Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH,  C.A. No. 5589-VCP (Del. Ch. Apr. 8, 2011), read opinion here. This case arises out of a series of agreements between the parties to license certain technology. A complaint was filed alleging a breach of two agreements based on a purchase by Roche of a company called BioVeris. This 53-page decision explains why a motion to dismiss was denied and related issues.


1) The Court addresses the impact on an anti-assignment clause of a reverse triangular merger, an issue of first impression in Delaware. See footnote 95. Cf. footnote 98 and related text.

2) The sophisticated analysis of intellectual property rights in overlapping agreements offered by this opinion includes a primer on Delaware contract interpretation principles.

3) Another widely applicable benefit is the Court’s discussion of the motion to dismiss standard under Court of Chancery Rule 12(b)(6). See Slip op. at 18-19. Although posts highlighting several recent cases discussed here and here on this blog have addressed the Court of Chancery applying the relatively "newer" standard announced by the United States Supreme Court in Bell Atlantic v. Twombly, 550 U.S. 544, 555-56 (2007), I would venture to add that many practitioners are more familiar with the less stringent standard that prevailed formerly on the federal level for a Rule 12(b)(6) motion to dismiss.  Even though the rules of civil procedure in Delaware state courts are based on the federal rules of civil procedure, it was not always clear exactly when the Delaware courts would definitively adopt the interpretation of Rule 12(b)(6) in the Twombly case. A comparison of the two cases linked above indicate the topic may still not be as well-settled as some suggest.

4) The perennial issue of substantive versus procedural arbitrability is also discussed.  See Slip op. at 40 to 50.

Great-West Investors LP v. Thomas H. Lee Partners, L.P., C.A. No. 5508-VCN (Del. Ch. Jan. 14, 2011), read opinion here.

Issue Addressed

This 37-page decision from the Delaware Court of Chancery addresses multiple contract interpretation issues between two sophisticated parties. The most memorable issue addressed in the decision – – and one that’s less commonly known among business litigators, is that “an agreement to negotiate in good faith could be an enforceable contract term subject to specific performance.” See page 24 and footnote 61.

Brief Overview

The opinion starts with the first full page explaining an old Chinese folktale that involved a mathematical exercise that explained the hugh numerical sums that were arrived at when a simple amount is doubled and that amount is doubled again and then that amount is doubled yet again in successive instances.

One of the parties to the agreement involved was seeking relief from the onerous contract formula for fees that were paid under the agreement in connection with private equity funds. This opinion addresses the contract theories that one might consider in an effort to obtain judicial assistance in escaping an otherwise unhappy bargain. The bottom line is that the Court emphasized that it will not provide reformation of “bad bargains” especially when the agreement is between sophisticated parties. To some extent the plaintiff realized this when it referenced in passing but did not seriously assert the theory of unconscionability. See footnotes 48 and 49. Because the moving party realized that it could not rely on the theory of unconscionability, claims were made based on more conventional breach of contract theories, as well as an alleged breach of the implied covenant of good faith and fair dealing, and also the alleged breach of fiduciary duty.

Procedural Posture

Ruling on a motion to dismiss, the Court determined that the parties’ obligations and rights were expressly governed by contract and therefore the doctrine of the implied covenant of good faith and fair dealing did not apply. However, the court found that there was a basis to allow the claim for reformation based on fraud to proceed, if only barely.

Procedural Standard on Motion to Dismiss

The Court explained the standard under Rule 12(b)(6) for a motion to dismiss that is used by the Court, as follows: The motion would only be granted if “the plaintiff would be unable to recover under any reasonably conceivable set of circumstances susceptible of proof.” See footnotes 33 and 34 (citing DeSimone v. Barrows, 924 A.2d 908, 928 (Del. Ch. 2007)). 

Compare: recent Chancery opinion citing to U.S. Supreme Court decision in Twombly for a slightly different standard applicable to Rule 12(b)(6) motions, as discussed in post here.


The Court explained that “an agreement to negotiate in good faith may be binding under Delaware law,” and specific performance could, in theory, be an appropriate remedy for breach of such a provision. In practice, however, “the problems with ordering parties to negotiate in good faith are significant.” See footnotes 61 and 62. The Court explained that “although it might be difficult to win an order enforcing other aspects of the duty to negotiate in good faith, the Court is not now prepared to state that there are no circumstances under which specific performance would be an appropriate remedy for Great-West if it can prove a breach . . ..”

The Court relied on the recent Delaware Supreme Court decision in Nemec v. Schrader to dismiss an alleged breach of fiduciary duty. Relying on Nemec, the Court explained that “where a dispute arises from obligations that are expressly addressed by contract, that dispute will be treated as a breach of contract claim. In that specific context, any fiduciary claims arising out of the same facts that underly the contract obligations would be foreclosed as superfluous.” See footnote 65.

Lastly, before it addressed the claims for reformation based on mistake or fraud, the Court explained that there are three possible justifications for reforming an agreement: mutual mistake, unilateral mistake and fraud. The Court allowed the reformation claims based on all three arguments to proceed.

SUPPLEMENT:  Professor Stephen Bainbridge links to this post on his blog here and provides commentary on this case, with reference to one of the many books on corporate law that he has authored.

Narrowstep, Inc. v. Onstream Media Corporation, C.A. No. 5114-VCP (Del. Ch. Dec. 22, 2010), read 45-page opinion here.   

Issue Addressed

The Court of Chancery in this 45-page opinion granted a motion to dismiss a claim that was asserted based on the implied covenant of good faith and fair dealing but the Court denied the motion to dismiss claims relating to unjust enrichment and fraudulent inducement to enter into an agreement. Also noteworthy is the standard used by the Court to review a motion to dismiss, as referenced in more detail below.

Brief Overview of  Factual and Procedural Background

This case is based on a failed merger between Narrowstep and Onstream Media. In 2008 the parties entered into a Merger Agreement that required them to use their reasonable best efforts to close the merger expeditiously. As the Court explained: “Curiously, and in retrospect perhaps unwisely, Narrowstep agreed to terms in a Merger Agreement that required it to cede all operational control to Onstream well before closing in order to expedite the integration of the two companies. . . . [D]espite the shift in operational control, the merger never closed. After a number of months and multiple amendments to the agreement, Onstream walked away from the transaction. Thereafter, Narrowstep filed its complaint in this action . . ..” This decision was based on a motion to dismiss the complaint based on Rule 12(b)(6).

Bullet Points on Key Rulings of Court

● This is the first Chancery decision that I personally recall which has specifically relied on the relatively new standard announced by the United States Supreme Court in the Twombly case, as the Delaware standard applicable to motions to dismiss under Rule 12(b)(6). The federal standard announced in the Twombly decision requires that in order to avoid dismissal, a complaint must offer “sufficient facts to plausibly suggest that the plaintiff will ultimately be entitled to the relief she seeks.” See footnote 25 (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56 (2007) and Desimone v. Barrows, 924 A.2d 908-29 (Del. Ch. 2007)). There was much discussion on the federal level whether or not that applied to all federal complaints in all areas of the law. Though the Delaware rules of civil procedure are based on the federal rules, it has not yet been conclusively determined by the Delaware Supreme Court whether that federal standard will apply in all Delaware cases. In my reference above I carefully chose the words: "relied on", as opposed to merely "citing" the Twombly case.  I know that other Chancery cases have cited to Twombly. The federal standard is different than the more lenient and well-known "pre-Twombly" standard which provided that a motion to dismiss will not be granted unless there is no set of facts on which the plaintiff could prevail. The author of this opinion also cited to Twombly a few days later in an opinion available here. Although the Chancery decision in Desimone, supra, cited Twombly, there is no clear, controlling authority that definitely resolves the issue of whether Twombly represents the standard that will be used in Delaware on all Rule 12(b)(6) motions in all cases, as opposed to the "pre-Twombly" standard. Desimone was highlighted here on this blog. Compare, LeCrenier v. Central Oil Asphalt Corp., here at n. 33, a Chancery opinion issued on the same day as the instant opinion, but by a different vice chancellor, appearing to rely on the pre-Twombly standard. To paraphrase a popular media outlet: "We report, you decide".

● The Court also discusses the criteria by which it may consider the facts beyond the complaint; and that if a motion to dismiss is treated as a motion for summary judgment under Rule 56 then the Court must give the parties a reasonable opportunity to take discovery and to present material relevant to the summary judgment motion. See footnotes 29 and 32.

● A helpful discussion is provided for the claim based on the implied covenant of good faith and fair dealing, with an analysis of why the motion to dismiss that count alone was granted. The opinion includes an excellent summary of Delaware law on this important but amorphous and elusive concept. See page 26.

● The Court noted the instant case was similar in many respects to the Chancery decision in AQSR India Private, Ltd. v. Bureau Veritas Holdings, Inc., 2009 WL 1707910 (Del. Ch. June 16, 2009) (which was summarized on this blog here).

● The opinion explains the elements for common law fraud and equitable fraud, as well as the rule that detailed averments of fraud must be included with particularity as required by Court of Chancery Rule 9(b). See pages 31 and 32. The Court also explains why it rejected an argument under Rule 12(e) which sought a more definite statement of the claim.

● The Court explains the prohibition in Delaware law that prevents a party from “bootstrapping” a claim of breach of contract into a claim of fraud merely by alleging that a contracting party never intended to perform its obligations. See page 39. In this case, the Court reasoned that the complaint alleged sufficient facts which allowed the Court to infer that Onstream repeatedly lied to Narrowstep at many stages in the process in order to strip Narrowstep of its valuable assets with no intention of closing the merger. This is different than the unallowed attempt to simply add the words “fraudulently induced” to a complaint alleging that the defendant never intended to comply with an agreement when the parties entered into it. However, the facts of this case cannot fit into the category of a simple allegation that failure to comply with a contract equates with failure to disclose an intention to take actions inconsistent with that contract. That is, the agreement is not the source of the fraud claim but rather an instrument by which Onstream perpetrated its fraud and its broader scheme to loot Narrowstep.

● The last part of the opinion explains the elements of an unjust enrichment claim and why that claim was allowed to proceed.

Ashcroft  v. Iqbal is a 2009 decision of the United States Supreme Court (SCOTUS) that may have an impact on the standard applied to motions to dismiss in state courts with rules that are modeled on the federal rules.

The Delaware Court of Chancery Rules and other Rules of Civil Procedure for other Delaware trial courts are based on the Federal Rules of Civil Procedure. Thus, when the U.S. Supreme Court renders a decision on the motion to dismiss standard under the federal rules, students of Delaware take note and wonder if the Delaware courts will follow suit. Though we cannot offer any authoritative opinion to those "watchers", we can provide a review of the SCOTUS decision involved.

Maura Burke, an associate in our Delaware office, prepared the following review and commentary on the recent Iqbal decision.

The Iqbal Pleading Standard

In Ashcroft v. Iqbal, 129 S. Ct. 1937 (May 2009), the U.S. Supreme Court affirmed the heightened pleading standard set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).

Some commentators believe that Iqbal has broadened the scope of the Twombly so that the heightened pleading standard now applies to all federal civil actions, while others argue that Iqbal is a narrow decision and the Twombly standard is applicable to only certain types of civil cases.

FED. R. CIV. P. 8(a)(2) provides for notice pleading, requiring merely “a short and plain statement of the claim showing that the pleader is entitled to relief.”

In Twombly, the Supreme Court interpreted Rule 8(a)(2) as requiring complaints to contain sufficient factual allegations to permit a district court to find that the claim is facially plausible. See 550 U.S. at 556. A complaint that merely sets forth a legal theory, conclusory allegations and recitation of the elements of a cause of action does not sufficiently state a plausible claim for relief. Id. at 555. The Twombly standard effectively heightened the standard for notice pleading by requiring a showing of “plausibility.” In Iqbal, the plaintiff filed a complaint against former federal officials, including FBI Director Robert Mueller and former U. S. Attorney General John Ashcroft, alleging that they engaged in a discriminatory policy by targeting him as a person “of high interest” in the investigation of the September 11 terrorist attacks solely because of his race, religion, and/or national origin. Mueller and Ashcroft moved to dismiss the claim and both the district court and Second Circuit found that the allegations of the complaint, taken as true, states a valid cause of action against them. Mueller and Ashcroft petitioned for certiorari and the Supreme Court reversed.

The Iqbal Court reaffirmed the heightened pleading standard set forth in Twombly. See 129 S.Ct. at 1955. The majority explained that when reviewing a complaint pursuant to a motion to dismiss, a court must consider a “two-pronged approach.” Id. at 1950. First, the court must accept as true all the specific factual allegations, but need not accept as true conclusory allegations. See id. at 1949. Second, the court must determine whether those factual allegations give rise to a plausible claim, such that the court may reasonably infer that the defendant is liable. Id. at 1950 (“Only a complaint that states a plausible claim for relief survives a motion to dismiss”).

“Plausibility” requires more than the “mere possibility of misconduct.” Id. (“whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense”). The Court explained that a complaint will be insufficient and a motion to dismiss will be granted if the facts in the complaint are “not only compatible with, but indeed … more likely explained by lawful … behavior.” Id.

Applying this first prong to the complaint at issue, the majority determined that the plaintiff’s allegations that Ashcroft and Mueller—“‘each knew of, condoned, and willfully and maliciously agreed to subject’ respondent to harsh conditions of confinement ‘as a matter of policy, solely on account of [plaintiff’s] religion, race, and/or national origin and for no legitimate penological interest”—were too conclusory to be entitled to a presumption of truth.” Id. at 1951.

Examining the “plausibility” prong, the Court held that the allegations in the plaintiff’s complaint “[did] not plausibly establish [a discriminatory] purpose” because a “more likely explanation” existed than the one alleged by plaintiff in a conclusory manner. Id. at 1951. Specifically, the Court, relying on its “experience and common sense,” determined that Arab Muslims were detained after the September 11 terrorist attacks, not because of their race, religion or national origin, but because the terrorist attacks were carried out by Arab Muslims. See id.


Some commentators believe that Iqbal has broadened the scope of the heightened pleading standard set forth in Twombly to apply to all federal civil actions, thus making it much easier for judges to dismiss civil lawsuits right after they are filed and before discovery takes place. See Adam Liptak, 9/11 Case Could Bring Broad Shift on Civil Suits, N.Y. TIMES, July 20, 2009, at A10. Notably, within the first two months after Iqbal was decided, it was cited more than 500 times for this proposition. See id.

Others disagree. One commentator argues that Iqbal is a narrow opinion that addresses the very specific issue of how “qualified immunity” applies to high-ranking officials in suits against the federal government for deprivations of constitutional rights. See Maxwell S. Kennerly, Ashcroft v. Iqbal: Not Nearly As Important As You Think, Litigation & Trial blog. (1)  Although Iqbal has been cited numerous times, he argues, “the standard is not any different from what courts have been practically applying for years, except to add the word ‘plausible.’” See id. Similarly other legal bloggers have opined that there is “nothing radical” about either Twombly or Iqbal, both require plaintiffs to support a prima facie case with sufficient facts, a general requirement for any type of lawsuit. See James M. Beck, A Twombly Of Scholarship, Drug and Device Law blog.(2)  In addition, Judge Posner, in a recent Seventh Circuit opinion, suggested that Twombly and Iqbal may only be applicable to complex or potentially expensive litigation. See Smith v. Duffey, 576 F.3d 336, 340 (7th Cir. 2009). (3)

Nevertheless, believing that Iqbal is in fact helpful to the defense and foreseeing its broad impact, the plaintiff’s bar reacted quickly, supporting the proposed legislation seeking to reinstate the notice pleading standards established before Twombley and Iqbal. Consequently, Senator Arlen Specter (D-Pa) sponsored the Notice Pleading Restoration Act of 2009 (S. 1504, introduced on July 22, 2009) which provides that federal courts shall not dismiss a complaint except under the notice pleading standards applicable under Conley v. Gibson, 355 U.S. 41 (1957), the Supreme Court precedent prior to Twombley. A similar bill, Open Access to Courts Act of 2009 (H.R. 4115), was introduced into the House by Representatives John Conyers (D-Mich) and Henry Johnson (D-Ga).

 Iqbal may also have ramifications in state proceedings as well. Many state courts, including those in Delaware, base their rules of civil procedure on the federal rules and rely on federal court analyses when interpreting the state rules. Eight state courts have cited Iqbal. Six of which cited the case for its procedural holding.(4) See Barry Miller and Casey Stansbury, Iqbal Energizes Motion to Dismiss Practice (March 10, 2010) (discussing Iqbal’s influence in state court matters).(5)

In Siemens Financial Services, Inc. v. Stonebridge Equipment Leasing, a Rhode Island court declined to apply the heightened pleading standard despite finding the Iqbal standard was consistent with the state’s standard for a motion to dismiss. The court, mimicking Judge Posner’s position, reasoned that Twombly mandated a heightened level of pleading only in complex cases. Accordingly, the court held that application of the heightened pleading standard was inappropriate because the matter before the court was not complex. See 2009 R.I. Super. LEXIS 14, *4-5 (“Consistent with this Court’s previous holding concerning the Twombly standard, the claims in this matter do not rise to the level of complexity contemplated by the Twombly Court that would require a heightened level of pleading beyond that which is generally required to survive a motion to dismiss”).

Although the Siemens Court held that the heightened pleading standard was only applicable to complex cases, not all state courts may agree with this restricted application of Iqbal. State courts may instead choose to employ a more expansive approach, applying the standard to all civil matters.

Iqbal has definitely made an impact. The extent of that impact, however, is still yet to be determined as the proposed litigation still pending, and more and more courts are interpreting the scope and applicability of the Iqbal standard.


 [1] Available at: See generally Professor Larry Ribstein’s comments at:

 [2] Available at:  (“It’s about time . . . that the courts adopt a construction of the Rules that favors reduced, rather than expanded, litigation”).

[3] In Smith, Judge Posner states:

            “… The Court held that in complex litigation (the case itself was an antitrust suit) the defendant is not to be put to the cost of pretrial discovery-a cost that in complex litigation can be so steep as to coerce a settlement on terms favorable to the plaintiff even when his claim is very weak-unless the complaint says enough about the case to permit an inference that it may well have real merit. The present case, however, is not complex. Were this suit to survive dismissal and proceed to the summary judgment stage, it would be unlikely to place on the defendants a heavy burden of compliance with demands for pretrial discovery. The parties did not negotiate face to face over the termination agreement, and though some of the negotiations were over the telephone rather than in letters or emails, Smith recorded those and the transcripts are attached to his complaint. So almost all the potentially relevant evidence is already in the record.

 Yet Iqbal is special in its own way, because the defendants had pleaded a defense of official immunity and the Court said that the promise of minimally intrusive discovery “provides especially cold comfort in this pleading context, where we are impelled to give real content to the concept of qualified immunity for high-level officials who must be neither deterred nor detracted from the vigorous performance of their duties.” Id. (emphasis added).”  576 F.3d 336, 339-40 (7th Cir. 2009).


[4] See e.g., Morris v. Grusin, 2009 Tenn. App. LEXIS 874 (Dec. 22, 2009) (declining to adopt Iqbal in a state tort matter because it is the responsibility of the state Supreme Court to adopt the standard in all state civil matters); Siemens Financial Services, Inc. v. Stonebridge Equipment Leasing, LLC, 2009 R.I. Super. LEXIS 14 (Nov. 24, 2009).  See also McKinnon v. Wester Sugar Coop. Corp., 201 Mont. LEXIS 21 (Feb. 5, 2010); Duncan v. State, 2009 Mich.App. LEXIS 1380 (June 11, 2009); Smith v. Wrigley, 908 N.E.3d 354, 359 (Ind. App. 2009).


[5] Available at:


Agilent Technologies, Inc. v. Kirkland, (Del. Ch., Jan. 20, 2009), read opinion here.

The common fact pattern addressed in this Chancery Court decision: ex-employee’s former employer alleges that confidential data taken from former employer is being used against it by ex-employee in new business.

This case began with claims involving allegedly false statements about a party’s products to potential partners and customers by ex-employees who started their own company with allegedly expropriated trade secrets. This decision denies a Motion to Strike and a Motion to Dismiss Counterclaims alleging the following: 

(i) unfair competition; (ii) tortious interference with prospective business relations; and (iii) violation of the Delaware Deceptive Trade Practices Act ("DTPA").  A helpful analysis for  the elements of each of the counterclaims is provided in the court’s opinion.

The  elements of both unfair competition and tortious interference were discussed at page 11 and footnotes 22 to 24. A key element of tortious interference with prospective business relations is "reasonable probability of business opportunity".  At footnotes 29 to 34, the court provides authority for the position that a specific party need not  be named, but that one "must ‘identify a specific party who was prepared to enter into a business relationship but was dissuaded from doing so by the defendant’ and cannot rely on generalized allegations of harm."

The key point was discussed that in order to constitute a basis for an unfair competition or unfair competition claim, the contested action must be wrongful conduct. (FNs 39 to 43).

Initially, the court discussed the difference, in the context of Rule 15, between supplemental pleadings and amended pleadings. After explaining why, the court overlooked a technical error in the filing of the amended counterclaim  in light of no responsive pleading having been filed. (FNs 15 to 21).

In finding that the pleading "barely passed muster" under Rule 12 (b)(6), allowing it to proceed to trial, the court  suggested that it may have difficulty prevailing at trial, citing to the recent U.S. Supreme Court decision in Bell Atlantic v. Twombly, 127 S. Ct. 1965 (2007).

A "not well-known" element of the DTPA  emphasized by the court was that "relief under the statute is dependent on the plaintiff’s entitlement to injunctive relief",  and that the DTPA is meant to address "patterns of deceptive conduct, not isolated incidents". (FNs 52 to 56).



In Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955 (2007), read opinion here,  the U.S. Supreme Court recently changed the analysis for federal courts to use in deciding a Motion to Dismiss pursuant to FRCP 12(b)(6) and in light of the notice pleading standard in Rule 8(a)(2). The Delaware Chancery Court  and other Delaware state court rules of civil procedure are based on the federal rules of civil procedure so it will be important to watch to see if any Delaware state court decisions are influenced by this SCOTUS decision.

Thanks to William Jacobs, a summer associate at our firm, for preparing the summary of this case.

This case involved a putative class action suit against Incumbent Local Exchange Carriers (“ILEC’s”) alleging antitrust conspiracy in violation of Section 1 of the Sherman Act .

The United States District Court for the Southern District of New York dismissed the plaintiffs’ complaint for failure to state a claim upon which relief could be granted pursuant to Fed. R. Civ. P. 12(b)(6). The United States Court of Appeals for the Second Circuit reversed and the Supreme Court granted certiorari. 

The U.S. Supreme Court determined that the plaintiffs alleged no facts that made an inappropriate agreement or conspiracy any more plausible than independent business decisions; and since violation of Section 1 requires a “contract, combination, or conspiracy,” the complaint could not survive the motion to dismiss. In making their decision, the Court advanced a new pleading standard. The previous standard, set out in Conley v. Gibson, 355 U.S. 41, 78 (1957), provided that: “a complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief.” Id. 

However, the High Court in Twombly said the “no set of facts” language in the Conley standard has earned its retirement. The Court held that complaints must now state enough facts to make it plausible that the plaintiff is entitled to relief. Put simply, the facts stated in a complaint must make the allegations alleged plausible under  the "new test" announced by the Court as opposed to merely possible as previously would pass muster under Conley. Thus, in this case, the plaintiffs’ complaint needed to allege sufficient facts that, taken as true, suggested that the ILECs conspired to keep upstarts out of their markets. Finding no such facts in the complaint, the Supreme Court reversed the Court of Appeals and dismissed the complaint.