In a common fact pattern involving allegations that the buyer of a company intentionally derailed the attainment of milestones that would trigger additional payments, the Court of Chancery allowed several claims to survive a motion to dismiss. Trifecta Multi-Media Holdings, Inc. v. WCG Clinical Services LLC, C.A. No. 2023-0699-JTL (Del. Ch. June 10, 2024). The claims included fraud, breach of the implied covenant of good faith and fair dealing, breach of contract, and indemnification.
As part of the factual background, the court provided detailed examples of the unabashedly disrespectful approach of the buyer when challenged regarding the multiple actions it took to allegedly prevent the milestone payments from being made.
Although the claims are not novel, it remains helpful to highlight some of the fundamentals of basic legal principles often involved in corporate and commercial litigation about post-closing disputes.
Highlights
- The court recited the elements of fraud that must be pled to prevail on that claim, but also explained that in Delaware there is no difference between fraud and fraudulent inducement. See page 20 and footnote 34.
- Unlike fraud, the court also explained why some statements are mere puffery. See Slip op. at 21 and 22.
- The court described the scienter element of a fraud claim as requiring allegations with enough factual detail to support an inference that the speaker had no intent to perform when a promise was made. Slip op. at 22 – 23.
- Regarding the requirement of reliance, the court explained that this element is typically not suitable for a motion to dismiss unless a fully integrated contract has as an anti-reliance clause. See Slip op. at 24 – 25 and footnote 47.
Required Reading
- The court instructs on the interfacing between an integration clause and the requirements of an anti-reliance clause if someone seeks to prevent the use of statements outside the four corners of an agreement. See Slip op. at 24 – 28.
Indemnification
- The court rejected the argument of ripeness as a basis to dismiss this claim because of the potential recovery for attorneys’ fees. Slip op. at 37-39.
- Notice Requirement
- Also noteworthy is the court’s observation that the agreement at issue did not require any specific form of notice and therefore the court found that filing the complaint sufficed for the notice requirement in the indemnification provisions. See Slip op. at 37 -39 and footnote 93.
- Even though the elements for a breach of contract claims are well-known, this decision addressed two key points: (i) damages need not be alleged in a quantifiable amount because the court can award nominal damages; and (ii) liberal notice pleading rules do not require explicit allegations. See Slip op. at 35 – 37. AS A SIDE NOTE, in my experience it may be dangerous to rely too much on liberal notice pleading rules when in Delaware, depending on the context and the claims, some members of the court can be quite willing to dismiss cases absent copious factual details.
- The court provided an elucidation that although a claim for the breach of the implied covenant of good faith and fair dealing can be a gap filler—it does not fill all gaps, for example, where, as here, a term was expressly rejected during the drafting of the agreement. See Slip op. at 28 – 32.