transfers") is approximately $31.6 million.
On August 2, 2002, Actrade DE's board of directors instructed its Audit Committee to investigate alleged improprieties in the operations of Actrade DE and its subsidiaries. On August 8, 2002, counsel for the Audit Committee wrote to Aharoni seeking to interview him and obtain all Actrade documents under his control. On August 14, Actrade DE's Chief Financial Officer e-mailed Aharoni seeking access to all documents under Aharoni's control. On August 28, 2002, the Audit Committee faxed to Aharoni's U.S. and Israeli counsels copies of a document preservation letter that Actrade DE had received from the SEC and the U.S. Attorney's Office. On September 6, 2002, the Audit Committee again wrote Aharoni's U.S. counsel seeking all Actrade documents in Aharoni's control.
Aharoni eventually gave Actrade five loan agreement documents dated July 10, 2002. These agreements show Actrade Commerce loaning a total of $31.6 million to five foreign entities. Aharoni contends that these loans explain the disputed transfers and that they have already been repaid with $6 million in interest. Actrade alleges that there was no legitimate business purpose for these loans and that neither Actrade DE nor any Actrade subsidiary has received any payment on them. Actrade further alleges that Aharoni controls ICC and Fort and that he fabricated the loan agreements after the disputed transfers to conceal his theft of $31.6 million from Actrade Commerce.
Through counsel, Aharoni refused to be interviewed or provide substantive information to the Audit Committee. On August 21, 2002, Aharoni resigned all director and officer positions he had held for Actrade DE and its subsidiaries. In late September 2002, Aharoni made available a group of Actrade documents that were under his control. Among these were the five loan agreements.
Onyx iloldings, Ltd., Garibaldi do Brazil Limitida, LLC, Vision Art Group, Manerfold Finance Corp., and LLC Setkomp.
C. The Interpleader Action
On September 26, 2002, BCP commenced an interpleader action in the Cayman Islands regarding the ICC and Fort accounts that had received the disputed transfers. BCP named Actrade DE, Actrade Commerce, Actrade Resources, Actrade S.A., ICC, Fort, Commercial Finance Institution ("CFI"), and BCP as claimants to the money in the accounts. By consent order, Actrade DE and its subsidiaries became plaintiffs in that action on May 2, 2003, leaving the remaining parties as defendants. On May 5, 2003, Actrade filed a complaint seeking an accounting, a declaration that Fort and ICC hold the disputed funds as constructive trustees for Actrade, and payment of the amount the accounting determines to be owed. The Cayman Islands action does not include a claim for breach of fiduciary duty and does not name Aharoni as a party, although Aharoni argues that he expects to eventually be named as a third-party defendant.
D. The Motion To Dismiss
Actrade filed a complaint in this court on February 20, 2003, alleging breach of fiduciary duty, misappropriation and conversion of corporate assets, fraud, and corporate waste. Aharoni has moved to dismiss for lack of personal jurisdiction, lack of subject matter jurisdiction, forum non conveniens, failure to join necessary parties, and failure to state a claim for which relief can be granted. Alternatively, Aharoni moves for a stay of this action pending the outcome of the Cayman Islands action. Finally, Aharoni moves to strike the complaint's references to the document preservation letter from the SEC and the U.S. Attorney's office as immaterial and "scandalous." In considering a motion to dismiss, this court views all facts in a light most favorable to the non-moving party.
See e.g. Ramunno v. Cawley, 705 A.2d 1029, 1034 (Del. 1998).
III.
Aharoni challenges this court's personal jurisdiction on two grounds. First, Aharoni claims that this court cannot rely upon 10 Del. C. § 3114 to obtain personal jurisdiction over him because he did not commit his allegedly wrongful acts in his capacity as a director of a Delaware corporation (Actrade DE), but rather in his capacity as a director of wholly owned foreign subsidiary (Actrade Commerce). Second, Aharoni argues that the attempt to serve process on him pursuant to section 3114 violated the Hague Convention of 1963, a treaty of the United States, and therefore failed to confer jurisdiction. For reasons expressed below, neither of these arguments has merit.A. The Reach of 10 Del. C. § 3114
Actrade bases its claim of personal jurisdiction on Delaware's Director Consent statute, 10 Del. C. § 3114(a), which reads:
Every nonresident of this State who after September 1, 1977, accepts election or appointment as a director, trustee or member of the governing body of a corporation organized under the laws of this State or who after June 30, 1978, serves in such capacity and every resident of this State who so accepts election or appointment or serves in such capacity and thereafter removes residence from this State shall, by such acceptance or by such service, be deemed thereby to have consented to the appointment of the registered agent of such corporation (or, if there is none, the Secretary of State) as an agent upon whom service of process may be made in all civil actions or proceedings brought in this State, by or on behalf of, or against such corporation, in which such director, trustee or member is a necessary or proper party, or in any action or proceeding against such director, trustee or member for violation of a duty in such capacity, whether or not the person continues to serve as such director, trustee or member at the time suit is commenced. Such acceptance or service as such director, trustee or member shall be a signification of the consent of such director, trustee or member that any process when so served shall be of the same legal force and validity as if served upon such director, trustee or member within this State and such appointment of the registered agent (or, if there is none, the Secretary of State) shall be irrevocable.
This court has personal jurisdiction over Aharoni because he consented to that jurisdiction by becoming the director of a Delaware corporation. As the Delaware Supreme Court has held, a director "accept[s] [his] directorship [of a Delaware corporation] with explicit statutory notice, via § 3114 that [he] could be haled into a Delaware court to answer for the alleged breaches of the duties imposed on [him] by the very laws which empowered [him] to act in his corporate capacities." Aharoni cannot escape personal jurisdiction under section 3114 by mischaracterizing his alleged wrongful acts as having been done purely in the capacity of directorship of the foreign subsidiary. Actrade DE conducted all of its business through its foreign subsidiaries, "making oversight of subsidiaries a crucial aspect of the [parenli board's function." Under Grace, Aharoni's oversight or lack thereof of the actions of Actrade Commerce can constitute a breach of fiduciary duty to Actrade DE.
See Armstrong v. Pomerance, 423 A.2d 174, 177 (Del. 1980) (finding personal jurisdiction over foreign directors on a claim for breach of fiduciary duty to a Delaware corporation when directors had no contact with Delaware other than being directors of the Delaware corporation.
See Grace Bros., Ltd. v. Uniholding Corp., 2000 WL 982401, at * 12 (Del.Ch. July 12, 2000) (hereinafter Grace).
In Grace, the defendants who were directors of both a Delaware parent and foreign subsidiary company allowed the subsidiary to assume control over the parent's primary asset and thus become the owner of the parent, to the detriment of the parent's stockholders but to the benefit of the subsidiary. The Grace court rejected the defense that "a director of a parent board . . . has no duty to stop himself from injuring the parent while wearing his subsidiary hat. This court found personal jurisdiction over the defendants for the Delaware parent's claim even though the wrongful action occurred through a foreign subsidiary.
Id. at *13.
Similarly in Technicorp Int'l II v. Johnston, this court found personal jurisdiction over persons who were directors of both a Delaware parent and its foreign subsidiary for wrongful acts done in the name of the subsidiary. Under Technicorp, wrongful diversions from a foreign subsidiary are a breach of fiduciary duty to both the subsidiary and to its parent.
2000 WL 713750 (Del.Ch. May 31, 2000) (hereinafter Technicorp).
Id. at *4.
Aharoni argues that Delaware has little or no interest in hearing this case because the disputed acts took place in either Israel or the Caribbean, directly injured only an Antiguan subsidiary, and any injury to the Delaware company was indirect and incidental. On the contrary, Delaware has a significant interest in protecting Delaware companies from breaches of fiduciary duty by their directors, regardless of where that breach occurs. That interest is magnified in this case because it seems Actrade DE has no other forum in which to litigate its breach of fiduciary duty claim. Aharoni has not submitted to the personal jurisdiction of the Cayman Islands court, nor is he named as a party in that action. Aharoni's implied consent to Delaware's personal jurisdiction through section 3114 ensures that Actrade DE has a forum in which to litigate its injury.
id.
Since this court has personal jurisdiction over Aharoni for Actrade DE's breach of fiduciary duty claim, that jurisdiction extends "to any and all relief that might be necessary to do justice between the parties." This includes jurisdiction over Actrade Commerce's claims. Under very similar facts, the Technicorp court found personal jurisdiction over defendant directors for the claims of a foreign subsidiary because those claims "arise out of the same core facts as [the claims of the parent] and because it was therefore reasonably foreseeable that [the subsidiary] as well as [the parent] would seek to recover those diverted funds in the same lawsuit. "
Gans v. MDR Liquidating Corp., 1990 WL 2851, at *10 (Del.Ch. Jan. 10, 1990).
Technicorp at *5 n. 12.
Aharoni's attempt to distinguish Technicorp is unpersuasive. He argues that Delaware has a greater interest in enforcing the fiduciary duty owed to a Delaware parent company when the subsidiary was a directly-owned buyout vehicle than when the subsidiary is indirectly owned and conducts ordinary business. However, Aharoni offers no reason why this difference mandates a disparate result for the same act — breaching a fiduciary duty to a parent company by converting its subsidiary's money for personal use. Since the same core facts are at issue in both of Actrade's claims, the dual-plaintiff suit was entirely foreseeable and Technicorp applies. This court has personal jurisdiction over Aharoni for all of Actrade's claims.
Def. Op, Br. p. 9.
B. Service of Process And The Hague Convention
Aharoni next contends that 10 Del. C. § 3114(b), as applied to him, violates the Hague Convention. Under Aharoni's interpretation of section 3114(b), service is a two-step process that, in his case, included both (1) the service on Actrade's registered agent in Delaware, and (2) the mailing by the Register in Chancery of a copy of that process to him in Israel. Because the second part of this "service" was made on him overseas, he contends, the Hague Convention applies to invalidate the attempted service. Actrade responds that for the purpose of the Hague Convention, service on Aharoni pursuant to section 3114(b) was accomplished by serving Actrade's registered agent. According to Actrade, the subsequent mailing by the Register in Chancery was not a necessary part of "service, " but merely an additional form of notice. Therefore, Actrade argues, the Hague Convention has no application.
The pertinent part of § 3114(b) is as follows:
Service of process shall be effected by serving the registered agent (or, if there is none, the Secretary of State) with 1 copy of such process in the manner provided by law for service of writs of summons. In addition, the Prothonotary or the Register in Chancery of the court in which the civil action or proceeding is pending shall, within 7 days of such service, deposit in the United States mails, by registered mail, postage prepaid, true and attested copies of the process, together with a statement that service is being made pursuant to this section, addressed to such director, trustee or member at the corporation's principal place of business and at the residence address as the same appears on the records of the Secretary of State, or, if no such residence address appears, at the address last known to the party desiring to make such service.
Reply Memorandum of Law in Further Support of Motion to Dismiss the Complaint of Defendant Amos Ahoroni Based, Inter Alia, Upon Lack of Personal Jurisdiction, Lack of Subject Matter Jurisdiction, Forum Non Conveniens, Prior Pending Proceeding, and Failure to Join Necessary Parties, ("Def. Rep. Br.") p. 5. The Hague Convention, if it applied, would have required that any attempt to serve process on an Israeli resident be mailed to Israel's Directorate of the Courts, rather than directly to the resident. The Register in Chancery mailed Actrade's process directly to Aharoni.
As a matter of textual interpretation, Actrade's reading of the statute is by far more compelling. "Service" under the statute is described in the first sentence of the section and is limited to "serving the registered agent." The additional act of mailing is required to be made "within 7 days of such service." This reading is also consistent with the strong public policy of this Stat4e to provide a certain and easily accessible forum in which to litigate claims against those who choose to become directors of Delaware corporations. Delaware's interest in defining and enforcing these obligations is substantial and does not depend on or relate to the place of residence of the director. Delaware requires appointment of an in-state registered agent in order to effectuate service of foreign directors entirely in Delaware, hence avoiding the more difficult and time-consuming steps necessary to effect service of process on persons outside the state. The United States Supreme Court has ruled that the Hague Convention applies only to service effectuated outside the United States. For that reason, that treaty is irrelevant to section 3114(b) service in Delaware.
See Pestolite, Inc. v. Cordura Corp., 449 A.2d 263 (Del.Super. 1982).
Id.
Id. at 266 (§ 3114 enacted specifically to ensure jurisdiction over directors of Delaware corporations for the claims of those corporations in response to Shaffer v. Heitner, 433 U.S. 186 (1977)).
See Volkswagenwerk Aktiengesellschaft v. Schiunk, 486 U.S. 694, 701 (1988).
For the foregoing reasons, Aharoni' s motion to dismiss for lack of personal jurisdiction and improper service of process will be denied.
Since the court has personal jurisdiction pursuant to § 3114, I decline to consider whether 10 Del. C. § 366(a) (the sequestration statute) could provide an alternate basis for personal jurisdiction.
Iv.
Aharoni challenges this court's subject matter jurisdiction by characterizing the disputed action as a simple conversion of Actrade funds that can be fully remedied by damages. Aharoni argues that Actrade may invoke equity jurisdiction only if damages cannot adequately remedy Actrade's injury. He is simply wrong. This court has subject matter jurisdiction over claims that are equitable in nature even if monetary damages are sought in relief. Breach of fiduciary duty is a well-established equitable claim properly invoking the subject matter jurisdiction of this court. Aharoni's motion to dismiss for lack of subject matter jurisdiction must be denied.
Def. Rep. Br. pp. 12-13.
See 10 Del. C. § 3411; see also International Business Machines v. Comdisco, 602 A.2d 74, 78 n. 6 (Del.Ch. 1991).
See e.g. Clark v. Teeven Holding Co., Inc., 625 A.2d 869, 875 (Del.Ch. 1992) ("This Court thus has jurisdiction to hear such traditional, equitable matters as trusts and fiduciary relations").
Aharoni next contends that even if Actrade has an equitable claim, the court should refuse to exercise jurisdiction over any related legal claims.
Instead, he argues, the court should sever these claims to the Superior Court where Aharoni may receive a jury trial. The facts of this case do not warrant severance of Actrade's legal claims from the central claim alleging breach of fiduciary duty. Once this court finds equity jurisdiction over part of a case, it may, at its discretion, exercise jurisdiction over related legal claims. Factors that may cause this court to deny a motion to sever include: "to resolve factual issues; to avoid multiplicity of suits; to promote judicial efficiency; to do full justice; to avoid great expense; to afford complete relief in one action; and to overcome insufficient modes of procedure at law." Actrade bases all of its claims on two allegedly wrongful wire transfers ordered by Aharoni. Since the factual inquiry for Actrade's breach of fiduciary duty claim would be identical to that of the misappropriation, fraud, and waste claims, all the factors of the Getly Refining test weigh against the duplicative factual inquiry that severance would cause. The court will therefore exercise jurisdiction over all of Actrade's claims.
See Getty Refining Marketing Co. v. Park Oil, Inc., 385 A.2d 147, 149 (Del.Ch. 1978).
Id. at 150.
Id.
V.
Aharoni's motion further asserts a laundry list of reasons why this court should either dismiss or stay the complaint. The arguments made are insubstantial and will be discussed only briefly.
Aharoni's motion to dismiss under the doctrine of forum non conveniens fails for two reasons. First, Aharoni offers no persuasive reason why Delaware is an inconvenient forum for a director of a Delaware corporation to litigate a claim for breach of fiduciary duty. Second, Aharoni has failed to suggest a comparable action in a forum so much more convenient that this court should dismiss the present action in its favor.
An action will be dismissed for forum non conveniens only in "the rare case where a dismissal of a complaint is appropriate because this forum is " A mer overwhelmingly and unduly inconvenient . . . preference for another forum is insufficient: "While there is no doubt that [Aharoni] would prefer to litigate this case in his home [country], he cannot plausibly claim any undue inconvenience from having to defend himself against claims for breach of fiduciary duty in this court. [The defendant] voluntarily chose to serve as the director and principal operating officer of a Delaware corporation. He is an intelligent man who cannot have been ignorant of the possibility that he would face a suit in Delaware in the event of a dispute between himself and [the Delaware corporation he served]."
See Caithness Resources, Inc. V. Ozdemir, 2000 WL 1741941 at 1 (Del.Ch. Nov. 22, 2000).
Id. at *5.
Additionally, Aharoni does not offer a comparable, more convenient action to which this court should defer. The only other related action currently pending is the Cayman Islands action, which is both incomparable and less convenient than this action. The Cayman Islands action neither names Aharoni as a party nor involves a claim for breach of fiduciary duty. It is difficult to see how an action prosecuting a different claim against a different party would warrant dismissal for forum non conveniens.
Even if the Cayman Islands action were comparable, it would certainly be no more convenient than this action. Factors measuring convenience include "(1) the relative ease of access to proof; (2) the availability of compulsory process for witnesses; (3) the possibility of the view of the premises; (4) whether the controversy is dependent upon the application of Delaware law which the courts of this state more properly should decide than those of another jurisdiction; . . . and [5] all other practical problems that would make the trial of the case easy, expeditious and inexpensive. None of these factors weigh in favor of dismissal. The fact that this action may involve the laws of multiple jurisdictions or the compulsion of witnesses therefrom is not compelling because those problems would arise wherever this dispute is litigated. The central claim of this case is breach of fiduciary duty to a Delaware company. This claim requires application of Delaware law within the special expertise of this court. Finally, Aharoni has little cause to complain of inconvenience in defending an action properly before this court when he consented to its jurisdiction.
Taylor v. LSI Logic Corp., 689 A.2d 1196, 1198-99 (Del. 1997).
The court also declines to stay this action for the same reasons it declines to dismiss for forum non conveniens. Aharoni correctly argues that "discretion should be freely exercised in favor of [a] stay when there is a prior action pending elsewhere, in a court capable of doing prompt and complete justice, involving the same issues and the same parties." However, a stay in favor of the Cayman Islands action is inappropriate because that case does not involve the same parties or cause of action and that court may not be able to do complete justice for lack of personal jurisdiction over Aharoni.
Mc Wane Cast Iron Pipe Corp. v. McDowell-Wellman Eng 'g. Co., 263 A.2d 281, 283 (Del. 1970).
Aharoni is not a party to the Cayman Islands action as required by McWane. He argues that since his alleged proxy companies are defendants there, his interests are adequately represented as well. Even if so, this argument entirely misses the point of director liability for breach of fiduciary duty. If Actrade's factual allegations are true, Aharoni is personally liable for breach of fiduciary duty, regardless of whether the proxy companies are liable. Personal liability is especially important here because the Cayman Islands courts apparently do not have personal jurisdiction over Aharoni. Thus, if Aharoni removed the funds from the accounts of the proxy companies, Actrade would be left without an equitable remedy. Such a result is not the "prompt and complete justice" contemplated by Mc Wane.
Id.
See e.g. Technicorp.
263 A.2d at 283 (granting a stay because another action could afford the parties "all the discovery, pretrial, and trial advantages" they would have in Delaware and could grant a "speedy, just and complete disposition to the claims" of all parties before the court).
The court also rejects Aharoni's contention that ICC, Fort, CFI, and various Actrade subsidiaries are indispensable parties without whom this court cannot do full and complete justice. Court of Chancery Rule 19(a) lists the factors making a party necessary:
(1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.
Aharoni argues that Fort, ICC and CFI are indispensable parties because they have a claim to the disputed $31.6 million. This does not affect this court's ability to grant complete relief to the parties before it. The central claim here is that Aharoni breached his fiduciary duty to Actrade by stealing from Actrade Commerce. If Actrade is able to prove this claim, Aharoni will be personally liable for the $31.6 million he allegedly stole, whether or not some other person or entity might also be liable to Actrade.
There is also little risk that these companies will be unable to protect their interests or that Aharoni will be subject to duplicative obligations. If, as alleged, Aharoni controls ICC, Fort and CFI, then Aharoni can adequately defend their interests. If not, this case will only decide whether the disputed transfers were within the scope of Aharoni' s authority as a director of Actrade. The alleged proxy companies' liability will not be at issue. The "one satisfaction" rule ensures that Actrade can actually recover the $31.6 million only once, regardless of the number of actions or defendants. Since ICC, Fort, and CFI are not necessary parties under Rule 19(a), it is unnecessary for the court to consider Aharoni's Rule 19(b) analysis.
Id.
Similarly, the other Actrade subsidiaries are not necessary parties to this action because the "one satisfaction" rule prevents duplicative recovery and because those subsidiaries are not otherwise interested. Aharoni offers no legitimate reason why this case cannot go forward without these unrelated parties.
See e.g. Technicorp.
Aharom offers no basis for his contention that any court would force him to pay the same $31.6 million multiple times to each Actrade subsidiary. Nor does Aharoni show why this case requires joining Actrade International or Actrade S.A. when those companies had nothing to do with the disputed transfers. While Aharoni may have transferred money from Actrade Resources to Actrade Commerce prior to the disputed transfers, that act appears to have been within Aharoni's director authority and is unchallenged by Actrade. Aharoni suggests his discovery will be hampered without the subsidiary companies, but it is unclear why any information about the disputed transfers, especially payment on the loan agreements, would be outside the control of Actrade DE, owner of all the companies at issue. Finally, Aharoni worries that he will win here, be able to dismiss Actrade DE and Actrade Commerce from the Cayman Islands action, then be found liable to the other Actrade subsidiaries. This argument is wholly without merit since Aharoni is not a party to the Cayman Islands action and denies he controls the companies that are parties to that action.
Finally, the court will deny Aharoni' s motion to the extent it seeks dismissal of the claims for misappropriation, fraud and waste complaint. Similarly, the court will deny the motion to strike references to the letter from the SEC and the subpoena from the U.S. Attorney's office. These allegations tend to prove a core element of Actrade " s case: that Aharoni created the loan documents after the fact to hide his wrongdoing. Actrade alleges that Aharoni knew that Actrade was under government investigation and still refused to produce the allegedly exonerating loan agreements for several weeks. If true, this fact would tend to prove bad faith and is relevant. The probative value of such evidence far outweighs any danger of unfair prejudice to Aharoni.
The motion to dismiss Actrade's conversion claim is premature. Neither party briefed the issue of whether Antiguan law recognizes a claim for conversion of a specific sum. Since the parties agree that Antiguan law controls, dismissal is inappropriate.
According to Aharoni, "[n]owhere in their entire complaint do Plaintiffs allege that they were damaged from purported incorrect information contained in the financials." Def. Rep. Br. at 30. However, § 97 of the complaint reads, "Aharoni's representations of fact contained in the purported loan agreements were false when made, were known to be false when made, and were made for purpose of inducing Actrade Commerce to rely on them to their detriment, which Actrade Commerce did." Further, § 98 reads, "[als a direct result, Actrade Commerce suffered damages in an amount to be proved at trial." This is an adequate allegation of damage.
In support of his motion to dismiss the waste claim, Aharoni argues that the loan agreements on their face are evidence that Actrade received reasonable consideration. of course, the complaint alleges facts that cast doubt on the regularity of those documents. Aharoni's argument that this court is helpless to look beyond the four corners of an allegedly fraudulent document to address allegations of self-dealing waste (Def. Rep. Br. p. 31) is simply wrong.
Delaware Uniform Rule of Evidence 401 (defining relevant evidence as "having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable").
In passing, the court notes that the parties vigorously argue over remedies that might be available, including accounting, sequestration of stock, and constructive trusts. This discussion is premature and unnecessary to the present motion and I decline to make any ruling on it.