Opinion
C. A. N20C-08-132 WCC
03-31-2022
MICHAEL NARDO, an individual, and FUTURTECH CONSULTING, L.L.C., a Delaware limited liability company, Plaintiffs, v. CLOUDSCALE365 GROUP, INC., a New Hampshire corporation, as successor-in-interest to SEACOAST TELECOMMUNICATION SERVICE BUREAU, INC., Defendants.
Nicholas G. Kondraschow, Esquire, and William J. Rhodunda, Jr., Esquire, RHODUNDA, WILLIAMS & KONDRASCHOW, Brandywine Plaza West, Attorneys for Plaintiffs. Seth L. Thompson, Esquire, PARKOWSKI, GUERKE & SWAYZE, P.A., Attorney for Defendant.
Submitted: October 7, 2021
Defendants' Motion to Dismiss - GRANTED in Part and DENIED in Part
Nicholas G. Kondraschow, Esquire, and William J. Rhodunda, Jr., Esquire, RHODUNDA, WILLIAMS & KONDRASCHOW, Brandywine Plaza West, Attorneys for Plaintiffs.
Seth L. Thompson, Esquire, PARKOWSKI, GUERKE & SWAYZE, P.A., Attorney for Defendant.
MEMORANDUM OPINION
William C. Carpenter, Jr.
Before the Court is Plaintiffs/Counterclaim Defendants Michael Nardo and FuturTech Consulting L.L.C.'s (individually, "Nardo" and "FuturTech," together, "Plaintiffs") Motion to Dismiss Defendant/Counterclaim Plaintiff, CloudScale365 Group, Inc.'s, ("CloudScale" or "Defendant") Counterclaims against Plaintiffs. For the reasons set forth in this Opinion, Plaintiff's Motion to Dismiss Defendant's Counterclaims is GRANTED in part and DENIED in part.
I. Factual Background
This action arises from a business dispute involving the sale of certain assets by FuturTech to SeaCoast Telecommunication Service Bureau, Inc. ("SeaCoast") in November of 2017. Michael Nardo is a Delaware resident and the creator of FuturTech, a Delaware limited liability company. Nardo founded FuturTech in 1996 and grew the company into a viable business that provided a multitude of IT services. In approximately 2017, Nardo decided to sell FuturTech and began efforts to solicit prospective buyers.
Def.'s Answ. and Countercl., D.I. 17, ¶ 4 (Jan. 8, 2021)(hereinafter "Countercl.").
Compl., D.I. 1, at ¶¶ 1, 2, 4 (Aug. 17, 2020).
Id. at ¶ 4.
Id. at ¶ 6.
CloudScale is a New Hampshire corporation and successor-in-interest to SeaCoast. In April of 2017, Defendant sent a Letter of Intent to Plaintiffs that expressed their interest in FuturTech and provided for a due diligence period.During that period, Nardo provided Defendant with favorable financial reports and invited their executives to visit the FuturTech Delaware office.
Id. at ¶ 3.
Id. at ¶ 8.
Id.
In May of 2017, Nardo and Defendant's Chief Operating Officer, Patrick Hannon ("Hannon"), met at FuturTech's Delaware office, where they discussed the business's success and revenue. Nardo credited FuturTech's success to its functional and autonomous staff, which Hannon observed during that visit.
Id. at ¶ 11.
Id. at ¶ 12.
On or about October 27, 2017, Plaintiffs entered into an Asset Purchase Agreement ("APA") with Defendant whereby Defendant agreed to purchase FuturTech for $1,550,000. Pursuant to the terms of the APA, Defendant paid $1,317,000 at closing and the parties executed a promissory note ("Note") for the remaining $233,000. The APA designated Defendant as the Purchaser, FuturTech as the Seller, and Nardo, in his individual capacity, limited to clauses regarding intellectual property. The parties' relationship was also governed by an October 25, 2017 letter ("Side Letter") whereby the parties agreed to special circumstances regarding the retention and termination of current FuturTech employees.
Def.'s Ex. A, D.I. 17, p. 1 (Asset Purchase Agreement)(hereinafter "APA").
Id.; See also Def.'s Ex. C, D.I. 17, p. 1 (Promissory Note Nov. 10, 2017)(hereinafter "Note").
APA at p. 1, 7.
Def.'s Ex B, D.I. 17, p. 1 (Letter Dated 10/25/2017)(hereinafter "Side Letter").
Contemporaneously with or immediately before the Closing, Nardo made a last-minute objection to the holdback provision in the APA. The holdback provision required the deferred amount of $233,000 due under the Note to be held on stand-by, and made CloudScale's obligation to pay such remaining installments contingent upon and to be determined by CloudScale's review and evaluation of post-closing financial performance and revenue in comparison to the pre-closing financial performance and revenues represented by Nardo. The parties agreed to remove the holdback provision from the APA and continue with the transaction.The transaction closed on November 10, 2017 ("Closing").
Countercl. at ¶ 27.
Id. . at ¶ 23.
Id. at ¶ 4.
Id. . at ¶ 31.
After Closing, Defendant discovered that Plaintiffs made alleged misrepresentations to ensure that the transaction occurred. For example, Defendant discovered that Nardo staged the FuturTech office when Hannon visited by placing old monitors from the storeroom at various desks to create fictional workspaces with personnel who typically worked remotely. Defendant also uncovered that various financial reports provided by Plaintiffs were inaccurate.Moreover, Defendant discovered that Nardo failed to represent accurately FuturTech's operations and clientele, to disclose material adverse changes to the business outlook, and made material misrepresentations about staff and employee abilities. Nardo also refused to resolve post-closing prorations and adjustments and declined to pay Defendant additional monies due under the agreements.
Id. at ¶ 32.
Id.
Id. at ¶ 34-35.
Id. . at ¶¶ 32-33, 36, 55-56, 66.
Id. at ¶ 69.
After Defendant's acquisition, the FuturTech staff struggled to function without Nardo and consistently fell short of expectations. Defendant was forced to terminate staff, who were offered as experts in their field, after finding them incompetent and was required to pay severance. Defendant quickly discovered that Nardo was primarily responsible for marketing and generating sales during his tenure, as well as other jobs, and employees worked at his direction.
Id. at ¶ 36.
Id. at ¶¶ 38, 44-45.
Id. at ¶¶ 45, 48.
II. Procedural History
On August 17, 2020, Plaintiffs filed a Complaint against CloudScale in the Delaware Superior Court asserting claims for breach of contract, conversion, invasion of privacy, defamation, and attorney's fees. On October 30, 2020, Defendant filed an Answer and Counterclaims, which included equitable claims and relief.
Compl. at 1.
Def.'s Resp. to Compl. and Countercl., D.I. 6, 1 (Oct. 30, 2020).
On November 2, 2020, Defendant sought to transfer its claims to the Court of Chancery citing the Superior Court's lack of subject matter jurisdiction over the equitable claims and relief sought. Rather than transfer, this Court was granted cross-designation as a Vice-Chancellor by the Delaware Supreme Court for the limited purpose of addressing CloudScale's equitable counterclaims. Defendant's Answer and Counterclaims were refiled on January 8, 2021, after cross-designation was granted.
Def.'s Mot. to Transfer Venue, D.I. 8, ¶¶ 11-12 (Nov. 2, 2020).
Countercl. at 1.; Def.'s Resp. to Compl. and Countercl., D.I. 6, 1 (Oct. 30, 2020).
On April 20, 2021, Plaintiffs filed a Motion to Dismiss Defendant's counterclaims and, on May 21, 2021, Defendant filed its Answer to that Motion, opposing dismissal. The Court heard oral argument on the Motion on October 7, 2021, and its decision is as follows.
Pls.' Mot. to Dismiss Def.'s Countercl., D.I. 25, 1 (Apr. 20, 2020)(hereinafter "MTD"); Def.'s Answ. to Mot. to Dismiss, D.I. 27, 1 (May 21, 2021)(hereinafter "Answ. to MTD").
Judicial Action Form, D.I. 30, 1 (Oct. 7, 2021).
III. Standard of Review
When considering a Rule 12(b)(6) motion to dismiss, the Court "must determine whether the claimant 'may recover under any reasonably conceivable set of circumstances susceptible to proof.'" It must also accept all well-pleaded allegations as true, and draw every reasonable factual inference in favor of the non-moving party. At this preliminary stage, dismissal will be granted only when the claimant would not be entitled to relief under "any set of facts that could be proven to support the claims asserted" in the pleading.
Spence v. Funk, 396 A.2d 967, 968 (Del. 1978).
Id.
Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009).
IV. Discussion
a. Breach of Contract Counterclaims
First, Plaintiffs seek to dismiss CloudScale's breach of contract counterclaims based on Sections 11, 13, and 14 of the APA, and the Side Letter. Plaintiffs assert that the claims arising from Sections 13 and 14 are untimely. Plaintiffs contend that alleged breaches of conditions in Section 13 should have been raised at Closing and that the representations and warranties in Section 14 should have been brought within twelve months of the Closing date pursuant to the contractual limitation period set forth in Section 14.2 ("Survival Clause"). Plaintiffs argue that because CloudScale did not object at Closing or file counterclaims within a year of Closing, both claims must be dismissed. Moreover, Plaintiffs contend that CloudScale's claims based on Section 11 and the Side Letter should be dismissed for failure to state a claim.
MTD at ¶¶ 5, 12, 13.
Id. at ¶ 5.
Id. at ¶ 8.
Id.
Id. at ¶¶ 12, 13.
Conversely, CloudScale argues that the Section 13 counterclaim is not time barred because termination of the APA at Closing was not the only remedy available to the parties if conditions were unsatisfied. Furthermore, CloudScale asserts that the Survival Clause is ambiguous and does not require suit to be filed within twelve months. Finally, it contends that the contract claims based on Section 11 and the Side Letter are sufficiently pled.
Answ. to MTD at ¶¶ 8-9.
Id. at ¶¶12-13.
Id. at ¶ 17
1. Contractual Limitations
Before the Court addresses the sufficiency of the breach of contract claims, it will first determine whether the parties created a one-year contractual period of limitation in Section 14.2 and, second, whether CloudScale may assert a counterclaim based on conditions to Closing in Section 13.
"Delaware adheres to the 'objective' theory of contracts, i.e. a contract's construction should be that which would be understood by an objective, reasonable third party." Delaware courts "will read a contract as a whole and…will give each provision and term effect, so as not to render any part of the contract mere surplusage." When the contract is clear and unambiguous, it will be given the "plain-meaning of the contract's terms and provisions." When there are various reasonable interpretations, a contract is ambiguous and, the trial court cannot "choose between two differing reasonable interpretations of ambiguous provisions" on a motion to dismiss. "Under Delaware law, the interpretation of a contract is a question of law, and a motion to dismiss is a proper vehicle to determine the meaning of contract language."
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010)(citing NBC Universal v. Paxson Commc'ns, 2005 WL 1038997, at *5 (Del. Ch. Apr. 29. 2005).
Id. (citing Kuhn Construction, Inc. v. Diamond State Port Corp., 2010 WL 779992, *2 (Del. 2010).
Id.
Id.; VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 615 (Del. 2003).
Schuss v. Penfield Partners, L.P., 2008 WL 2433842, at *6 (Del. Ch. June 13, 2008).
First, the Court turns to the Survival Clause. Traditionally, under Delaware law, breach of contract claims are subject to a three-year statute of limitations. Parties to a contract, however, are entitled to shorten the period in which a claim for breach may be brought, so long as the agreed upon time period is a reasonable one.Shortening the statute of limitations does not conflict with the legislatively determined limitations period and, in fact, has been seen as being harmonious with public policy purposes served by the statutes of limitations in general.
Del. Code Ann. tit. 10, §8106 (2014).
GRT, Inc. v. Marathon GTF Tech., Ltd., 2011 WL 2682898, at *6 (Del. Ch. July 11, 2011).
Id.
Delaware is more contractarian than that of many other states, and will respect the parties' contractual choices. There are no special rules or words needed in order to contractually shorten the statute of limitations. Generally, Delaware courts have interpreted contractual provisions that limit the survival of representations and warranties as evidencing an intent to shorten the period in which a claim for breach may be brought. More specifically, Delaware courts have upheld contractual limitation clauses that state "representations and warranties only survive through a specified date." That language unambiguously sets a contractual limitations period, and "the effect…[is] to preclude any cause of action involving those representations that [were] filed after the…survival period."
Id. at *12.
Id.
Id.
Eni Holdings, LLC v. KBR Grp. Holdings, LLC, 2013 WL 6186326, at *7 (Del. Ch. Nov. 27, 2013).
Id.
Id. at *8 (citing GRT, 2011 WL 2682898 at *3).
In this case, the Survival Clause states, in relevant part, "the representations, warranties and covenants contained in this paragraph 14 shall survive Closing (unless it is to be performed at or prior to Closing) for a period of 12 months."That language is similar to the clause in Aircraft Service International, Inc. v. TBI Overseas Holdings, Inc., where the Superior Court held that the parties intended to create a two-year contractual limitations period by agreeing to language that stated, "the representations and warranties of the Seller contained in Section 2.15 hereof shall survive the second anniversary of the Closing Date." The Court explained that to find otherwise "would render the provisions setting forth the truncated timelines superfluous" and would be at odds with well-settled contract interpretation.
APA at ¶ 14.2.
Aircraft Serv. Int'l, Inc. v. TBI Overseas Holdings, Inc., 2014 WL 4101660, at *3 (Del. Super. Ct. Aug. 5, 2014).
Id.
The same is true here. The only reasonable interpretation of the Survival Clause mandates that claims arising from the Section 14 representations and warranties expire twelve months after Closing, or on November 10, 2018. It is undisputed that CloudScale originally filed its counterclaims in October of 2020, almost two years late, and therefore, untimely. As a result, CloudScale's counterclaim based on Section 14 is barred.
Next, Section 13 of the APA governs "Conditions to Closing." Section 13.1 states, in relevant part, "the obligations of [CloudScale] to consummate the transactions actions described herein are expressly made subject to the satisfaction, on or prior to the Closing Date, of the following conditions precedent unless waived in writing by [CloudScale.]" An identical provision applies to Plaintiffs and is stated in Section 13.2.
APA at § 13.
Id. at § 13.1.
Id. at § 13.2.
It is well-settled under Delaware law that the phrase "consummate the transactions" is language that refers to closing. And, "the use of 'transactions' in the plural recognizes that a series of things have to be accomplished at closing, particularly in an asset deal." Thus, the plain language of Section 13.1 requires that the conditions expressed therein must be satisfied by Closing. And, if such conditions are not satisfied then CloudScale had the discretion to terminate the APA or waive the conditions by giving written notice to the Plaintiffs.
Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d 126, 138 (Del. Ch. Nov. 23, 2009).
Id.
Section 13 specifically required that the representations and conditions contained in Section 14 are true at the time of Closing and no material discrepancies had occurred between signing the Contract and Closing. By proceeding to Closing, it appears that CloudScale was satisfied that sufficient information had been provided by the Plaintiffs to proceed forward. The only remedy under Section 13 is the option to terminate the Agreement before the Closing date. The Court finds that once the Closing occurred, the parties' remedy also terminated. Thus, CloudScale's counterclaim under Section 13 is dismissed. Accordingly, Plaintiffs' Motion to Dismiss as to Counts I and V is GRANTED.
2. Remaining Breach of Contract Claims
Next, the Court considers whether the remaining breach of contract claims are sufficiently pled. To survive a motion to dismiss for failure to state a breach of contract claim, CloudScale must allege (1) the existence of a contract; (2) the breach of an obligation imposed by that contract; and (3) resulting damage.
Markow v. Synageva Biopharma Corp., 2016 WL 1613419, at *4 (Del. Super. Ct. Mar. 3, 2016).
The remaining breach of contract claims are rooted in Section 11 of the APA and the Side Letter. Section 11 of the APA, titled "Prorations, Adjustments, Utilities and Deposits," provides for payments received by the parties after Closing to be allocated according to time of receipt and whether such payment is attributable to expenses incurred prior to or after Closing. The Side Letter obligates Plaintiffs to cover certain employee compensation depending upon termination and advancement of certain liabilities by Defendant. It further obligates Plaintiffs to satisfy liabilities via a reduction of amounts owed under the APA and the Note.
APA at ¶11.
Countercl. at ¶ 112.
Id.
Plaintiffs argue that CloudScale provides no allegations that any attempts at adjustment or proration were made ninety days after Closing. Conversely, CloudScale argues that it properly pled the events leading up to the outstanding amount, including allegations that Nardo became hostile and informed CloudScale he would not pay anything else under the proration process regardless of if it was owed under the agreements.
MTD at ¶ 12.
Answ. to MTD at ¶ 17.
It is undisputed that a valid contract governs the parties' relationship. CloudScale sufficiently pleads these breach of contract claims by providing specific circumstances concerning the breach, including Nardo's unwillingness to cooperate in post-Closing reconciliation, and the contractual amount due to CloudScale as a result of the breach. CloudScale also explains that it suffered damages due to those breaches because it failed to receive the full benefit of the agreements due to Plaintiffs' refusal to comply. Accordingly, Plaintiffs' Motion to Dismiss as to Count IV and VI is DENIED.
b. Implied Covenant Claim
Second, Defendant asserts a breach of the implied covenant of good faith and fair dealing in Count III of its counterclaims. This count states that CloudScale had a reasonable expectation at the time the agreements were executed that Plaintiffs had not materially or fraudulently misrepresented FuturTech's operations, core revenue sources, business outlook, and staff to solicit and induce CloudScale to purchase the company.
Countercl. at ¶87.
Plaintiffs seek to dismiss Count III and argue that the implied covenant claim is improper because it mirrors Defendant's allegations for breach of contract and generally alleges bad faith. Whereas, Defendant asserts the implied covenant was breached by Nardo's prejudicial and injurious conduct and prevented them from receiving the benefit of the bargain. Defendant contends that Nardo breached this implied duty when he encouraged Defendant to purchase FurturTech based on false records and information.
MTD at ¶ 11 (citing 3M Co. v. Neology, Inc., 2019 WL 2714832, at *10 (Del. Super. Ct June 28, 2019)).
Id. . at ¶ 15.
Answ. to MTD at ¶ 14.
"Every contract in Delaware has an obligation of good faith and fair dealing, which is implied into the agreement by law. This implied covenant was created to promote the spirit of the agreement and to protect against one side using underhanded tactics to deny the other side the fruits of the bargain." "The covenant is 'best understood as a way of implying the terms in the agreement,' whether employed to analyze unanticipated developments or to fill gaps in the contact's provisions." "Existing contract terms control, however, such that implied good faith cannot be used to circumvent the parties' bargain, or to create a 'free-floating duty…unattached to the underlying legal document.' Thus, one generally cannot base a claim for breach of the implied covenant on conduct authorized by the terms of the agreement."
Kelly v. McKesson HBOC, Inc., 2002 WL 88939, at *10 (Del. Super. Ct. Jan. 17, 2002).
Dunlap v. State Farm Fire and Cas. Co., 878 A.2d 434, 441 (Del. 2005).
Id.
In this case, the Court finds that the implied covenant clam is improper because the APA expressly covers the conduct complained of in CloudScale's counterclaim. More specifically, Section 14.1(H) of the APA states that,
no representation or warranty contained in this Agreement and, to [Plaintiffs'] knowledge, no statement contained in any certificate, schedule, attachment, list or other writing furnished or presented to [CloudScale] pursuant to the provisions hereof or during the due diligence period contains any untrue statements of a material fact or omits to state a material fact necessary in order to make the statements herein or therein not misleading[.]
APA at § 14.1(H), p. 4.
This section directly governs the accuracy of the materials provided by Plaintiffs to CloudScale to aid in its decision to purchase FuturTech. Therefore, the Court need not imply terms nor fill gaps in the APA as the parties have anticipated the specific circumstances alleged. Accordingly, the remedies available to the Defendant are ones only contained in the Contract and Plaintiffs' Motion to Dismiss as to Count III is GRANTED.
c. Fraud
Third, Plaintiffs assert that the fraud claim is duplicative of the breach of contract claims, and therefore, it must be dismissed. Conversely, Defendant explains that the claim is not duplicative because it focuses on Nardo's conduct and provides numerous, detailed representations.
MTD at ¶ 14.
Answ. to MTD at ¶¶ 19-20.
To state a claim for fraud, CloudScale must plead facts supporting an inference that: (1) the Plaintiffs falsely represented or omitted facts that they had a duty to disclose; (2) the Plaintiffs knew or believed that the representation was false or made the representation with a reckless indifference to the truth; (3) the Plaintiffs intended to induce Defendant to act or refrain from acting; (4) Defendant acted in justifiable reliance on the representation; and (5) Defendant was injured by its reliance.
Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1050 (Del. Ch. Feb. 14, 2006).
Fraud must be plead with particularity, but state of mind may be averred generally. A claim is sufficiently plead where it alleges: (1) the time, place, and contents of the false representation; (2) the identity of the person making the representation; and (3) what the person intended to gain by making the representations.
Id.
Id.
Generally, a plaintiff must sue in contract and not in tort where its fraud claim is based on representations in a contractual relationship. But, "[a] fraud claim alleged contemporaneously with a breach of contract claim may survive, so long as the claim is based on conduct that is separate and distinct from the conduct constituting breach." Under Delaware law, allegations that are focused on inducement to contract are "separate and distinct" conduct.
ITW Glob. Inv. Inc. v. Am. Indus. Partners Capital Fund IV, LP, 2015 WL 3970908, at *6 (Del. Super. Ct. June 24, 2015)(citing Midland Red Oak Realty, Inc. v. Friedman, Billings & Ramsey & Co., 2005 WL 445710, at *3 (Del. Super. Ct. 2005)).
Id. (citing Furnari v. Wallpang, Inc., 2014 WL 1678419, at *8 (Del. Super. Ct. Apr. 16, 2014)).
Id.; See Osram Sylvania Inc. v. Townsend Ventures, LLC, 2013 WL 6199554, at *16-17 (Del. Ch. 2013).
CloudScale's fraud claims are based on its inducement to enter into the agreements with Plaintiffs. This case is analogous to Osram Sylvania Inc. v. Townsend Ventures, LLC, where the court held that misrepresentations about financial results and conditions of the company made before the execution of the contract is "not a mere bootstrap of its breach of contract claim." Here, CloudScale points to specific misrepresentations by Plaintiffs, including information about the financial condition of the company, abilities of FuturTech employees, and the functioning of the Delaware office. All of which were made before execution of the agreements. For this reason, the Court finds that the fraud claim does not merely copy the breach of contract claims and is separate and distinct.
2013 WL 6199554, at *16.
Additionally, CloudScale's fraud claim is pled with particularity by providing times, places, and contents of the misrepresentations. CloudScale alleges that the misrepresentations occurred during the due diligence period, were made by Nardo on behalf of FuturTech, and appeared in the form of revenue reports and office visits. CloudScale adequately asserts that Nardo made those misrepresentations to induce CloudScale to purchase FuturTech. Accordingly, Plaintiffs' Motion to Dismiss as to Count VII is DENIED.
d. Unjust Enrichment
Fourth, Plaintiffs seek to dismiss CloudScale's unjust enrichment claim because the parties' relationship is governed by the APA and the Side Letter.Whereas, CloudScale contends that Nardo benefitted from the sale but is only a party to the APA for limited purposes and the agreement does not govern beyond those Sections.
MTD at ¶ 15.
Answ. to MTD at ¶ 22.
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 equality 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 at law."
Nemec v. Shrader, 991 A.2d 1120, 1130 (Del. 2010).
Id.
A claim for unjust enrichment is not available if there is a contract that governs the relationship between the parties that gives rise to the unjust enrichment claim.Moreover, "as an extension of that principle, Delaware courts have also held that 'unjust enrichment cannot be used to circumvent basic contract principles [recognizing] that a person not a party to [a] contract cannot be held liable to it.'"
Kuroda, 971 A.2d at 891.
Vichi v. Koninklijke Philips Elec. N.V., 62 A.3d 26, at 58-59 (Del. Ch. Nov. 28, 2012).
In this case, CloudScale alleges that Plaintiff, Nardo, was unjustly enriched by the sale of FuturTech to CloudScale "pursuant to the APA, and its attendant Side Letter and Note." It is clear from the face of the Counterclaim that the parties' relationship is governed by those express agreements. Moreover, CloudScale cannot use a claim for unjust enrichment to extend the obligations of the agreements to Nardo, since he is only a party to those agreements for a limited purpose. Accordingly, Plaintiffs' Motion to Dismiss as to Count VIII is GRANTED.
Countercl. at ¶ 120.
e. Reformation of the APA and Note
Fifth, Plaintiffs seek to dismiss CloudScale's claim seeking to reform the APA and the Note asserting that it fails to state a claim. Plaintiffs contend that the holdback provision CloudScale wishes to insert into the APA was negotiated out and there is no factual support to suggest otherwise. CloudScale argues that reformation is appropriate because the Side Letter references the holdback provision and contends that it was eliminated from the APA and the Note based on Plaintiffs' fraud and inequitable conduct.
MTD at ¶16.
Id.
Answ. to MTD at ¶ 22.
The Court may reform a document to make it conform to the original intent of the parties. But, "[i]t is well established that where parties have entered into a written contract with knowledge of the express terms thereof, reformation will not be granted unless it can be demonstrated that the party seeking such form of relief acted under the influence of fraud or the misapprehension resulting from mutual mistake." A party seeking such relief must plead with particularity the elements on which it is based. CloudScale confirms that its' reformation claim rests on Plaintiffs' fraud and, therefore, must be pled with particularity as explained above in Section III(c).
Waggoner v. Laster, 581 A.2d 1127, 1135 (1990).
Gracelawn Mem'l Park, Inc. v. E. Mem'l Consultants, Inc., 280 A.2d 745, 748 (Del. Ch. July 12, 1971).
Id.
See Great-West Inv'rs LP v. Thomas H. Lee Partners, L.P., 2011 WL 284992, at *12 (Del. Ch. Jan. 14, 2011)("To state a claim for fraud, a plaintiff must allege (1) a misrepresentation, which can take the form of a statement, omission, or active concealment of the truth, (2) the defendant's knowledge that the representation was false, (3) intent to induce the plaintiff to act or refrain from acting, (4) justified reliance on the misrepresentation, and (5) damages as a result of such reliance."); See also Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1050 (Del. Ch. Feb. 14, 2006)("To satisfy Rule 9(b), a complaint must allege: (1) the time, place, and contents of the false representation; (2) the identity of the person making the representation; and (3) what the person intended to gain by making the representations.").
In this case, CloudScale alleges that Nardo knew the holdback provision was an essential element of the APA and requirement of the transaction but objected in bad faith to avoid reduction of the Note upon CloudScale's discovery of Plaintiffs' other alleged fraudulent misrepresentations. CloudScale, however, fails to provide the Court with the particularity this claim requires. CloudScale adequately pleads the timing of the misrepresentation, that it occurred near Closing, but fails to provide the place or contents of the misrepresentations made by Nardo that resulted in deletion of the holdback provision. It simply alleges that the provision was negotiated out in bad faith to protect Nardo from the future discoveries of his alleged inappropriate conduct.
Although CloudScale sufficiently pleads fraud in other aspects of the relationship, here, it provides the Court with bare assertions regarding the parties' dealings and negotiations of the holdback provision. Without more, the claim is not pled with the required particularity. Accordingly, Plaintiffs' Motion to Dismiss is as to Count X is STAYED for thirty days to allow CloudScale to amend its claim to satisfy this deficiency. If no amended pleading is filed, Count X will be dismissed.
f. Piercing the Corporate Veil
Lastly, CloudScale seeks to pierce FuturTech's corporate veil and impose personal liability against Nardo. Plaintiffs contend that CloudScale fails to provide any factual support to show that FuturTech is a sham or is only operated as a vehicle for fraud. Conversely, CloudScale argues that this count is pled in the alternative and its counterclaims include proper counts asserted against Nardo individually, outside of the "alter ego" theory of piercing the corporate veil.
MTD at ¶17.
Answ. to MTD at ¶ 23.
In this case, CloudScale states a viable claim for fraud against Nardo, and it is well established, under Delaware law, that the Court may pierce the corporate veil when fraud is present. Therefore, since the fraud claim survives, so will CloudScale's request to pierce FuturTech's corporate veil and impose personal liability against Nardo. Accordingly, Plaintiffs' Motion to Dismiss as to Count XI is DENIED.
Prairie Capital III, L.P. v. Double E Holding Corp., 132 A.3d 35, 60 (Del. Ch. Nov. 24, 2015)("A corporate officer can be held personally liable for the torts he commits and cannot shield himself behind a corporation when he is a participant.").
V. Conclusion
Since CloudScale has viable counterclaims that survive Plaintiffs' Motion to Dismiss, so too shall its counts for Constructive Trust and Attorney's Fees.Additionally, Plaintiffs' Motion to Dismiss does not address Count II and, therefore, it remains at this time. For the foregoing reasons, Plaintiffs' Motion to Dismiss is GRANTED in part and DENIED in part.
MTD at ¶18.
IT IS SO ORDERED.