Seva Holdings v. Octo Platform Equity Holdings, LLC ( 2023 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
SEVA HOLDINGS INC., )
)
Plaintiff, )
)
v. ) C.A. No. 2022-0437-PRW
)
OCTO PLATFORM EQUITY )
HOLDINGS, LLC, OCTO )
CONSULTING GROUP, LLC, )
and ARLINGTON CAPITAL )
PARTNERS IV, L.P., )
)
Defendants. )
Submitted: May 15, 2023
Decided: May 16, 2023
ORDER
1. Seva Holdings, Inc. brings this action against Defendants Octo
Platform Equity Holdings, LLC (“Octo Platform”), Octo Consulting Group, LLC
(“Octo Consulting”), and Arlington Capital Partners IV, L.P. (“ACP”) asserting
Defendants caused the wrongful repurchase of Seva’s membership units in Octo
Platform.1 Seva brings seven causes of action against Defendants seeking
declaratory, monetary, and equitable relief.2
1
Compl. ¶ 1 (D.I. 1).
2
Id. ¶¶ 125-64.
2. In Counts I-III, Seva seeks declarations that Octo Platform’s purported
repurchase of its membership interests in Octo Platform are void because the
underlying alleged conduct justifying the repurchase was privileged (Count I),
because Octo Platform violated the operating agreement (Count II), because Octo
Platform’s purported repurchase was not based on a triggering event and because
Octo Platform previously breached several of its agreements (Count III).3 In Counts
IV and V, Seva asserts that Octo Platform breached the operating agreement (Count
IV) and side letter agreement (Count V).4 And in Counts VI and VII, Seva seeks a
constructive trust (Count VI) and injunctive relief (Count VII).5
3. Defendants have moved to dismiss Seva’s Complaint under Court of
Chancery Rules 12(b)(1) and 12(b)(6).6
4. Defendants’ Rule 12(b)(1) motion was denied at oral argument as the
Court reaffirmed that it lacks the authority to transfer properly filed
8 Del. C. § 111 actions to the Superior Court.7 Defendants’ Rule 12(b)(6) motion is
3
Id. ¶¶ 125-42.
4
Id. ¶¶ 143-54.
5
Id. ¶¶ 155-64.
6
Mot. to Dismiss at 2-3 (D.I. 13).
7
Apr. 26, 2023 Oral Arg. Tr. at 16-17 (D.I. 52); see S’holder Rep. Servs. LLC v. DC Cap. P’rs
Fund II, L.P., 2022 WL 439011, at *6 (Del. Ch. Feb. 14, 2022) (finding Section 111 not
discretionary); see also In re Designation of Actions Filed Pursuant to 8 Del. C. § 111 (Del. Feb.
23, 2023) (ORDER) (cross-designating Complex Commercial Litigation Division Superior Court
Judges as Vice Chancellors for the purpose of adjudicating Section 111 actions filed in the Court
of Chancery). Oral argument was held before the Chancellor prior to reassignment of the matter
to the undersigned—who happens to be presiding over the related case in the Superior Court. See
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currently before the Court.
5. In that motion, Defendants assert the claims against Octo Consulting
and ACP should be dismissed because “Seva’s claims are based on alleged breaches
of the Board Agreement and Operating Agreement” and Octo Consulting is not a
party to either agreement.8 Further, Defendants assert that all allegations against
ACP are for actions Octo Platform allegedly performed, not ACP.9
6. Seva says that Octo Consulting and ACP should not be dismissed
because they are necessary “to ensure that [Seva] could obtain complete relief with
respect to the contracts, membership units, and membership rights at issue and in
which Octo [Consulting] and ACP have an interest.”10
7. Under Rule 12(b)(6), “the governing pleading standard in Delaware to
survive a motion to dismiss is reasonable ‘conceivability.’”11 When considering a
motion to dismiss under Rule 12(b)(6), the Court must “accept all well-pleaded
factual allegations in the [c]omplaint as true . . . , draw all reasonable inferences in
favor of the plaintiff, and deny the motion unless the plaintiff could not recover under
Arvinder (“Sonny”) Kakar, et al. v. Octo Consulting Group, LLC, C.A. No. N22C-01-104 PRW
(Del. Super. Ct.).
8
Mot. to Dismiss at 23-24.
9
Id. (“Seva fails to allege that ACP breached the agreements or otherwise participated in the
repurchase of Seva’s membership interests.”).
10
Answering Br. at 30 (D.I. 16).
11
Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 537 (Del. 2011).
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any reasonably conceivable set of circumstances susceptible of proof.”12 The Court,
however, need not “accept conclusory allegations unsupported by specific facts
or . . . draw unreasonable inferences in favor of the non-moving party.”13
8. Seva’s invocation of Rule 19 to bind Octo Consulting and ACP to this
action is not appropriate here. Rule 19 is invoked by the defendant when it believes
a party must be joined to the action, and the Rule gives the Court the authority to
dismiss the action for failing to join that necessary party.14 It is not a device to avoid
dismissal for failure to state a claim.15 Thus, Seva’s argument that Octo Consulting
and ACP are necessary parties will not rescue the Complaint if it is devoid of well-
pled claims against Octo Consulting and ACP.
9. In Count I, Seva says:
12
Id. at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).
13
Price v. E.I. DuPont de Nemours & Co., Inc., 26 A.3d 162, 166 (Del. 2011) (citing Clinton v.
Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)), overruled on other grounds by Ramsey v.
Ga. S. Univ. Advanced Dev. Ctr., 189 A.3d 1255 (Del. 2018).
14
Del. Ct. Ch. R. 19 (“If a person as described in paragraph (a)(1) and (2) hereof cannot be made
a party, the Court shall determine whether in equity and good conscience the action should proceed
among the parties before it, or should be dismissed, the absent person being thus regarded as
indispensable.”).
15
See Hart v. Parker, 2021 WL 4824148, at *2 (Del. Super. Ct. Oct. 15, 2021) (“To determine
whether a plaintiff has failed to join a party in accordance with Rule 19, the Court must analyze
the two prongs of Rule 19.” (emphasis added) (citation omitted)); see also Germaninvestments
AG v. Allomet Corp., 2020 WL 6870459, at *1 (Del. Ch. Nov. 20, 2020) (“When a plaintiff elects
not to sue a party who, in equity and good conscience, is deemed indispensable to the resolution
of the pled claims, courts of equity have long understood that the plaintiff’s election not to sue that
party cannot be countenanced and must be remedied.” (emphasis added) (citation and internal
quotation marks omitted)). Court of Chancery Rule 19 and Superior Court Civil Rule 19 are
identical except that the Court of Chancery Rule has an additional subsection concerning Court of
Chancery Rule 23. Compare Ct. Ch. R. 19 with Super. Ct. Civ. R. 19.
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This Court should therefore declare that the Octo Platform’s purported
repurchase and cancellation of Seva’s Octo Platform Membership Units
is void and of no force and effect, because Octo Platform is barred by
Delaware’s public policy from forfeiting Seva’s Membership Units . . .
.16
10. In Count II, Seva says:
[T]his Court should declare that Octo Platform’s purported repurchase
and cancellation of Seva’s Membership Units is void because it
conditioned acceptance of the repurchase on onerous terms and
conditions that are not found in the Operating Agreement and because
Octo Platform has failed to escrow the full amount of the repurchase
price.17
11. In Count III, Seva says: “[T]his Court should declare that there has been
no Triggering Event, and that Octo Platform’s purported repurchase and cancellation
of the Seva’s Membership Units in Octo Platform is void . . . .”18
12. In Count IV, Seva says: “Octo Platform breached the Operating
Agreement by wrongfully and in bad faith purporting to repurchase and cancel
Seva’s Membership Units in Octo Platform for a price well below fair market
value.”19
13. And in Count V, Seva says: “By its actions described herein, Octo
Platform breached the Side Letter Agreement.”20
16
Compl. ¶ 130 (emphasis added).
17
Id. ¶ 138 (emphasis added).
18
Id. ¶ 142 (emphasis added).
19
Id. ¶ 144 (emphasis added).
20
Id. ¶ 150 (emphasis added).
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14. What is missing is any alleged wrongdoing by Octo Consulting or ACP
that support the causes of action Seva brings against them; instead those claims
solely focus on Octo Platform’s actions.21 Accordingly, Seva has not made well-
pled claims against Octo Platform or ACP. Thus, Defendants’ Motion to Dismiss
Octo Consulting and ACP from the Complaint under Rule 12(b)(6) is GRANTED.
IT IS SO ORDERED.
Paul R. Wallace, Judge22
21
Moreover, the only statement Seva says about ACP in its Complaint is that ACP is a party to
the side letter. Compl. ¶¶ 33-34 (“As an integral part of the Sevatec Transaction, Seva entered into
a letter agreement dated December 11, 2020, with Octo Platform and ACP regarding the
assignment of certain repurchase rights, grant of board rights, and modification of repurchase and
other rights . . . .”). The Complaint also confuses Octo Consulting with Octo Platform, while only
supporting its cause of action with facts of alleged wrongdoing by Octo Platform. Compare Compl.
¶ 137 (“Upon information and belief, Octo has not placed into escrow the full amount of the
purchase price.” (emphasis added)) with id. ¶ 138 (“Octo Platform has failed to escrow the full
amount of the repurchase price.” (emphasis added)).
22
Sitting as a Vice Chancellor of the Court of Chancery of the State of Delaware by designation
of the Chief Justice of the Supreme Court of Delaware pursuant to In re Designation of Actions
Filed Pursuant to 8 Del. C. § 111 (Del. Feb. 23, 2023) (ORDER).
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