Amgine Technologies (US), Inc. v. Harold Roy Miller ( 2021 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
AMGINE TECHNOLOGIES (US), INC., )
)
Plaintiff, )
)
v. ) C.A. No. 2020-0537-JRS
)
HAROLD ROY MILLER, JONATHAN )
DAVID MEYER MILLER, SEVEN )
MEDICAL INC., AMGINE )
TECHNOLOGIES US HOLDING, LLC, )
and AMGINE HOLDINGS LTD., )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: August 17, 2021
Date Decided: November 29, 2021
Emily V. Burton, Esquire and Alberto E. Chávez, Esquire of Young Conaway
Stargatt & Taylor, LLP, Wilmington, Delaware, Attorneys for Plaintiff.
Srinivas M. Raju, Esquire and Angela Lam, Esquire of Richards, Layton &
Finger, P.A., Wilmington, Delaware; Michael C. Holmes, Esquire, Margaret Dunlay
Terwey, Esquire and Meredith S. Jeanes, Esquire of Vinson & Elkins LLP, Dallas,
Texas; and Christopher E. Duffy, Esquire, David A. Hoffman, Esquire and W. Logan
Lewis, Esquire of Vinson & Elkins LLP, New York, New York, Attorneys for
Defendants.
SLIGHTS, Vice Chancellor
In this action, Plaintiff, Amgine Technologies (US), Inc. (“Amgine US” or
“Plaintiff”), challenges two purported instances of misconduct by Amgine US’s
former controlling stockholders—father and son Harold Roy Miller (“Roy”) and
Jonathan David Meyer Miller (“Jonathan”).1 First, Plaintiff alleges that the Millers
wrongfully caused the assignment of intellectual property developed and funded by
Amgine US to Seven Medical, Inc. (“Seven Medical”), an entity partially owned and
controlled by the Millers. Second, Plaintiff alleges that the Millers executed a self-
dealing scheme by orchestrating the 2017 reorganization of Plaintiff’s sister-
company, Amgine Technologies Limited (“Amgine Canada”), on terms favorable to
the Millers and detrimental to Plaintiff and its stockholders (the “Inversion”). As
part of the Inversion, Plaintiff, Amgine Canada, and Amgine Canada’s stockholders
entered into a unanimous stockholders agreement dated January 10, 2017
(the “CSA”), which facilitated Plaintiff’s now-challenged acquisition of Amgine
1
Roy and Jonathan are collectively referred to as the “Millers.” I refer to both by their first
names for clarity and intend no familiarity or disrespect. Defendants, Seven Medical,
Amgine Technologies US Holding, LLC (“US Holding”) and Amgine Holdings Ltd.
(“Canada Holdings”), are collectively referred to as the “Miller Entities.”
1
Canada.2 The CSA is at the heart of this dispute.3 Notably, of the 47 signatories to
the CSA, only two are parties to this action: Plaintiff and Canada Holdings.4
Against this backdrop, the specific claims raised in the operative Amended
and Supplemental Verified Complaint (the “Amended Complaint”) comprise five
counts. Count I alleges the Millers breached their respective fiduciary duties in
connection with the Inversion by securing unfair preferential terms for themselves
at the expense of other stockholders, and “by taking [Amgine US and Amgine
Canada’s]5 intellectual property, resources and corporate opportunity, including [a
patent to protect the use of Amgine US’s technology for medical applications
(the “Medical Patent”)], and providing them to Seven Medical.”6 Count II is brought
against the Miller Entities and Jonathan, to the extent he did not directly owe
fiduciary duties to Amgine US, for aiding and abetting the Millers’ or Roy’s
breaches of fiduciary duties.7 Count III seeks a declaration that “Seven Medical’s
2
Amended and Supplemental Verified Compl. (“Am. Compl.”) (D.I. 30) Ex. 6.
3
Am. Compl. ¶¶ 18, 23.
4
Am. Compl. Ex. 6 at Schedule A.
5
Throughout the Amended Complaint, Plaintiff uses the defined term “Amgine” to refer
to Amgine and Amgine Canada, collectively. As discussed below, this combination has
created confusion. For clarity, anytime a quote from the Amended Complaint includes the
term “Amgine,” I have replaced the defined term with “Amgine US and Amgine Canada.”
6
Am. Compl. ¶¶ 171, 173–74.
7
Am. Compl. ¶ 179.
2
patents and other intellectual property, including but not limited to the Medical
Patent, which (i) relate to work performed by, or at the direction of, the Millers while
engaged by [Amgine US and Amgine Canada], or (ii) were prepared using
[Amgine US and Amgine Canada] resources or funding, are owned by
Amgine US.”8 Count IV asserts claims against the Millers and their affiliated
entities for unjust enrichment following their receipt of “misappropriated funds and
other assets of [Amgine US and Amgine Canada] to the detriment of [Amgine US
and Amgine Canada] without justification.”9 And finally, Count V seeks a
declaration under 8 Del. C. § 205 (“Section 205”) that Amgine US’s entry into the
CSA was void, that the CSA itself is void and that no party to this action may seek
to enforce any of the terms of the CSA in any court.10
Defendants have moved to dismiss the Amended Complaint in its entirety
under Court of Chancery Rules 9(b), 12(b)(1), 12(b)(3), 12(b)(6), 12(b)(7) and the
forum non conveniens doctrine. According to Defendants, several of the claims are
time-barred. Defendants also argue that the “Patent Claims” (Count III and portions
of Counts I, II and IV) must be dismissed for forum non conveniens. As for the
“Inversion Claims” (Count V, and portions of Counts I, II and IV), Defendants
8
Am. Compl. ¶ 185.
9
Am. Compl. ¶ 187.
10
Am. Compl. ¶ 194.
3
contend they must be dismissed because they arise from the CSA and, under
Section 1.6(b) of the CSA (the “Forum Selection Clause”), any action or proceeding
arising out of or related to the CSA must be litigated in Ontario, Canada.11 Dismissal
of the Inversion Claims is also appropriate, say Defendants, both because Plaintiff
has failed to name necessary parties and because the Court may not exercise personal
jurisdiction over those absent parties. Alternatively, Defendants contend that the
Inversion Claims fail for want of specific allegations of fraud and well-pled
allegations that the Inversion-related transactions were defective. Finally,
Defendants argue that Count V must be dismissed for failure to state a claim.
For reasons explained below, I am satisfied that Defendants’ arguments
regarding time-barred claims cannot be decided on the pleadings. I am also satisfied
that Defendants have failed to demonstrate that litigating in Delaware would be an
overwhelming hardship. Accordingly, dismissal of the Patent Claims under the
doctrine of forum non conveniens is inappropriate. Likewise, the Inversion Claims
are not subject to the CSA’s Forum Selection Clause, so Plaintiff’s selection of
Delaware as the forum to litigate its claims must be respected. As for the breach of
fiduciary duty claims, contrary to Defendants’ argument, Plaintiff has well pled
breach of fiduciary duty with respect to the Inversion as the claim is subject to notice
pleading standards, not the heightened pleading standard required for claims of
11
Am. Compl. Ex. 6, § 1.6(b).
4
fraud. On the other hand, Plaintiff has failed to state a claim under Section 205.
Count V, therefore, must be dismissed.
I. BACKGROUND
I have drawn the facts from well-pled allegations in the Amended Complaint,
documents incorporated by reference or integral to that pleading and documents
properly subject to judicial notice.12
A. Parties and Relevant Non-Parties
Roy resides in Toronto, Ontario.13 In 2012, he founded Amgine US and non-
party, Amgine Canada, to develop and operate a software application as a cloud
service to automate the processing of travel requests.14 Although Roy formed
Amgine US and Amgine Canada as separate companies, he, and the employees
reporting to him, frequently failed to respect their corporate separateness.15 As a
result, the operations and finances of the entities were not clearly delineated.16
12
DRE 201, 202 (setting forth Delaware’s “judicial notice” standards); Wal-Mart Stores,
Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (noting that on a motion to dismiss,
the Court may consider documents that are “incorporated by reference” or “integral”
to the complaint).
13
Am. Compl. Ex. A.
14
Am. Compl. ¶ 45. Plaintiff is a Delaware corporation and Amgine Canada is a “Canadian
corporation.” Am. Compl. ¶¶ 34, 40.
15
Am. Compl. ¶ 47.
16
Id.5
Roy served as director and CEO of Amgine US and Amgine Canada until he was
removed from those positions by the stockholders of both companies in May 2019.17
Jonathan resides in Austin, Texas.18 In 2012, Roy unilaterally appointed
Jonathan as Chief Innovation Officer of Amgine Canada. Three years later, in 2015,
Roy again unilaterally appointed Jonathan as an officer, this time as Chief
Technology Officer of Amgine US and some of its affiliates, including Amgine
Canada. Jonathan remained in that position until August 15, 2019.19
Defendant, Seven Medical, is a Delaware corporation founded by Roy in
October 2014.20 It is owned or controlled by the Millers and Roy’s longtime
business partner, non-party, James Valverde, Jr.21 Substantially all of Seven
Medical’s assets are, or were, built from resources taken from Amgine US or
Amgine Canada.22
17
Am. Compl. ¶¶ 1, 35.
18
Am. Compl. ¶ 36.
19
Id.20
Am. Compl. ¶ 37.
21
Am. Compl. ¶¶ 11, 37.
22
Am. Compl. ¶ 37.
6
Defendant, US Holding LLC, is a Wyoming limited liability company
controlled by the Millers through a family trust.23 US Holding is the record owner
of the Millers’ equity interests in Plaintiff, consisting of common stock and a
convertible debenture.24
Defendant, Canada Holdings, is a Canadian corporation controlled by the
Millers through a family trust.25 Canada Holdings is the record owner of the Millers’
preferred equity in Amgine Canada.26 Relevant here, the Millers own 67.8% of the
new class of preferred stock in Amgine Canada that was created to facilitate the
Inversion (the “CA Preferred”).27
Non-party, James Valverde, Jr., served on Plaintiff’s board and as its Chief
Analytics Officer from August 2014 to April 2017.28 From December 2014 through
April 2017, he was Plaintiff’s sole director.29 Valverde is a close friend of the
23
Am. Compl. ¶ 38.
24
Id.25
Am. Compl. ¶ 39.
26
Id.27
Am. Compl. ¶¶ 39, 137; Am. Compl. Ex. 6, at Schedule A. Canada Holdings, as holder
of CA Preferred shares, is a party to the CSA.
28
Am. Compl. ¶ 41.
29
Id.7
Millers and has worked with Roy at various businesses.30 Undisclosed to the
stockholders of Amgine US or Amgine Canada during the relevant period, Valverde
was also a trustee for the Millers’ family trust, which directly owns US Holding and
Canada Holdings.31
B. The Inversion Claims
According to Plaintiff, in the spring of 2016, Roy devised a plan to collapse
Amgine Canada into Amgine US—i.e., the “Inversion.”32 Three interrelated steps
occurred to effect the Inversion: “(1) Amgine Canada exchanged newly issued
[CA Preferred] for its then-outstanding common stock; (2) Amgine Canada []
transferred substantially all of its assets, including its own common stock and its
common stock in Amgine US, to Amgine US pursuant to a subscription agreement;
and (3) Amgine US [] entered into the [CSA] with Amgine Canada and all of the
CA Preferred holders.”33
Plaintiff alleges the Millers breached their fiduciary duties as controlling
stockholders and officers when they caused Amgine US to enter into the CSA
because the CSA is structured unfairly to favor the holders of the CA Preferred in
30
Id.31
Am. Compl. ¶ 42.
32
Am. Compl. ¶ 91
33
Am. Compl. ¶ 17.
8
several respects at the expense of Amgine US.34 Specifically, upon the liquidation
of either Amgine US or Amgine Canada, the holders of the CA Preferred are to
receive a $10 million liquidation preference.35 This preference, when exercised, will
result in a $6.78 million payment to the Millers because they are the beneficial
owners of 67.8% of the CA Preferred.36 The liquidation provision also includes a
drag-along right that is triggered if Amgine US or Amgine Canada receives an
acquisition offer that is approved by 66.67% of the CA Preferreds.37 In other words,
if the holders of 66.67% of the CA Preferred deem a Liquidation Offer acceptable,
then the remaining CA Preferreds must sell on those terms. Because the Millers
control more than 66.67% of the CA Preferred, they can unilaterally cause the sale
of Amgine Canada—provided, of course, there is a willing buyer.
Amgine US alleges that, in an effort to “justify the Inversion to [Amgine US
and Amgine Canada’s] outside stockholders, the Millers hired Deloitte LLP to
provide a calculation of the fair market value of Amgine Canada (the ‘Deloitte
34
Am. Compl. ¶¶ 167–170, 173–74.
35
Am. Compl. ¶ 96. I refer to the holders of CA Preferred as the “CA Preferreds.”
36
Am. Compl. ¶¶ 96, 137.
37
Am. Compl. ¶ 137. The Millers’ control over Amgine Canada’s future is further
cemented by the fact that any amendment or modification to the CSA must be approved by
at least 50% of the CA Preferred. Am. Compl. ¶ 138.
9
Valuation’).”38 According to Amgine US, the Millers knowingly provided false and
misleading information to Deloitte, and then “took their fraudulent valuation and
fraudulently induced [Amgine US] and Amgine Canada into purporting to enter into
the Inversion and the [CSA].”39 As a result, Amgine US alleges that the subsequent
stockholder approval was invalid because the stockholders were uninformed and
their consent was fraudulently induced.40
Amgine US maintains that its acquisition of Amgine Canada, at this point,
cannot be unwound.41 Accordingly, Amgine US has started the process of ratifying
its acquisition under 8 Del. C. § 204.42 Related to this process, Amgine US seeks a
determination under Section 205 that its entry into the CSA was void ab initio,
presumably so the CSA and related agreements can be restructured on fair terms.43
38
Am. Compl. ¶ 21.
39
Am. Compl. ¶ 23. Specifically, Amgine US alleges that, in an attempt to inflate the value
of Amgine Canada, the Millers provided Deloitte false information about the commercial
readiness of Amgine US’s and Amgine Canada’s technology and concealed the fact that
Amgine US had already contributed $12.9 million USD towards development of the
technology. Am. Compl. ¶¶ 22, 107.
40
Am. Compl. ¶¶ 99–114.
41
Am. Compl. ¶ 5; Pl.’s Answering Br. in Opp’n to Defs.’ Mot. to Dismiss (“AB”) (D.I. 43)
at 10.
42
AB at 10; Am. Compl. ¶ 32.
43
Am. Compl. 54, ¶¶ 33, 192, 194.
10
C. The Patent Claims
In separate claims, Amgine US alleges the Millers and Valverde
misappropriated a corporate opportunity from Amgine US by abandoning the
Medical Patent, a contested provisional patent filed to protect medical applications
of Amgine US’s core technology, and refiling it in July 2015 under their own
names.44 Subsequently, in June 2019, the Millers and Valverde were awarded the
Medical Patent, which they assigned to Seven Medical on August 29, 2017.45
Amgine US seeks a declaration that it is the rightful owner of the Medical Patent
(Count III).46 It also asserts that Defendants’ conduct with respect to the Medical
Patent is the product of fiduciary duty breaches (Count I),47 and the aiding and
abetting of such breaches (Count II),48 and that the result of this wrongdoing has
unjustly enriched the Millers and the Miller Entities (Count IV).49
44
Am. Compl. ¶ 85.
45
Am. Compl. ¶¶ 11, 88.
46
Am. Compl. ¶¶ 183–85.
47
Am. Compl. ¶¶ 171–72.
48
Am. Compl. ¶ 181.
49
Am. Compl. ¶ 187.
11
Amgine US also vaguely asserts that Roy presently holds patents belonging
to Amgine US, which he refuses to assign to Amgine US.50 The Amended
Complaint, however, provides no details concerning these patents, the dates on
which Amgine US’s claims arose or any basis for Amgine US’s entitlement to them.
D. Procedural History
This action marks the third lawsuit involving most of the parties involved
here. On November 6, 2019, Jonathan and his sister, non-party Naomi Miller, sued
Amgine US and a related entity in Texas for wages that allegedly went unpaid while
Roy controlled the payroll (the “Texas Action”).51 On April 30, 2020, Amgine US
filed counterclaims against Jonathan, in which it asserted claims for breach of
fiduciary duties and unjust enrichment.52
Just over a month after Jonathan filed the Texas Action, on December 9, 2019,
Roy sued Amgine US and certain related entities in Ontario, Canada for wages and
benefits that Amgine US allegedly failed to pay Roy while Roy worked for
Amgine US (the “Ontario Action”).53 Then, on July 8, 2020, Amgine US filed
50
Am. Compl. ¶¶ 162–65.
51
AB at 2; Defs.’ Corrected Opening Br. in Supp. of Mot. to Dismiss Am. Compl. (“OB”)
(D.I. 40) Ex. C.
52
OB Ex. C.
53
AB at 2.
12
counterclaims against Roy, US Holding and Canada Holdings, alleging that Roy
could not recover supposedly unpaid wages because he had already extracted more
than what was owed him through self-dealing.54 The alleged self-dealing related to
the misappropriation of intellectual property referred to as “the Parser.”55
Amgine US filed its initial complaint in this Court on June 30, 2020.56
Defendants moved to dismiss that complaint on September 15, 2020, and Amgine
US responded by filing the Amended Complaint on December 11, 2020.57
Defendants moved to dismiss the now-operative Amended Complaint on
December 28, 2020.58
II. ANALYSIS
As noted, Defendants have moved to dismiss on several grounds. I first
address the arguments related to the Patent Claims. I then turn to the Inversion
Claims, and as a threshold matter, I address Defendants’ argument that the Forum
Selection Clause requires Plaintiff to bring the Inversion Claims in Ontario. Upon
concluding that the Forum Selection Clause does not cover the claims asserted here,
54
OB Ex. B.
55
Id.
56
D.I. 1.
57
D.I. 14, 30.
58
D.I. 35.
13
I address the remaining arguments and conclude, save Count V, that all other counts
in the Amended Complaint survive dismissal.
A. The Patent Claims Survive Dismissal
Defendants seek dismissal of the Patent Claims on two grounds. First, they
argue that, under the doctrine of forum non conveniens, the Court must dismiss the
Patent Claims because similar intellectual property disputes are pending in Texas
and Canada.59 And, second, they maintain the Patent Claims must be dismissed
because they are time-barred under Ontario’s two-year statute of limitations.60
Neither ground is persuasive.
Forum Non Conveniens
For reasons explained below, in the absence of a qualifying “first-filed”
action, Defendants’ forum non conveniens argument rises or falls under its theory
that application of the Cryo-Maid factors makes clear the Patent Claims should be
litigated in Canada, not Delaware.61 Under Chancery Rule 12(b)(3), this court may
dismiss or stay an action upon concluding that Delaware is an inconvenient forum
in which to litigate.62 Specifically, “[t]he doctrine of forum non conveniens
59
Defs.’ Reply Br. in Supp. of Mot. to Dismiss Am. Compl. (“RB”) (D.I. 46) at 3.
60
RB at 2–3.
61
OB at 23; RB at 32. See generally, Gen. Foods Corp. v. Cryo-Maid, Inc., 198 A.2d 681(Del. 1964).
62
Lefkowitz v. HWF Hldgs., LLC, 2009 WL 3806299, at *3 (Del. Ch. Nov. 13, 2009)
14
empowers a court to decline to hear a case, despite having jurisdiction, where the
plaintiff’s choice of forum would vex, oppress, or harass the defendant through
undue inconvenience, expense, or other hardship.”63
In considering a motion to dismiss for forum non conveniens where the
Delaware action is the only action filed,64 or where the Delaware action is first-filed,
this court applies Cryo-Maid.65 If litigation is commenced prior to the Delaware
action “involving the same parties and the same issues” in a court “capable of doing
prompt and complete justice,” then this court applies the discretionary McWane
standard which allows the court to defer more readily to the court in which related
litigation was first filed.66 Thus, as a threshold matter, I must determine if the Patent
Claims are pending elsewhere in a first-filed action. They are not.
(“Courts traditionally dismiss a matter under Rule 12(b)(3) when the contract underlying
the dispute contains an explicit forum selection clause or when, applying the doctrine
of forum non conveniens, Delaware is clearly not the appropriate forum for litigation.”).
63
Vichi v. Koninklijke Philips Elecs. N.V., 2009 WL 4345724, at *12 (Del. Ch. Dec. 1,
2009) (citing to Chrysler First Bus. Credit Corp. v. 1500 Locust Ltd. P’ship, 669 A.2d 104,
106 (Del. 1995)).
64
Id. at *12.
65
AG Res. Hldgs., LLC v. Terral, 2021 WL 486831, at *2 (Del. Ch. Feb. 10, 2021).
66
McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng’g Co., 263 A.2d 281(Del. 1970).
15
Neither of the Millers’ lawsuits pending elsewhere will address the
wrongdoing alleged in connection with the Patent Claims.67 Seven Medical, a
necessary party with respect to the majority of Patent Claims, is not a party in either
the Texas or the Ontario Actions.68 Moreover, the intellectual property disputes in
Texas and Ontario involve different assets and different causes of action.69 Both the
Texas and Ontario Actions involve claims relating to the Parser, which have since
been dropped from this action.70 The Texas Action will address claims that Jonathan
breached his employment agreement when he shared confidential information
pertaining to Plaintiff’s intellectual property.71 The Ontario Action will address
claims that Roy engaged in self-dealing related to the Parser and is therefore
precluded from recovering unpaid wages.72 On the other hand, Roy’s alleged refusal
to execute the assignments implicated in the Patent Claims did not occur until after
the Texas and Ontario Actions were filed and are not, therefore, at issue in those
67
AB at 55.
68
OB Ex. A ¶¶ 2–6; OB Ex. C, at 1; AB at 55.
69
OB Ex. B. Plaintiff “eliminated claims related to the Parser from this action in order to
prevent any collision of rulings between this Court and the Ontario Action.” AB at 56.
70
RB at 33.
71
AB at 55; OB Ex. C.
72
AB at 55–56.
16
cases.73 Given that neither of the two cases pending elsewhere will address the
claims pending before this Court, no first-filed action triggers McWane deference.
Having concluded that the Patent Claims are not pending elsewhere, I analyze
the forum non conveniens defense in accordance with Cryo-Maid. “Under our Cryo-
Maid jurisprudence, a defendant seeking dismissal on forum non conveniens grounds
must establish with particularity that it will be subject to overwhelming hardship and
inconvenience if required to litigate in Delaware.”74 To assess the degree of hardship
a defendant will face if required to litigate in Delaware, our courts apply the factors
identified in Cryo-Maid.75 As currently framed, those six factors are:
(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 Delaware courts more properly
should decide than those of another jurisdiction; (5) the pendency or
nonpendency of a similar action or actions in another jurisdiction; and
(6) all other practical problems that would make the trial of the case
easy, expeditious and inexpensive. 76
To succeed on a motion to stay or dismiss because of forum non conveniens,
“[a] defendant must establish that one or more of the Cryo-Maid factors actually
73
See Am. Compl. ¶ 172; AB at 55.
74
Vichi, 2009 WL 4345724, at *12.
75
See Cryo-Maid, 198 A.2d at 684 (identifying four factors).
76
Candlewood Timber Gp., LLC v. Pan Am. Energy, LLC, 859 A.2d 989, 998 (Del. 2004)
(expanding the Cryo-Maid factors); Chase, 2019 WL 6833958, at *3 (applying six factors).
17
causes [] significant hardship and inconvenience.”77 It does not matter whether, on
balance, a majority of the factors favor defendant—“[t]he issue is whether any or all
of the Cryo-Maid factors establish that defendant will suffer overwhelming hardship
and inconvenience if forced to litigate in Delaware. Absent such a showing,
[Amgine US’s] choice of forum must be respected.”78
Relative Ease of Access to Proof Based on the allegations in the Amended
Complaint, it is clear that the Millers will be a focal point of discovery and trial
proofs.79 Roy is in Ontario.80 Jonathan is in Texas.81 Other sources of proof are US
Holding (a Wyoming LLC), Canada Holdings (a Canadian corporation), Seven
Medical (a Delaware corporation) and the present CEO of Amgine US, who is
located in Ontario.82 In other words, much if not all of the evidence resides outside
of Delaware.
With that said, Roy and Jonathan have been served in this litigation and have
not sought dismissal for want of personal jurisdiction over them. And the fact that
77
Chrysler, 669 A.2d at 108.
78
Id.79
AB at 57 (explaining the central role of Roy and Jonathan).
80
Am. Compl. Ex. A.
81
Am. Compl. ¶ 36.
82
Am. Compl. ¶¶ 38–39; AB at 57.
18
documentary evidence may reside outside of Delaware, alone, is not a basis to find
overwhelming hardship, particularly “in an age where air travel, express mail,
electronic data transmissions and videotaped depositions are part of the normal
course of business” for complex litigation in the United States.83 On balance, this
factor is, at best, neutral.
The Availability of Compulsory Process for Witnesses Defendants have
made no meaningful effort to demonstrate that necessary witnesses are beyond the
reach of Delaware’s compulsory process. And they certainly have not attempted to
argue that the application of this factor reveals that litigating in Delaware will cause
overwhelming hardship.
The Possibility of a View of the Premises Neither party addressed this factor,
and for good reason. None of Plaintiff’s claims suggest that a view of any premises
will be necessary to present claims or defenses.
Whether the Controversy Is Dependent upon the Application of
Delaware Law The parties are centered in Delaware: Plaintiff is incorporated in
Delaware,84 and the Millers allegedly are fiduciaries of Plaintiff, a Delaware
corporation.85 The harm is centered in Delaware: The Millers are alleged to have
83
In re Asbestos Litig., 929 A.2d 373, 384 (Del. Super. 2006) (citations omitted).
84
Am. Compl. ¶ 34.
85
Am. Compl. ¶¶ 35, 67–69.
19
intentionally misappropriated intellectual property from Plaintiff and assigned it to
Seven Medical, an entity they control, which is also incorporated in Delaware.86 In
so doing, the Millers allegedly usurped a corporate opportunity from Plaintiff. While
the Court need not declare definitively at this stage that Delaware law will apply to
this claim, it does appear that Delaware law is the frontrunner among the possible
contestants. There is no overwhelming hardship to be found here.
The Pendency or Nonpendency of a Similar Action or Actions in
Another Jurisdiction As previously discussed, this action is not pending in another
jurisdiction; the Texas and Ontario Actions involve different intellectual property
and different claims among variously different parties. While the actions may be
similar, in the sense that all three of the pending actions involve allegations of
misappropriation of intellectual property, it cannot be said on this record that forcing
Defendants to defend the Patent Claims in Delaware will result in overwhelming
hardship of a nature that would justify denying Plaintiff its choice of forum.
All Other Practical Problems That Would Make the Trial of the Case
Easy, Expeditious and Inexpensive While Defendants argue this factor weighs in
favor of not litigating in Delaware, Plaintiff persuasively observes that Defendants’
86
Am. Compl. ¶¶ 37, 78–85.
20
argument in this regard is light on specifics.87 While it is true that these parties have
chosen to litigate on multiple fronts and that a consolidation of claims and
counterclaims in one forum would undoubtedly be more efficient, multi-forum
litigation is not uncommon. And, the fact that the parties have opted to engage on
multiple fronts does not, on its own, justify dismissal of the Delaware piece of the
multi-forum puzzle, at least not on grounds of forum non conveniens.88
Statute of Limitations/Laches
Defendants argue that the Patent Claims are time-barred under the applicable
Ontario statute of limitations.89 According to Defendants, Ontario law clearly
applies to the Patent Claims given the Amended Complaint’s acknowledgement that
the Medical Patent and related corporate opportunities belonged to Amgine
Canada.90 Thus, say Defendants, under the “internal affairs doctrine,” Ontario law—
not Delaware law—governs the Patent Claims. And, because the wrongful act
underlying the Patent Claims (the misappropriation) occurred on August 29, 2017,
and the initial complaint was not filed until June 30, 2020, the Patent Claims are
87
AB at 57–58.
88
See Ryan v. Gifford, 918 A.2d 341, 349–50 (Del. Ch. 2007) (observing, even in the
context of McWane, that Delaware courts do not reflexively dismiss or stay actions in
Delaware simply because the parties are engaged in litigation elsewhere).
89
OB at 27, 40.
90
OB at 39 and RB at 29; Am. Compl. ¶¶ 46–49.
21
time-barred by Ontario’s two-year statute of limitations.91
Plaintiff counters that Defendants have misread the Amended Complaint;
specifically, Plaintiff disputes that it has pled the Medical Patent and the related
claims belong to Amgine Canada.92 Separately, Plaintiff argues that even if Ontario
law did govern the Patent Claims, the United States Patent Office did not disclose
the assignment of the Medical Patent until June 2019, which means the Patent
Claims were brought within Ontario’s two-year statute.93
“Because [Plaintiff’s’] claims sound in equity, the limitations doctrine that
applies is laches, which focuses on whether an unreasonable delay in asserting the
claim has unfairly prejudiced the defendant. This court frequently uses the
analogous statutory limitations period as the presumptive limitations period for
91
RB at 2.
92
AB at 59–60. Plaintiff points to its allegation that the Medical Patent, among other
assets, was “Amgine’s intellectual property, resource[], and corporate opportunity.”
Am. Compl. ¶ 171. Plaintiff’s definition of “Amgine,” which includes both Amgine US
and Amgine Canada, muddies the water here and in other aspects of the Amended
Complaint. Am. Compl. ¶ 1. See also Am. Compl. ¶ 10 (“In 2015, after Amgine had
funded the expensive task of developing, drafting, and defending the Medical Patent, [the
Miller’s and Valverde] caused Amgine’s counsel to abandon the draft Medical Patent
filing.”). Even so, giving all reasonable inferences to Plaintiff, as I must at this stage,
I accept Plaintiff’s characterization of its pleading for now. See Doe v. Cahill, 884 A.2d
451, 458 (Del. 2005) (“Finally, in ruling on a motion to dismiss under Rule 12(b)(6), a trial
court must draw all reasonable factual inferences in favor of the party opposing the
motion.”).
93
AB at 60.
22
laches.” 94 If a party files a claim after the analogous statute of limitations has run,
the claim is likely time-barred “except in the ‘rare’ and ‘unusual’ circumstance that
a recognized tolling doctrine excuses the late filing.”95
The factual record is not developed enough at this nascent stage of the
litigation to make a dispositive determination regarding the timeliness of the Patent
Claims. This should come as no surprise given that “the standard of review under
Rule 12(b)(6) is only of reasonable conceivability based on the complaint, [and]
affirmative defenses, such as laches, are not ordinarily well-suited for treatment on
such a motion, even though the Court may reach a different answer with a more
developed factual record.”96
After the record is developed further, if the evidence reveals that Amgine US
possessed the intellectual property that is the object of the Patent Claims, then
Defendants’ theory that the Patent Claims are subject to Ontario’s statute of
limitations would likely fail, and Delaware’s three-year statute of limitations would
94
de Adler v. Upper New York Inv. Co. LLC, 2013 WL 5874645, at *12 (Del. Ch. Oct. 31,
2013).
95
In re Sirius XM S’holder Litig., 2013 WL 5411268, at *4 (Del. Ch. Sept. 27, 2013)
(citations omitted).
96
de Adler, 2013 WL 5874645, at *12 (cleaned up) (quoting Reid v. Spazio, 970 A.2d 176,
182–83 (Del. 2009)); see also Khanna v. McMinn, 2006 WL 1388744, at *30 (Del. Ch.
May 9, 2006) (same).
23
apply.97 Even if Ontario law governs, there may be factual or equitable grounds to
toll the limitations period. On the other hand, the evidence may dispositively reveal
that a two-year statute of limitations applies and that Plaintiff failed to bring its
claims in Delaware within the statutory window. If so, Defendants may pursue
judgment as a matter of law on that ground under Chancery Rule 56. The point, for
now, is that further development of the factual record is required before the Court
can adjudicate the laches defense.
* * * * *
The motion to dismiss the Patent Claims under Chancery Rule 12(b)(3) is
denied; those claims will be litigated in Delaware. The motion to dismiss the Patent
Claims under Chancery Rule 12(b)(6) as untimely is also denied; Defendants may
renew their laches defense, if appropriate, on summary judgment.
B. The Inversion Claims Survive Dismissal
Defendants move to dismiss the Inversion Claims on four grounds:
(1) dismissal is required under the CSA’s Forum Selection Clause; (2) dismissal is
required under Chancery Rule 19(b) because Plaintiff has failed to join necessary
parties––the CA Preferreds not named in this action; (3) the Inversion Claims are
97
10 Del. C. § 8106(a) (codifying a three-year limitations period for an “action to recover
damages for the detention of personal chattels” or for an “action to recover damages caused
by an injury unaccompanied by force.”).
24
time-barred under both Delaware and Ontario law; and (4) Plaintiff has failed to
plead fraud regarding the Inversion with the requisite specificity under Rule 9(b).
I address each ground in turn.
The Forum Selection Clause
“The courts of Delaware defer to forum selection clauses and routinely give
effect to the terms of private agreements to resolve disputes in a designated judicial
forum out of respect for the parties’ contractual designation.”98 Accordingly, “when
the contract underlying the dispute contains an explicit forum selection clause,” this
court will dismiss a Delaware complaint under Chancery Rule 12(b)(3) if the clause
requires the action to be brought elsewhere.99 Here, the contract underlying this
dispute, the CSA, contains an explicit forum selection clause that requires actions
“arising out of or relating to” the CSA to be brought in Ontario, Canada.100 Amgine
US argues the clause is unenforceable as a matter of Delaware law and, even if it is
98
Ashall Homes, Ltd. v. ROK Entm’t Gp. Inc., 992 A.2d 1239, 1245 (Del. Ch. 2010)
(internal quotations omitted).
99
Baker v. Impact Hldg., Inc., 2010 WL 1931032, at *2 (Del. Ch. May 13, 2010).
100
Am. Compl. Ex. 6, §1.6(b) (“Subject to the dispute resolution provisions of this
Agreement, each of the Parties irrevocably attorns and submits to the exclusive jurisdiction
of the courts of Ontario in any action or proceeding arising out of or relating to this
Agreement. Each of the Parties waives objection to the venue of any action or proceeding
in such court or any argument that such court provides an inconvenient forum.”).
25
enforceable, the clause does not apply to the claims it has asserted here.101 I address
both arguments in turn.
a. The Forum Selection Clause Is Valid and Enforceable
When a contract contains a forum selection clause, this court will interpret the
forum selection clause in accordance with the law chosen to govern the contract.102
“Here, the agreement clearly chose [Canadian] law to govern the parties’
relationship” under the CSA.103 In their opening brief, Defendants cite one Canadian
case to confirm that Canadian courts, like Delaware courts, generally enforce forum
selection and choice-of-law clauses.104 Amgine US does not cite any contrary
authority. Given that there appears to be no conflict of law, “the analysis will
proceed exclusively under Delaware law.”105
101
I note that Amgine US does not argue the Forum Selection Clause is not actually an
exclusive forum selection clause. See In re Bay Hills Emerging P’rs I LP,
2018 WL 3217650, at *8 (Del. Ch. July 23, 2018) (explaining the distinction between a
“permissive consent to jurisdiction clause” and a “mandatory forum selection clause”).
Accordingly, I do not take up that issue here.
102
See Germaninvestments AG v. Allomet Corp., 225 A.3d 316, 331 (Del. 2020) (“When a
contract contains a forum selection clause, this court will interpret the forum selection
clause in accordance with the law chosen to govern the contract.”) (internal quotations
omitted).
103
Ashall, 992 A.2d at 1245–46.
104
OB at 20–21 (citing Aldo Gp. Inc. v. Moneris Sols. Corp., [2013] 118 O.R. (3d) 81, ¶
44, 2013 ONCA 725 (Can. Ont. C.A.)).
105
Ashall, 992 A.2d at 1246.
26
According to Amgine US, because the transactions memorialized in the CSA
are void for failure of proper authorization, the Forum Selection Clause within the
CSA is also void and, therefore, unenforceable.106 That is not a correct statement of
Delaware law. Instead, our law is clear that a party cannot escape a valid forum
selection clause “by arguing that the underlying contract was fraudulently induced
or invalid for some reason unrelated to the forum selection . . . clause itself. Instead,
the party must show that the forum selection clause itself is invalid.”107 Amgine US
has not advanced any argument that the Forum Selection Clause itself is invalid, and
so I proceed under the presumption that the clause is valid as a matter of law.
b. The Forum Selection Clause Does Not Govern the Inversion
Claims
Amgine US argues its claims do not “aris[e] out of or relat[e] to” the CSA
because the claims sound in breach of fiduciary duty, not breach of contract.108 For
support, Amgine US cites OTK Assocs., LLC v. Friedman, where the court observed,
“[i]t has not traditionally been thought that a contractual forum selection provision
in the transaction agreement governed the stockholder plaintiffs’ claims for breach
of fiduciary duty and aiding and abetting.”109 In their papers, Defendants make no
106
Am. Compl. ¶ 4.
107
Mack v. Rev Worldwide, Inc., 2020 WL 7774604, at *12 (Del. Ch. Dec. 30, 2020).
108
AB at 36–37.
109
OTK Assocs., LLC v. Friedman, 85 A.3d 696, 721 (Del. Ch. 2014) (emphasis added).
27
attempt to distinguish OTK. In their reply brief, Defendants appear all but to concede
that the Forum Selection Clause does not govern Counts I and II of the Inversion
Claims and only halfheartedly attempt to explain why it governs the unjust
enrichment claim pled in Count IV.110
In OTK, the court held that a forum selection clause within an exchange
agreement would not extend to claims that the defendants breached fiduciary duties
in connection with the exchange.111 In doing so, the court made clear that the
fiduciary duties at issue did not arise from the exchange agreement.112 The same is
true here. The fiduciary duties the Millers allegedly breached were not created by
the CSA and would exist in the absence of the CSA. Accordingly, the Forum
Selection Clause does not extend to Counts I and II, as both allege breaches of
fiduciary duty related to the Inversion.113
As for Count IV, I am satisfied the Forum Selection Clause does not reach
that claim either. Count IV asserts a claim for unjust enrichment against the Millers
110
RB at 11–12 (“Third, even if the breach of fiduciary duty (Count I) and aiding and
abetting claims (Count II) are ‘internal affairs’ claims subject to Delaware’s statute of
limitations, the unjust enrichment claim (Count IV) is not. Unjust enrichment is a quasi-
contract claim subject to the Choice of Law and Forum Selection Clauses of the [CSA].”).
111
OTK Assocs., LLC, 85 A.3d at 721.
112
Id.113
Id.28
and the Miller Entities based on their alleged receipt of misappropriated funds and
assets.114 According to Defendants, unlike Counts I and II, which are internal affairs
claims, the unjust enrichment claim is a quasi-contract claim and is therefore subject
to the Forum Selection Clause.115 Here again, Defendants seek to extend the
contractually selected forum beyond the reach of its terms.
Defendants are correct that “[a]n unjust enrichment claim is a quasi-
contractual claim, but it is a claim that proceeds under the theory that no contract
exists.”116 A claim that rests on the premise “that no contract exists,” by definition,
does not “aris[e] out of or relat[e] to” a contract.117 Because the unjust enrichment
claim is derived from common law118 and does not arise out of or relate to the CSA,
it does not fall within the scope of the Forum Selection Clause.119
114
Am. Compl. ¶¶ 187–89.
115
RB at 11–12.
116
JCM Innovation Corp. v. FL Acq. Hldgs., Inc., 2016 WL 5793192, at *7 (Del. Super.
Sept. 30, 2016).
117
Am. Compl. Ex. 6, §1.6(b).
118
In re Verizon Ins. Coverage Appeals, 222 A.3d 566, 577 (Del. 2019), reh’g denied
(Nov. 18, 2019) (stating “unjust enrichment and alter ego claims are common law claims”).
119
EnVen Energy Corp. v. Dunwoody, 2020 WL 2770609, at *3 (Del. Ch. May 28, 2020)
(“Because the claims asserted [] in this action derive from common law and do not directly
pertain to the rights set forth in the Employment Agreement, they do not fall within the
scope of the forum selection provision.”).
29
The Absent CA Preferreds Are Not Indispensable Parties
Rule 19 dictates that an absent party should be joined if, without that party,
(1) “complete relief cannot be accorded among those already parties”; (2) the absent
party’s ability to protect its interest in the action will be impaired or impeded; or
(3) “any of the persons already parties [will remain] subject to a substantial risk of
incurring double, multiple, or otherwise inconsistent obligations . . . .”120 If Plaintiff
had pled a basis to rescind or reform the CSA, then I would agree that the absent
CA Preferreds likely would be indispensable.121 But the Amended Complaint pleads
no basis for either of those equitable remedies here.
The gravamen of Plaintiff’s Inversion Claims is that the Millers’ breached the
fiduciary duties they owed to Amgine US by causing it to agree to the CSA.122
If Plaintiff is successful on that claim, the Court can tailor remedies to address the
harm Plaintiff suffered without affecting the rights of the innocent absent
120
Perry v. Neupert, 2017 WL 6033498, at *11 (Del. Ch. Dec. 6, 2017).
121
See Perry, 2017 WL 6033498, at *12; Germaninvestments AG v. Allomet Corp.,
2020 WL 6870459, at *8 (Del. Ch. Nov. 20, 2020) (“Delaware decisions recognize that
when litigation places at issue the validity or enforceability of property rights, such as a
party’s rights under an agreement, then the holders of the property rights have an interest
in the subject matter of the action such that they should be joined as parties. Unless it is
obvious that one not joined has no interest whatever in the subject matter of the suit, all
parties to a contract under dispute are necessary.”) (internal quotations omitted).
122
Am. Compl. ¶¶ 173–74.
30
CA Preferreds.123 Indeed, Plaintiff has asked for remedies that, if awarded, would
not implicate, let alone impair, the validity or enforceability of the rights of the
absent CA Preferreds. These remedies, all directed to the named Defendants,
include, but are not limited to, the imposition of a constructive trust, monetary
damages and disgorgement.124 To be clear, for reasons discussed with respect to
Plaintiff’s Section 205 claim (below), as to the Inversion Claims, Plaintiff’s
remedies may not include an injunction against the absent CA Preferreds from
seeking to enforce the CSA, a declaration that the CSA is void, rescission,125 or
reformation of the CSA.126 If Amgine US fiduciaries caused Amgine US to enter
123
Arnold v. Soc’y for Sav. Bancorp, Inc., 1995 WL 376919, at *4 (Del. Ch. June 15, 1995)
(holding that a “court of equity should protect the rights of an innocent acquiror, just as
commercial law protects the rights of a good faith purchaser.”). Am. Compl. ¶¶ 5,
Prayer for Relief J, K, M.
124
Am. Compl. at 37.
125
An injunction preventing the absent CA Preferreds from enforcing the CSA would have
the same effect as a declaration that the CSA is void or is rescinded. Rescission “is extreme
relief, which cannot be accomplished absent all parties to the agreement.” S’holder Rep.
Servs. LLC v. RSI Holdco, LLC, 2019 WL 2207452, at *4 (Del. Ch. May 22, 2019).
Further, it is well settled law in this state “that if a plaintiff chooses the remedy of
rescission, there must be a restoration of the status quo ante, not only of the plaintiff but of
the defendant as well, and if under the facts of the particular case ‘a just and equitable
restoration of the substantial status quo ante’ cannot be accomplished, rescission will be
denied.” Craft v. Bariglio, 1984 WL 8207, at *12 (Del. Ch. Mar. 1, 1984) (quoting Hegarty
v. Am. Commonwealths Power Corp., 163 A. 616, 619 (Del. Ch. 1932)). Plaintiff concedes
that “Amgine US’s acquisition of Amgine Canada cannot be unwound as a practical
matter,” and if the Inversion cannot be unwound, recission must be denied. See AB at 10.
126
“The remedy of reformation typically is used to conform a document to the parties’
intent in cases of mutual mistake or fraud. It also can be used to remedy a breach of
fiduciary duty; in which case the court has broad authority to fashion an appropriate
31
into a contract with disinterested third-parties that is unfavorable to the company and
its stockholders but favorable to the fiduciaries, or caused the company to contract
with arms-length third-parties without obtaining proper approvals, then Amgine US
may seek remedies that directly affect the fiduciary wrongdoers to address the harm
caused. Amgine US cannot, however, seek to undo or reform the contract without
naming all parties to the contract as party defendants.127
remedy.” Zimmerman v. Crothall, 62 A.3d 676, 713 (Del. Ch. 2013). There are only a
handful of cases that apply reformation when mutual mistake, unilateral mistake or fraud
is not present. In In re Loral Space, for instance, this court reformed an agreement despite
the absence of the typical reformation requirements. In doing so, the court relied on the
fact that “[o]ur Supreme Court has emphasized the broad remedial power of this court to
address breaches of the duty of loyalty.” In re Loral Space & Commc’ns Inc., 2008 WL
4293781, at *33 (Del. Ch. Sep. 19, 2008). Given the circumstances of this case, however,
reformation of the CSA clearly is not an appropriate equitable remedy. In In re Loral, the
court concluded that a financing entered into by a company and its largest stockholder
(“MHR”), a party to the action, was unfair to the company and its other stockholders. As a
remedy, the court reformed the transaction by converting MHR’s preferred stock into non-
voting common stock at a price set by the court. Reformation is not implicated in this case,
however, because the Inversion did not change the Millers’ overall equity ownership,
unlike MHR in Loral. See Interactive Corp. v. Vivendi Universal, S.A., 2004 WL 1572932,
at *15 (Del. Ch. July 6, 2004) (explaining that reformation “must be applied narrowly so
as to ensure contracting to parties that in only limited circumstances will the court look
beyond the four corners of a negotiated contract ... especially where the [contract] is an
integrated document”). And, importantly, the reformation in Loral affected only the rights
of parties who had appeared in the litigation.
127
See generally Strassburger v. Earley, 752 A.2d 557, 578 (Del. Ch. 2000) (holding that
a transaction could not be rescinded because a party to the transaction was not a party the
lawsuit); 12A C.J.S. Cancellation of Inst. § 115 (“All parties to a contract or agreement are
necessary parties to an action to rescind it.”); Perry, 2017 WL 6033498, at *12 (holding
that “when litigation places at issue the validity or enforceability of property rights, such
as a party’s rights under an agreement, then the holders of the property rights have an
interest in the subject matter of the action such that they should be joined as parties.”).
32
I recognize that now is not the time to decide the appropriate remedy for any
proven breach of fiduciary duty, and I am not foreclosing the possibility that if
Plaintiff is successful, the proper remedy might include an injunction that would
prevent the Defendants before the Court from exercising some or all of their rights
under the CSA.128 Rather, I am clarifying that Plaintiff’s potential remedies are
limited to remedies that will not harm the innocent absent CA Preferreds or their
rights under the CSA.129 Because complete relief can be afforded to Plaintiff, even
in the absence of most of the CA Preferreds, and the rights of the absent
128
See Brinckerhoff v. Enbridge Energy Co., Inc., 159 A.3d 242, 262 (Del. 2017) (holding
that, at the motion to dismiss stage, a plaintiff “will not be limited to a specific equitable
remedy. Whether an equitable remedy should be ordered will depend on the [this Court’s]
assessment of the equities, which include the practicality of an equitable remedy given the
passage of time, and the ability to order equitable relief tailored to the harm caused by
[the breach.]”); FrontFour Cap. Gp. LLC v. Taube, 2019 WL 1313408, at *2 (Del. Ch.
Mar. 11, 2019) (stating that “an injunction may not issue if it would ‘strip an innocent third
party of its contractual rights’ under a merger agreement, unless the party seeking the
injunction proves that the third party aided and abetted a breach of fiduciary duty by the
target directors.”).
129
See, id.; In re RJR Nabisco, Inc. S’holders Litig., 1989 WL 7036, at *12 (Del. Ch.
Jan. 31, 1989) (stating that the court “must be alert to the legitimate interests of the public
or innocent third parties whose . . . legitimate interests might be affected by the issuance
of the remedy.”); Andresen v. Bucalo, 1984 WL 8205, at *5 (Del. Ch. Mar.14, 1984)
(“The most difficult part of this case is for me to find a remedy which will protect the
innocent in this fiasco . . . This Court, fortunately, has broad discretion to tailor remedies
to suit the situation as it exists . . . The true situation here is that unless I intervene, the
corporation will be manipulated for the sole benefit of [Defendants] with little concern for
the rights of the other stockholders. I will, therefore, insist that the final remedy include
provisions which will protect the other stockholders.) (citing to Guarantee Bank v.
Magness Constr. Co., 462 A.2d 405 (Del. 1983)).
33
CA Preferreds will not be impaired or impeded by any judgment of this Court, I am
satisfied there is no basis to dismiss for failure to join indispensable parties.130
The Court Cannot Declare the Inversion Claims Are Time-Barred On
the Pleadings
For reasons explained above, the Inversion Claims likely arise under
Delaware law, and therefore are likely subject to Delaware’s three-year statute of
130
In Germaninvestments AG, the court granted a motion to dismiss under Chancery
Rule 19 upon concluding that it would be improper to move forward without the absent
parties for four reasons, none of which are present here. Germaninvestments AG, 2020 WL
6870459, at *13–14. First, the court determined that proceeding without the absent parties
would be prejudicial to parties both absent and present because “any judgment determining
that the transfers were effective or ineffective … would represent a judicial determination
that [the losing parties] do not have property rights.” Id. at 13 (quoting Kennett v. Carlyle
Johnson Mach. Co., 2002 WL 1358755, at *3 (Del. Ch. June 17, 2002)). There is no risk
that a declaration issued in this case might be binding upon the absent CA Preferreds as the
Court will not be declaring that the CSA is void or voidable. Second, the court found that
the “prejudice to the necessary nonparties cannot be lessened or avoided.” Id. at 13. Again,
not so here as the Court can tailor remedies, as appropriate, to affect only the Defendants
before the Court. Third, the court determined that “judgment rendered without joinder of
[the absent parties] would be inadequate because it would encourage [subsequent] litigation
to proceed in piecemeal fashion.” Id. Here again, there is no risk of piecemeal litigation
because there are no claims of wrongdoing (asserted or unasserted) to be brought against
the absent CA Preferreds. Fourth, the court concluded that the Germaninvestments
plaintiffs had “an adequate and available forum in Austria [in which to bring claims against
all affected parties], which this Court and the Supreme Court have recognized has a
material interest in this dispute. Indeed, Plaintiffs are presently pursuing a related action
in Austria.” Id. at 14. While there may or may not be an adequate and available forum
elsewhere to assert the Inversion Claims, as just stated, there are no such claims to bring
against the absent CA Preferreds and no need, therefore, for a forum where such claims
could be brought.
34
limitations for breach of fiduciary duty claims.131 Even if a shorter limitations period
applied, as with the Patent Claims, I have determined, at this stage in the litigation,
that the factual record is not developed enough to determine if the Inversion Claims
are time-barred.
Dismissal would be appropriate only if it appears “with reasonable certainty
that, under any set of facts that could be proven to support the claims asserted, the
plaintiff would not be entitled to relief.”132 At this stage, I am satisfied there is a
reasonably conceivable basis for tolling the statute of limitations with respect to the
Inversion Claims. To be sure, “[e]ven the most persuasive allegations of tolling can
only delay the limitations period until the party asserting the claim was on inquiry
notice.”133 But, in this case, multiple factual disputes need to be settled before the
point of inquiry notice can be established—including determining whether Roy was
controlling the flow of information such that Plaintiff’s agents could not have been
aware of Defendants’ allegedly wrongful acts,134 and whether the disclosures made
131
10 Del. C. § 8106(a); Halpern v. Barran, 313 A.2d 139, 141 (Del. Ch. 1973) (noting
that “[i]t is by now firmly established that the three-year statute of limitations” applies to
claims of breach of fiduciary duty in Delaware).
132
Feldman v. Cutaia, 951 A.2d 727, 731 (Del. 2008) (quoting VLIW Tech., LLC v.
Hewlett–Packard Co., 840 A.2d 606, 610 (Del. 2003)).
133
de Adler, 2013 WL 5874645, at *15.
134
AB at 50.
35
regarding the Inversion were sufficient to give rise to inquiry notice.135 Those
determinations may well be susceptible to summary adjudication under Chancery
Rule 56, but they are not suitable for judgment on the pleadings under Chancery
Rule 12.
The Inversion Claims Are Adequately Plead
Defendants argue the Inversion Claims as pled in Counts I, II and IV fail to
state a claim because the allegations are fraud-based and fail to satisfy Chancery
Rule 9(b)’s heightened pleading requirements. I disagree.
In Count I, Plaintiff alleges the Millers were controlling stockholders and thus
fiduciaries of Amgine US.136 Defendants do not contest the sufficiency of these
135
OB at 37–38; AB at 50; see Bush v. Hillman Land Co., 2 A.2d 133, 137 (Del. Ch. 1938)
(“[W]hat constitutes laches is . . . so dependent for its demonstration on the facts . . . that
the court should be quite clearly of the opinion that it exists before saying so . . . and it is
in the discretion of the court to defer its decision upon that question until the stage of the
case has been reached when it can be passed upon in the light of fuller and more
illuminating information than is now available.”); Wal-Mart Stores, Inc., 860 A.2d at 320(holding that whether plaintiff was on inquiry notice at a given date, to establish the tolling
of the statute of limitations, was an intensely factual question not appropriate for
disposition at the motion to dismiss stage); Stoppel v. State, Dep’t of Health & Soc. Servs.,
2011 WL 3558120, at *4 n.13 (Del. Super. Ct. Aug. 9, 2011) (“Because the Amended
Complaint does not on its face exclude the possibility that Stoppel’s claims are timely
under the Whistleblowers’ Act, dismissal on statute of limitations grounds would not be
appropriate. From the limited account of events currently provided to the Court, it appears
that the determination of when the limitations period commenced could be a fact-intensive
inquiry.”).
136
Am. Compl. ¶¶ 1, 24, 26, 35, 36, 69, 89, 141, 169.
36
allegations.137 And, while Defendants are correct that Plaintiff alleges the Millers
breached their fiduciary duties by misleading stockholders, the essence of the
Inversion Claims is a fiduciary duty breach, not fraud.138 As such, Plaintiff need
only plead sufficient facts to put Defendants on notice of the claim.139
The rationale for the lower pleading bar is pellucid. It is right to require a
plaintiff to provide an arms-length third-party a particularized basis upon which to
defend a claim that he has committed fraud; a fiduciary, on the other hand, occupies
a special relationship with the beneficiary of his heightened duties and is held to a
“tougher” standard in defending his conduct than the third-party acting at arms-
137
OB at 51.
138
AB at 17 (explaining how the allegations of deceit animate the claim for breach of
fiduciary duties).
139
See, e.g., Seiden v. Kaneko, 2015 WL 7289338, at *2, 10–11 (Del. Ch. Nov. 3, 2015)
(noting that a breach of fiduciary duty claim, predicated on allegedly fraudulent activity,
“need only meet Delaware’s rather forgiving notice pleading standard”); In re Am. Int’l
Gp., 965 A.2d at 776 (applying the “plaintiff-friendly” Rule 12(b)(6) standard to deny
dismissal of breach of fiduciary duty claims alleging defendants committed “pervasive,
diverse, and substantial financial fraud”); In re Fruehauf Trailer Corp., 250 B.R. 168, 197
(D. Del. 2000) (“Although there is a dearth of case law, the Rule 9(b) heightened pleading
requirement generally does not apply to the state law claims of breach of fiduciary duty,
negligent misrepresentation, gross negligence, mismanagement, unjust enrichment, aiding
and abetting breach of fiduciary duty, and breach of contract.”); Buckley v. O’Hanlon, 2007
WL 956947, at *5 (D. Del. Mar. 28, 2007) (“Neither was particularized pleading required
when the plaintiff’s complaint included such statements as ‘knew or should have known
the financial statements . . . misrepresented to System One the Division’s financial
condition.’”) (internal citation omitted).
37
length.140 As the Amended Complaint asserts breaches of fiduciary duty, not fraud,
the pleading is measured by Chancery Rule 8, not Chancery Rule 9(b).
The two authorities Defendants cite in urging the Court to apply Rule 9(b) are
readily distinguishable. In York Lingings v. Roach, the court concluded that one of
the plaintiff’s breach of fiduciary duty claims was actually “an insufficiently pleaded
claim of fraud.”141 For reasons explained above, Plaintiff has stated breach of
fiduciary duty claims that, in part, rest on allegations of misrepresentations. These
claims are properly measured under Chancery Rule 8.142 And, in Lewis v. Ward, the
court addressed the unique circumstance where a stockholder plaintiff alleged “that
an arm’s-length merger of two public companies was not in fact consummated for
the reasons contained in the merger proxy materials, but instead merely as a device
to get rid of the plaintiff’s derivative claims.”143 The burden to plead particularized
facts the court required plaintiffs to meet in that circumstance was imposed because
plaintiff was seeking to invoke the fraud exception to Lewis v. Anderson, which
140
Metro Commc’n Corp. BVI v. Advanced Mobilecomm Techs. Inc., 854 A.2d 121, 156
(Del. Ch. 2004).
141
York Lingings v. Roach, 1999 WL 608850, at *2 (Del. Ch. July 28, 1999).
142
Seiden, 2015 WL 7289338, at *2, 10–11.
Lewis v. Ward, 2003 WL 22461894, at *4 (Del. Ch. Oct. 29, 2003), aff’d 852 A.2d 896,
143
905 (Del. 2004).
38
implicates both Chancery Rules 9(b) and 23.1.144 No derivative claim has been pled
here. Accordingly, Chancery Rules 8 and 12(b)(6) set the correct standard.
C. Plaintiff Has Failed to State a Claim Under Section 205
In Count V, Plaintiff seeks declarations that Amgine US’s entry into the CSA
was void, that the CSA is void and that no party to this action may seek to enforce
any of the terms of the CSA in any court of law.145 In pursuing these declarations,
Plaintiff breezily strolls past the actual terms of Section 205, which reveal the statute
is not intended to act as an eraser in the hands of the judge to extirpate allegedly void
or voidable corporate acts.146
Section 205 “fundamentally concerns a company having taken an act with the
intent and belief that it is valid and later petitioning the Court to correct a technical
defect and thereby remedy incidental harm.”147 With this in mind, this court has
emphasized that “Section 205 was intended to be a remedial statute designed, in
144
When our Supreme Court affirmed the trial court’s decision in Lewis v. Ward, it
explained that “the particularized pleading requirement of Rule 9(b) must be satisfied by a
derivative complaint that seeks to invoke the fraud exception in Lewis v. Anderson.
Accordingly, the Court of Chancery correctly concluded that the plaintiff was required to
plead ‘particularized facts invoking the fraud exception to Lewis v. Anderson in order to
avoid dismissal.’” Lewis v. Ward, 852 A.2d 896, 905 (Del. 2004).
145
Am. Compl. ¶ 194.
146
See In re Genelux Corp., 126 A.3d 644, 668–69 (Del. Ch. 2015).
147
Id at 669.
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conjunction with Section 204, to cure otherwise incurable defective corporate acts,
not a statute to be used to launch . . . plenary-type claims based on alleged breaches
of fiduciary duty or common law fraud.”148 But that is precisely how Plaintiff would
have the Court put Section 205 to work here. As stated, under the guise of
Section 205, Plaintiff asks the Court to declare that the CSA is invalid because of a
void corporate act, not to declare what “would have resulted if the defective
corporate act had been valid when approved or effectuated.”149 That is not a proper
invocation of the statute and Plaintiff’s claim to the contrary must be dismissed.150
III. CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss must be DENIED
as to Counts I, II, III and IV and GRANTED as to Count V.
IT IS SO ORDERED.
148
Id. at 668.
149
8 Del. C. § 205(b)(3).
150
Genelux, 126 A.3d at 668 (“Section 205 was intended to be a remedial statute designed,
in conjunction with Section 204, to cure otherwise incurable defective corporate acts.”)
(emphasis added).
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