Nikolouzakis et al v. Exinda Corporation et al
REPORT AND RECOMMENDATIONS re 13 MOTION to Dismiss for Failure to State a Claim filed by Robert H. Scott, George Roberts, Exinda Corporation, Openview Venture Partners, Firas Raouf, Scott Maxwell, 18 MOTION to Strike Exhibits from De fendants' Motion to Dismiss filed by Chris Siakos, Con Nikolouzakis. Please note that when filing Objections pursuant to Federal Rule of Civil Procedure 72(b)(2), briefing consists solely of the Objections (no longer than ten (10) pages) and the Response to the Objections (no longer than ten (10) pages). No further briefing shall be permitted with respect to objections without leave of the Court. Objections to R&R due by 8/24/2012. Signed by Judge Mary Pat Thynge on 8/7/2012. (cak)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
CON NIKOLOUZAKIS and CHRIS SIAKOS,
EXINDA CORPORATION, GEORGE
ROBERTS, ROBERT H. SCOTT, FIRAS
RAOUF, SCOTT MAXWELL, and
OPENVIEW VENTURES PARTNERS,
C. A. No. 11-1261-LPS-MPT
REPORT AND RECOMMENDATION
Plaintiffs, Con Nikolouzakis (“Nikolouzakis”) and Chris Siakos (“Siakos”)
(collectively, “Plaintiffs”) brought this action against defendants, Exinda Corporation
(“Exinda”), George Roberts (“Roberts”), Robert H. Scott (“Scott”), Scott Maxwell
(“Maxwell”), Firas Raouf (“Raouf”), and OpenView Venture Partners (“OpenView”)
(Roberts, Scott, Maxwell, and Raouf are collectively referred to as “Individual
Defendants;” Individual Defendants and Exinda are collectively referred to as
Plaintiffs allege Defendants and OpenView committed: fraud, equitable fraud,
intentional interference with prospective economic advantage, negligent interference
Roberts, Scott, Maxwell, and Raouf are or were directors of the board of Exinda, at the time
period in question. (D.I. 1 at ¶ 5).
with prospective economic advantage, conversion, and unjust enrichment. Plaintiffs
also assert, Defendants committed: breach of fiduciary duty, bad faith termination, and
violation of 19 Del. C. §1103. Plaintiffs further contend, OpenView aided and abetted
the breach of fiduciary duty.
Plaintiffs co-founded Exinda in 2001, and grew the business in Australia through
2006. In 2006, Plaintiffs reorganized Exinda as a Delaware corporation in order to
expand internationally. Plaintiffs were the principal shareholders when Exinda
reorganized, with Nikolouzakis serving as CEO and Siakos serving as CTO. Both were
on Exinda’s board of directors.3
After the reorganization, Exinda was sold to OpenView, a venture capital fund.
The reason for the sale was the Plaintiffs, although being excellent engineers, were
unsophisticated business people. As such, Plaintiffs needed OpenView’s partners,
Maxwell, Raouf, and Roberts, for their experience and “business acumen to guide the
business and [the] financial side . . . .” This resulted in Maxwell, Raouf, and Roberts
joining Exinda’s board of directors.4 Around the same time, Exinda established its
principal place of business in Canada.5 Purportedly, Maxwell, Raouf, and Roberts
represented it would be in Plaintiffs and Exinda’s best interest if Plaintiffs focused on
developing Exinda’s technical and engineering capabilities in Australia. As a result of
such recommendations and similar representations by Exinda’s agent, Michael Sharma
The Background is viewed in accordance with a motion to dismiss, in the light most favorable to
D.I. 1 at ¶¶ 27-8.
D.I. 1 at ¶¶ 29- 30; D.I. 17 at 2.
D.I. 1 at ¶ 24.
(“Sharma”),6 Plaintiffs resigned their positions on the executive team and the board of
directors. Nikolouzakis then took a new position as Chief Product Officer.7
In 2009, Plaintiffs transitioned from board members to board advisors. Plaintiffs
contend this transition was due to Raouf’s “knowingly fraudulent representations” that
Exinda would best be served by this transition.8 Once Plaintiffs became board advisors,
they lost their voting rights and access to information.
As part of the scheme to undermine them, Plaintiffs maintain Defendants would
“reschedule board meetings in the middle of the Australia night, omit[ ] the founders
from key correspondence, and . . . block [their] access to information.”9 At the same
time Maxwell, Raouf, Roberts, Sharma, and another Exinda agent, Efrem Ainsley
(“Ainsley”),10 knowingly represented to Plaintiffs that they were receiving full information
and their best interests were being protected.11
As the business grew, Exinda needed and sought additional funding. Exinda
received additional funding from OpenView. Maxwell and Raouf induced Plaintiffs to
agree to more outside financing, by their representation that “success would result in
the elimination of any financing premiums or deep dilution provisions.”12 Plaintiffs allege
the additional funding or alternative financing arrangements resulted in OpenView
having conflicting interests with those of Exinda’s shareholders, including Plaintiffs.
Plaintiffs agreed to this alternative financing because of the representations by
Sharma is or was the CEO of Exinda, Inc., during the time period in question. Id. at ¶ 8.
Id. at ¶¶ 32-3.
Id. at ¶ 36.
Id. at ¶ 37.
Ainsley is or was the CFO of Exinda, Inc., during the time period in question. Id. at ¶ 8.
Id. at ¶ 37.
Id. at ¶¶ 28-9.
In December 2010, at the start of Australia’s Christmas holiday, Ainsley, Sharma,
and Exinda’s outside counsel “made a series of oral and written misrepresentations to
[Plaintiffs] that Exinda was in trouble and needed to urgently execute financing
documents as soon as possible.”14 Plaintiffs were sent only the signature pages of
documents, without any information, analysis, or time to review the materials.15
Plaintiffs allege they relied on Defendants’ assurances and fiduciary obligations in
executing and returning the signature pages immediately. Plaintiffs believe Defendants
were also seeking other outside financing and valuations of Exinda, that indicated
Exinda would be worth $90 million, which is above the threshold amount represented by
Defendants, where OpenView’s financing preferences would be eliminated.16
In May 2011, Plaintiffs discovered the December 2010 documents eliminated
nearly 90% of their ownership interest in Exinda. Plaintiffs insist, these documents were
part of a scheme by Defendants to convert Plaintiffs’ stock and option holdings to the
Individual Defendants’ benefit and to Sharma and Ainsley through new option grants.17
Plaintiffs confronted Maxwell, Raouf, Sharma, and Ainsley in May and in June 2011,
and were told their, Plaintiffs’, equity interest was being increased by valuable option
In late October 2011, Exinda had posted three consecutive quarters of record-
Id. at ¶ 35.
Id. at ¶ 38.
Id. at ¶ 39.
Id. at ¶ 40.
Id. at ¶ 41.
breaking results; however, Plaintiffs were terminated, and their stock options were
cancelled shortly before their options vested.19 In addition, Plaintiffs maintain each are
owed $85,000 in back-pay and earned commission.20
On December 19, 2011, Plaintiffs filed this suit against Defendants and
OpenView.21 On February 13, 2012, Defendants and OpenView filed the present
motion to dismiss.22 On April 2, 2012, Plaintiffs filed a motion to strike certain exhibits
relied on by Defendants and OpenView in their motion to dismiss.23
III. Jurisdiction and Venue
Pursuant to 28 U.S.C. § 1332, this court has jurisdiction over this matter because
the amount in controversy exceeds seventy five thousand ($75,000), exclusive of
interest and cost, and is between citizens of a state and citizens of a foreign state.
Pursuant to 28 U.S.C. § 1391, venue properly exists in this court because Exinda
is incorporated in Delaware, OpenView is organized under the laws of Delaware, the
Individual Defendant’s are directors of Exinda, and the alleged acts and omissions were
committed in Delaware.
IV. Standard of Review
A. Motion To Strike
“Courts generally consider only the allegations contained in the complaint,
exhibits attached to the complaint and matters of public record” when reviewing a
Id. at ¶ 43.
Id. at ¶ 65.
motion to dismiss.24 Federal Rule of Civil Procedure (“FED. R. CIV. P. “) 12(d) addresses
the use of materials which are outside the pleadings in motions to dismiss under Rule
12(b)(6). Generally, when such materials are presented, the motion is treated as one
for summary judgment. However, certain additional materials may be considered
without converting the motion to dismiss into a motion for summary judgment.
Moreover, a court is not limited to the four corners of the complaint and may consider
“matters incorporated by reference integral to the claim, items subject to judicial notice,
matters of public record, orders [and] items appearing in the record of the case.”25 A
plaintiff is entitled to notice and a fair opportunity to respond to any evidence the court
might consider in its review of a motion to dismiss. Where a plaintiff had such notice,
however, it is proper for the court to consider that evidence.26
B. Motion to Dismiss
In analyzing a motion to dismiss under Rule 12(b)(6), a review of FED. R. CIV. P.
8(a)(2) is necessary. Rule 8(a)(2) requires a pleading to contain a “short and plain
statement of the claim showing that the pleader is entitled to relief.” That standard
“does not require ‘detailed factual allegations,’ but . . . demands more than an
Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993).
Buck v. Hampton Tp. School Dist., 452 F.3d 256, 260 (3d Cir. 2006) (citing 5B Charles A.
Wright & Arthur R. Miller, Federal Practice & Procedure § 1357 (2004)). Taking judicial notice of public
records of a State court action and an appeal therefrom. See Southern Cross Overseas Agencies, Inc. v.
Wah Kwong Shipping Group Ltd., 181 F.3d 410, 426 (3d Cir. 1999) (“To resolve a 12(b)(6) motion, a court
may properly look at public records, including judicial proceedings, in addition to the allegations in the
complaint.”) (emphasis added). Further, “exhibits attached to the complaint whose authenticity is
unquestioned” may also be considered. 5B Charles A. Wright & Arthur R. Miller, Federal Practice and
Procedure § 1357 (2007).
Pension Benefit, 998 F.2d at 1196-97 (“When a complaint relies on a document, however, the
plaintiff obviously is on notice of the contents of the document, and the need for a chance to refute
evidence is greatly diminished.”) (internal citations omitted).
unadorned, the-defendant-unlawfully-harmed-me accusation.”27 Thus, to survive a
motion to dismiss under Rule 12(b)(6), a complaint “must contain sufficient factual
matter, accepted as true, to ‘state a claim for relief that is plausible on its face.’”28 The
purpose of a Rule 12(b)(6) motion to dismiss is to test the sufficiency of a complaint, not
to resolve disputed facts or decide the merits of the case.29 Evaluating a motion to
dismiss requires the court to accept as true all material allegations of the complaint.30
“The issue is not whether a plaintiff will ultimately prevail, but whether the claimant is
entitled to offer evidence to support the claims.”31 A motion to dismiss may be granted
only if, after, “accepting all well-pleaded allegations in the complaint as true, and viewing
them in the light most favorable to the plaintiff, plaintiff is not entitled to relief.”32
To survive a motion to dismiss under Rule 12(b)(6), however, the factual
allegations must be sufficient to “raise a right to relief above the speculative level, on the
assumption that all the allegations in the complaint are true (even if doubtful in fact).”33
A plaintiff is obliged “to provide the ‘grounds’ of his ‘entitle[ment] to relief’” beyond
“labels and conclusions.”34 Heightened fact pleading is not required: rather “enough
facts to state a claim to relief that is plausible on its face” must be alleged.35
The plausibility standard does not rise to a “probability requirement,” but requires
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing Bell Atlantic Corporation v. Twombly, 550
U.S. 544, 555 (2007)).
Id. (citing Twombly, 550 U.S. at 570); see Fed. R. Civ. P. 12(b)(6).
Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993).
Spruill v. Gillis, 372 F.3d 218, 223 (3d Cir. 2004).
In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997) (internal quotation
marks and citation omitted).
Maio v. Aetna, Inc., 221 F.3d 472, 481-82 (3d Cir. 2000) (internal quotation marks and citations
Twombly, 550 U.S. at 555; see also Victaulic Co. v. Tieman, 499 F.3d 227, 234 (3d Cir. 2007).
Twombly, 550 U.S. at 555.
Id. at 570.
“more than a sheer possibility that a defendant has acted unlawfully.”36 Rejected are
unsupported allegations, “bald assertions,” or “legal conclusions.”37 Further, “the tenet
that a court must accept as true all of the allegations contained in a complaint is
inapplicable to legal conclusions.”38 Moreover, “only a complaint that states a plausible
claim for relief survives a motion to dismiss,” which is a “context-specific task that
requires the reviewing court to draw on its judicial experience and common sense.”39
Thus, well-pled facts which only infer the “mere possibility of misconduct,” do not show
that “‘the pleader is entitled to relief,’” under Rule 8(a)(2).40 “When there are wellpleaded factual allegations, a court should assume their veracity and then determine
whether they plausibly give rise to an entitlement of relief.”41
C. Fraud or Sounding in Fraud
If a plaintiff pleads fraud, or a claim sounding in fraud, then FED. R. CIV. P. 9(b)
applies. Under this rule, the elements of fraud must be pled with particularity. The
purpose of the heightened pleadings requirements of Rule 9(b) is to “deter the filing of
charges of fraud as a pretext for discovery of unknown wrongs.”42 Fraud allegations,
however, “remain subject to the liberal pleading standard of FED. R. CIV. P. 8, which
requires only a ‘short and plain’ statement of a claim or defense,” the purpose of which
Iqbal, 129 S. Ct. at 1949.
Id. (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.”); see also Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997);
Schuylkill Energy Res., Inc. v. Pennsylvania Power & Light Co., 113 F.3d 405, 417 (3d Cir. 1997)
(“unsupported conclusions and unwarranted inferences” are insufficient); Nami v. Fauver, 82 F.3d 63, 69
(3d Cir. 1996) (allegations that are “self-evidently false” are not accepted).
Iqbal, 129 S. Ct. at 1949; see also Twombly, 550 U.S. at 555 (a court is “not bound to accept as
true a legal conclusion couched as a factual allegation”).
Iqbal, 129 S. Ct. at 1950.
Stowe Woodward L.L.C. v. Sensor Products, Inc., 230 F.R.D. 463, 466 (W.D. Va. 2005).
is to place the opposition on notice of the misconduct charged.43 Further, the
particularity requirement does not mandate a party plead the date, time, or place of the
alleged fraud, if that party uses “an alternative means of injecting precision and some
measure of substantiation into [its] allegations of fraud.”44 Thus, “courts still must apply
FED. R. CIV. P. 9(b) with some flexibility so that a party is not required to plead issues
which may have been concealed by an adverse party.”45
A. Motion to Strike
Plaintiffs, through FED. R. CIV. P. 12(f), seek to strike and exclude exhibits ‘A’
through ‘F’ of the Declaration of Maxwell,46 pursuant to FED. R. CIV. P. 12(d).
The first argument advanced by Plaintiffs is the exhibits are not incorporated by
reference; therefore, the exhibits are extrinsic evidence and the court should not
consider them. Plaintiffs cite Smith v. Westchester County47 for the proposition that
absent “a clear, definite and substantial reference to the documents,”48 the exhibits
should be struck.
Defendants and OpenView assert Plaintiffs do not dispute the exhibits are
“integral to the complaint;”49 however, even accepting Plaintiffs’ argument, since the
McKesson Information Solutions LLC v. The Trizetto Group, Inc., C.A. No. 04-1258-SLR, 2005
WL 914776, at *3 (D. Del. Apr. 20, 2005); TruePosition, Inc. v. Allen Telecom, Inc., C.A. No. 01-823-GMS,
2003 WL 151227, at *5 (D. Del. Jan. 21, 2003).
Martek Biosciences Corp. v. Nutrinova Inc., C.A. No. 03-896-GMS, 2004 WL 2297870, at *3 (D.
Del. Oct. 8, 2004).
Mars Inc. v. JCM American Corp., C.A. No. 05-3165 (RBK), 2006 WL 1704469, at *5 (D.N.J.
June 14, 2006) (citing Rolo City Investing Co. Liquidation Trust, 155 F.3d 644, 658 (3d Cir. 1998) (rev’d on
other grounds by Forbes v. Eagleson, 228 F.3d 471 (3d Cir. 2000))).
Declaration of Scott Maxwell (D.I. 15).
Smith v. Westchester County, 769 F. Supp. 2d 448 (S.D.N.Y. 2011).
D.I. 18 at 3. (citing Smith, 769 F. Supp. 2d at 460).
D.I. 23 at 3.
complaint is based on the exhibits, they should not be struck.50 Defendants and
OpenView rely on the comment in In re Burlington Coat Factory Securities Litigation,
that “a court may consider a document that is ‘integral to or explicitly relied upon in the
complaint.’”51 Defendants and OpenView assert these exhibits are integral because
they flatly contradict the allegations in the complaint.52
In response, Plaintiffs point out “explicitly referenced means that the document
must be actually quoted, cited, or named.”53 Plaintiffs counter, the rationale underlying
the integral exception, described in Burlington Coat Factory, contrary to Defendants’
and OpenView’s position, is to prevent a party from cherry-picking a few isolated lines
from a document and using them out of context.54
Under Burlington Coat Factory, the court may consider a document if it is integral
to or explicitly relied on in the complaint, and if a plaintiff’s claims relied on the
document, it does not have to explicitly cited.55
In addressing Plaintiffs motion to strike, the critical inquiry is whether the
complaint is based upon extrinsic material,56 and if the extrinsic material relied on is
undisputedly authentic.57 Even if the court finds the claims are based on the exhibits at
issue, and they are authentic, it remains within the court’s discretion to consider the
114 F.3d 1410 (3d Cir. 1997).
D.I. 23 at 5 (quoting I.S. Sahni, Inc. v. Scirocco Fin. Grp., No. 04 Civ. 9251, 2005 WL 2414762,
at *4 (S.D.N.Y. Sept. 28, 2005).
D.I. 29 at 3 (see In re Appleseed’s Intermediate Holdings, LLC, Civ. No. 11-807 (JEI/KMW),
2012 WL 748652, at *5 (D. Del. Mar. 7, 2012).
D.I. 29 at 4.
Burlington Coat Factory, 114 F.3d at 1426.
Burlington Coat Factory, 114 F.3d at 1426 (see In re Trump Casino Sec. Litig.-Taj Mahal Litig.,
7 F.3d 357, 368 n.9 (3d Cir. 1993) (citing Pension Benefit, 998 F.2d at 1196 (3d Cir. 1993))).
Pension Benefit, 998 F.2d at 1196.
exhibits, as noted in Pension Benefit Guar. Corp. v. White Consul. Indus., Inc.,58 “a
court may consider an undisputedly authentic document that a defendant attaches as
an exhibit to a motion to dismiss if the plaintiff's claims are based on the document.”59
1. Exhibits A through E60
Exhibits A though E were not explicitly relied upon by Plaintiffs. Further, exhibits
A - E are not alleged to be the entirety of the agreements between the parties.
Therefore, because exhibits A through E are not verified to be the full, complete, or
entirety of the agreements between the parities, Plaintiffs’ motion to strike exhibits A
through E of the Maxwell affidavit is granted.
2. Exhibit F61
“Federal Rule of Evidence 201 permits a court to take judicial notice of facts that
are capable of accurate and ready determination by resort to sources whose accuracy
cannot reasonably be questioned”62 In Oran v. Stafford,63 the Third Circuit agreed with
the Second Circuit’s reasoning in Kramer v. Time Warner,64 in permitting judicial notice
of the Securities and Exchange Commission’s publicly filed documents. The reasoning
in Kramer was that “the documents are required by law to be filed with the SEC, and no
serious questions as to their authenticity can exist.”65 Similarly, exhibit F is a public
document certified by Delaware’s Secretary of State, and there can be no serious
question as to its authenticity. Therefore, Plaintiffs motion to strike exhibit F (Restated
998 F.2d 1192 (3d Cir. 1993).
Id. at 1196.
D.I. 15, Ex. A through E attached to the affidavit of Scott Maxwell.
D.I. 15, Ex. F.
Oran v. Stafford, 226 F.3d 275, 289 (3d Cir. 2000) (internal citations omitted).
Kramer v. Time Warner, Inc., 937 F.2d 767 (2d Cir. 1991).
Oran, 226 F.3d at 289 (quoting Kramer, 937 F.2d at 774).
Certificate of “Exinda Inc.”)66 is denied.
B. Motion to Dismiss
In federal diversity actions, the court applies federal law for procedural issues,
and state law for substantive issues.67 Thus, for the ten counts at issue, state law
applies for the substantive analysis.
Count I: Fraud
Under Rule 9(b), a plaintiff must plead “with particularity the circumstances
constituting fraud.”68 “Rule 9(b) serves to give defendants ‘notice of the claims against
them, provide[ ] an increase measure of protection for their reputations, and reduce[ ]
the number of frivolous suits brought solely to extract settlements.’”69
Under Delaware common law, fraud consist of: “1) a [specific] false
representation, usually one of fact, made by the defendant; 2) the defendant’s
knowledge or belief that the representation was false, or was made with reckless
indifference to the truth,”70 or by the “deliberate concealment of material facts, or by
silence in the face of a duty to speak . . . in order to prevent statements actually made
from being misleading;”71 “3) an intent to induce the plaintiff to act or refrain from acting;
4) the plaintiff’s action or inaction taken in justifiable reliance upon the representation;
Under Federal Rules of Evidence 201(c)(2), the court must take judicially notice of Exhibit F
because all the necessary information was supplied, it is a public document, it is generally known in
Delaware; as certified by the Secretary of State its accuracy cannot be reasonably questioned; it is
required by law to be filed, and therefore it not subject to any reasonable dispute.
See Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).
FED. R. CIV. P. 9(b).
In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 270 (3d Cir. 2006) (alterations in
original) (quoting Burlington Coat Factory, 114 F.3d at 1418).
Stephenson v. Capano Develop., Inc., 462 A.2d 1069, 1074 (Del. 1983) (citing Nye Odorless
Incinerator Corp. v. Felton, 162 A. 504, 510-11 (Del. Super. Ct. 1931)); Gaffin v. Teledyne, Inc., 611 A.2d
467, 472 (Del. 1992).
Stephenson, 462 A.2d at 1074.
and 5) damage to the plaintiff as a result of such reliance.”72
1. Specific False Representation Made By Defendants
Plaintiffs allege that Maxwell made the following false representations to them:
(a) “success would result in the elimination of any financing premiums or deep dilution
provisions;” (b) Plaintiffs’ best interests would be served by OpenView’s alternative
financing agreements; and (c) the documents executed in December 2010 would
“[result] in the [Plaintiffs’] equity interest being increased and [they would] be given
valuable option grants.”73
Raouf is accused of making the same false representations as Maxwell,
however, in addition, he purportedly misrepresented that Plaintiffs’ best interests would
best be served if they gave up their positions as board members.74
Plaintiffs contend Scott’s false representations to be: (a) after the investment by
OpenView, he assured Plaintiffs that their best interests were being advanced and
protected; and (b) their best interests would be further benefitted by OpenView’s
alternative financing agreements.75
Plaintiffs assert OpenView, through its agents, made the following false
representations: (a) after its investment, OpenView’s directors misleadingly assured
Plaintiffs their interests were being advanced and protected in order to maximize
OpenView and OpenView’s directors financial gain; (b) their interests would be “best
Stephenson 462 A.2d at 1074 (citing Nye Odorless Incinerator, 162 A. at 510-11). The
elements of Delaware’s common law fraud mirrors the requirements of Rule 9(b). See In re Suprema
Spec., Inc. Sec. Litig, 438 F.3d 256, 270 (3d Cir. 2006) (quoting Shapiro v. UJB Finacial Corp., 964 F.2d
272, 284 (3d Cir. 1992)).
D.I. 1 at ¶¶ 25, 39, and 41.
Id. at ¶¶ 29, 35, 36, and 41.
Id. at ¶¶ 31 and 35.
served by adding executives with more experience,” (c) “potential outside capital
influxes were not in the [Plaintiffs’] best interest;” (d) OpenView’s alternative financing
agreements would benefit Plaintiffs; and (e) they would “continu[e] to receive full
information and . . . Defendants were looking out for the [Plaintiffs’] best interest.”76
The same allegations raised against OpenView and Individual Defendants are
also asserted against Exinda.77 In addition, Plaintiffs purport Exinda, through its agents,
advised in December 2010 that “Exinda was in trouble and needed to urgently execute
financing documents as soon as possible.”78
The allegations, noted herein, outlining the false representations made meet the
specificity requirement consistent with Rule 9(b) because they “[p]lead the
circumstances . . . with sufficient particularity ‘to place defendants on notice of the
precise misconduct with which they are charged.’”79
2. Defendants’ Knowledge or Belief
Since “malice, intent, knowledge, and other conditions of a person’s mind may be
alleged generally,”80 Plaintiffs have, by asserting Defendants and OpenView knew their
representations were false and intentionally omitted material information, meet this
Id. at ¶¶ 31, 32, 34, 35, and 37.
Id. at ¶¶ 31, 35, 36, 37, 38, and 41.
Id. at ¶ 38.
In re Heckman Corp. Sec. Litig., C.A. No. 10-378-LPS-MPT, 2011 WL 2413999, at *8 (D. Del.
June 16, 2011) (quoting Stubbs v. Bank of America Corp., C.A. No. 08-108-SLR-LPS, 2010 WL 659911,
at *1 (D. Del. Feb. 23, 2010) (quoting Eames v. Nationwide Mut. Ins. Co., C.A. No. 04-1324-JJF-LPS,
2008 WL 4455743, at *13 (D. Del. Sept. 30, 2008), aff’d, C.A. No. 08-4125, 2009 WL 3041997 (3d Cir.
Sept. 24, 2009))).
FED. R. CIV. P. 9(b).
3. Intent to Induce Plaintiffs to Act or Refrain From Acting
Because intent may be alleged generally,81 this requirement is fulfilled by
Plaintiffs claiming these misrepresentations were made “in order to induce . . . [them] to
act, or decline to act, as Defendants [and OpenView] desired.”82
4. Plaintiffs’ Action or Inaction Taken in Justifiable Reliance
Plaintiffs assert they executed documents, transferred their ownership interests,
and resigned their board positions in reliance upon Defendants’ and OpenView’s
conduct which meet the requirement of justifiable reliance.83
5. Damage to Plaintiffs as a Result of Such Reliance
Plaintiffs adequately plead they suffered damage as a result of their reliance on
Defendants’ and OpenView’s misrepresentations by specifically claiming diminished
ownership interest in Exinda and lost compensation.84
Since Plaintiffs have alleged “all of the essential factual background that would
accompany ‘the first paragraph of any newspaper story’ - that is, the ‘who, what, when,
where, and how of the events at issue,’”85 Defendants’ and OpenView’s motion to
dismiss Count I is denied.
Count II: Equitable Fraud
Equitable fraud was developed by courts of equity “to provide a remedy for
D.I. 1 at ¶ 51.
Id. at ¶ 52.
Id. at ¶ 53.
In re Heckman, 2011 WL 2413999, at *8 (D. Del. June 16, 2011) (quoting Snowstorm
Acquisition Corp. v. Tecumseh Prods. Co., 739 F. Supp. 2d 686, 701 (D. Del. 2010) (quoting In re
Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 276 (3d Cir. 2006))).
negligent or innocent misrepresentations.”86 As a variety of common law fraud,87
equitable fraud must meet the heightened pleading standards required by Rule 9(b).
Equitable fraud consists of: 1) a false representation, usually one of fact, made by the
defendant; 2) the defendant’s representation was made negligently or innocently;88 3)
an intent to induce the plaintiff to act or refrain from acting; 4) the plaintiff’s action or
inaction taken in justifiable reliance upon the representation; and 5) damage to the
plaintiff as a result of such reliance.
The only difference between Count I and Count II is the second element, which
requires the lesser scienter of negligent or innocent false representation, while fraud
requires either an intentional or reckless false representation. Having found the
elements of common law fraud adequately pled, Plaintiffs meet the pleading
requirements under Rule 9(b) in equitable fraud for the same reasons previously noted
herein. Therefore, Defendants’ and OpenView’s motion to dismiss Count II is denied.
Count III: Breach of Fiduciary Duty89
“The ultimate responsibility for managing the business affairs of a corporation
falls on its board of directors [under 8 Del. C. §141(a)]. In discharging this function the
directors owe fiduciary duties of care and loyalty to the corporation and its
Before the court can address the adequacy of Plaintiffs’ claims “it is important to
Stephenson, 462 A.2d at 1074.
Suprema Specialties, 438 F.3d at 270.
Gaffin, 611 A.2d at 472, n.4; Stephenson,,462 A.2d at 1074.
In deciding whether Plaintiffs pled a sufficient claim for breach of fiduciary the court will “not rely
on an affirmative defense such as the business judgment rule to trigger dismissal of a complaint
. . . .” In re Tower Air, Inc., 416 F.3d 229, 238 (3d Cir. 2005).
Revlon, Inc. v. McAndrews & Forbes Holdings, Inc., 506 A.2d 173, 179 (Del. 1986) (citations
determine whether plaintiffs’ purported breaches of fiduciary duty claims are direct or
derivative.”91 The Delaware Supreme Court in Tooley v. Donaldson, Lufkin & Jenrette92
stated the proper analysis to differentiate between direct or derivative claims is through
two questions: “who suffered the alleged harm-the corporation or the suing stockholder
individually-and who would receive the benefit of the recovery.”93
In a subsequent case, Gentile v. Rossette,94 the court found minority
stockholders would have a direct claim where: “(1) a stockholder having majority or
effective control causes the corporation to issue ‘excessive’ shares of its stock [for
lesser valued assets] of the controlling stockholder . . . ; and (2) the exchange causes
an increase in the percentage of the . . . shares owned by the controlling stockholder
. . . [at the expense of the] percentage owned by the . . . minority shareholders.”95
A controlling stockholder under Delaware law is defined as: “(1) own[ing] more
than 50% of the voting power of a corporation; or (2) exercis[ing] control over the
business and affairs of the corporation.”96 Several stockholders may be deemed a
controlling stockholder where they have a voting agreement or a “blood pact to act
together,” and their aggregated shares constitute more than 50% of the voting power.97
If the stockholders are unable to bring a direct claim, the court must then
determine if they can bring a derivative action. Since the directors, rather than the
Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963, 972 (Del. Ch. 2000).
Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004).
Tooley, 845 A.2d at 1035.
Gentile v. Rossette, 906 A.2d 91, 99-100 (Del. 2006).
Id. at 100.
Feldman v. Cutaia, 956 A.2d 644 (Del. Ch. 2007) (quoting In re PNB Hold. Co. Share. Litig., No.
Civ. A. 28-N, 2006 WL 2403999, at *9 (Del. Ch. Aug. 18, 2006) (citing Kahn v. Lynch Comm. Sys., Inc.,
638 A.2d 1110, 1113-14 (Del. 1994))).
Feldman, 956 A.2d at 658 (citing PNB Hold., 2006 WL 2403999, at *10).
shareholders, are empowered under Delaware Law to manage the business affairs of
the corporation,98 in order to bring a derivative claim a plaintiff must, as a threshold,
plead “demand futility.”99
Plaintiffs maintain, as stockholders, they suffered the alleged harm individually,
and should receive the benefit of any recovery. The purported harm committed by the
Defendants was they: enriched themselves and OpenView at the expense of the
Plaintiffs’ ownership interest, and placed their and OpenView’s interests above Plaintiffs;
engaged in self-dealing transactions; induced Plaintiffs to act against their own
interests; and converted the Plaintiffs’ ownership interest for their own use. Plaintiffs, as
minority shareholders, also aver Defendants’ conduct diluted Plaintiffs’ ownership
interest to Defendants’ benefit,100 resulting in “an improper transfer-or expropriation-of
economic value and voting power.”101 Further, Defendants and OpenView used their
control to coordinate a scheme to fraudulently enrich themselves.”102
Viewing the complaint in the light most favorable to Plaintiffs, and accepting the
allegations in the complaint as true, the court finds: Plaintiffs have stated a direct claim
because they allege they suffered harm, and are seeking the benefit of the recovery;
Plaintiffs have not alleged a derivative claim because they failed to plead demand
futility; Plaintiffs alleged sufficient facts to infer Defendants and OpenView agreed to act
in concert to diminish Plaintiffs’ ownership interest; and Plaintiffs pled the elements
King v. Baldino, 648 F. Supp. 2d 609, 616 (D. Del. 2009) (quoting Aronson v. Lewis, 473 A.2d
805, 811 (Del. 1984) (citing 8 Del. C. §141(a), overruled on other grounds by Brehem v. Eisner, 746 A.2d
244 (Del. 2000))).
King, 648 F. Supp. 2d at 616 (quoting Blasband v. Rales, 971 F.2d 1034, 1048 (3d Cir. 1992)).
D.I. 1 at ¶¶ 5, 8, 40, 62, and prayer for relief at ¶¶ 1, 2, and 5-7.
Gentile, 906 A.2d at 100.
D.I. 1 at ¶¶ 5, 61.
required under Gentile for a controlling stockholder because Defendants engaged in
self-dealing transactions which increased their voting power, resulting in Plaintiffs’
ownership being diluted. Therefore, the court finds Plaintiffs pled sufficient facts to bring
a direct claim against Defendants.
To complete the analysis, the court will next address whether Plaintiffs state a
claim for breach of fiduciary duty.
1. Duty of Loyalty
The Delaware Court of Chancery in Solash v. Telex Corp.103 has stated broadly
what is necessary to plead a breach of loyalty claim. For a breach of loyalty claim a
plaintiff must plead:
a corporate fiduciary, whether director, officer or controlling shareholder,
uses his or her corporate office or, in the case of a controlling shareholder,
control over corporate machinery, to promote, advance or effectuate a
transaction between the corporation and such person (or an entity in which
the fiduciary has a substantial economic interest, directly or indirectly) and
that transaction is not substantively fair to the corporation [or shareholders]
. . . . Breach of loyalty cases inevitably involve conflicting economic or other
interest . . . .104
“Essentially, the duty of loyalty mandates that the best interest of the corporation and its
shareholders take precedence over any interest possessed by a director, officer or
controlling shareholder and not shared by the stockholders generally.”105
Plaintiffs properly pled a claim of breach of fiduciary duty of loyalty because they
allege Individual Defendants were directors of Exinda,106 and pursuant to the prior
Solash v. Telex Corp., 13 Del. J. Corp. L. 1250, 1261-62 (Del. Ch. Jan. 19, 1988).
Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993) (citing Pogostin v. Rice, 480
A.2d 619, 624 (Del. 1984), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000)).
D.I. 1 at ¶¶ 16-19.
analysis, Individual Defendants may be treated as a controlling shareholder. Plaintiffs
asserted Individual Defendants used their control over Exinda to promote and advance
a transaction that was not substantially fair to Plaintiffs, as shareholders in Exinda.107
Furthermore, Plaintiffs claim Individual Defendants put their interests and the interests
of OpenView ahead of Exinda’s and Plaintiffs’ interests.108 Therefore, Defendants’
motion to dismiss Count III based on breach of duty of loyalty is denied.
2. Duty of Care
“The duty of directors to exercise due care appears in two contexts. First
directors must exercise the requisite degree of care in the process of decision-making
and act on an informed basis. Second, directors must also exercise due care in the
other aspects of their responsibilities.”109 In order to make a claim of breach of the duty
of care, a plaintiff must plead “that the directors knew or . . . should have known that
violations . . . were occurring and, in either event, that the directors took no steps in a
good faith effort to prevent or remedy the situation, and that such failure proximately
resulted in the losses complained of . . . .”110 “A trial court will not find a board to have
breached its duty of care unless the directors individually and the board collectively
have failed to inform themselves fully and in a deliberate manner . . . .”111 Therefore, a
trial court must find the directors individually and the board collectively acted in a
grossly negligent manner.112
Id. at ¶¶ 5-9, 32, 34, 35-37, 40, 41, 45, 46, and 62.
Id. at ¶¶ 5, 8, 31, 32, 34, 35, 37, 40, 42, 45, and 62.
1 R. Franklin Balotti & Jesse A. Finkelstein, Delaware Law of Corporations and Business
Organizations § 4.15 (Aspen Publ. 2012).
In re Caremark Intern. Inc. Derivative Litigation, 698 A.2d 959, 971 (Del. 1996).
Technicolor, 634 A.2d 345, 368 (Del. 1993).
Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362, 369 (Del. 2006).
Plaintiffs have not established a claim for breach of duty of care because there
are no facts alleged demonstrating Individual Defendants failed to “inform themselves
fully and in a deliberate manner,”113 or acted in a grossly negligent manner in decision
making, or showed they failed to exercise a reasonable degree of care.
Defendants’ motion to dismiss Count III based on breach of duty of care is
granted; however, Plaintiffs’s request for leave to amend the complaint is also
Count IV: Intentional Interference with Prospective Economic Advantage
In order to plead the tort of intentional interference with prospective economic
advantage,115 a plaintiff must allege: “‘(a) the reasonable probability of a business
opportunity, (b) the intentional interference by defendant with that opportunity, (c)
Technicolor, 634 A.2d at 368.
[FED. R. CIV. P.] 8 governs the appropriateness of the averments of a complaint. FED. R. CIV.
P. 15(a) controls amendments to the complaint, which provides that “leave to amend shall be
freely given when justice so requires.” Although the determination of whether to allow an
amendment is within the discretion of the court under Foman v. Davis, 371 U.S. 178 (1962),
the Supreme Court has instructed that leave to amend should be freely granted “in the
absence of . . . undue delay, bad faith or dilatory motive on the part of the movant, repeated
failure to cure deficiencies by amendments previously allowed, undue prejudice to the
opposing party . . . futility of the amendment, etc.” Foman, 371 U.S. at 182. However, a
court may deny leave to amend a complaint when an amendment would be futile. See
Cureton v. Nat’l Collegiate Athletic Ass’n, 252 F.3d 267, 273 (3d Cir. 2006).
Harrison v. Henry, C.A. No. 08-352-SLR/MPT, 2009 WL 464260, at *9 (D. Del. Feb. 24, 2009).
Plaintiffs requested leave to amend, (D.I. 17 at 16-17,) and Defendants and OpenView counter
leave to amend would be futile. (D.I. 14 at 13-17; D.I. 22 at 10.) Defendants and OpenView rely on the
above mentioned exhibits A through F in support of their argument to deny leave to amend. Since the
court struck those exhibits, Defendants and OpenView no longer have an adequate basis to support their
argument. Additionally, “[a]t this junction, the court has no idea what additional facts or information
[Plaintiffs] propose to add to [their] complaint to resolve the deficiency.” Harrison, 2009 WL 464260, at *9.
Therefore, leave to amend is granted.
The tort of intentional interference with prospective economic advantage is also known as
intentional interference with prospective business opportunity. Triton Const. Co., Inc. v. E. Shore. Elec.
Serv., Inc., No. 3290-VCP, 2009 WL 1387115, at *18 (Del. Ch. May 18, 2009).
proximate causation, and (d) damages.’”116 Additionally, “direct claims are available
only where the [plaintiff] has suffered damage . . . independent[ly] of any damage
suffered by the . . . company.”117
Plaintiffs are proceeding under two theories: interference with their stock options
and back-pay and earned commissions.
1. Stock Options
Plaintiffs claim they held “option grants for more than 1,500,000 shares . . . worth
roughly $15 million if Exinda” was valued approximately at $90 million. Plaintiffs also
contend Defendants intentionally terminated them without cause immediately before
their largest option grant would vest in October 2011,118 thereby causing drastic financial
harm to them, and personally benefitting Defendants.119 Thus, Plaintiffs have properly
pled the first two elements of intentional interference with prospective economic
Regarding proximate cause, Plaintiffs allege Defendants false and misleading
statements, as previously discussed above, and firing Plaintiffs before their options
vested,120 sufficiently address proximate cause, since such conduct could reasonably
and probably produce the injury alleged.121 Plaintiffs adequately pled the “liability of the
[D]efendants for the alleged tort.”122 Lastly, Plaintiffs assert damages in excess of $15
Kuroda v. SPJS Holdings, LLC., 971 A.2d 872, 886-87 (Del. Ch. 2009) (quoting
DeBonaventura v. Nationwide Mut. Ins. Co., 428 A.2d 1151, 11153 (Del. 2004) (quoting DeBonaventura v.
Nationwide Mut. Ins. Co., 419 A.2d 942, 947 (Del. Super. Ct. 1980))).
Kuroda, 971 A.2d at 887.
D.I. 1 at ¶¶ 43 and 65.
Id. at ¶¶ 45 and 67.
Id. at ¶ 68.
Blacks Law Dictionary 234 (8th ed. 2004).
DeBonaventura, 428 A.2d at 1153.
million,123 resulting from Defendants’ and OpenView’s conduct.
For the aforementioned reasons, Defendants’ and OpenView’s motion to dismiss
Count IV as it relates to the stock options is denied
2. Back-pay and Commissions
Plaintiffs’ second theory for back-pay and commissions is dismissed because it
relates to past events, and not to prospective or future events. In analyzing this claim,
guidance is found in the Delaware Court of Chancery opinion of Kuroda v. SPJS
Holdings,124 where the court determined the plaintiff “has not made any factual
allegations that would support a reasonable inference that he . . . had a reasonable
probability of a business opportunity . . . .”125 Similarly, in the instant matter, Plaintiffs
made no factual allegations that support the probability of business opportunity. They
assert factual allegations of previous business opportunities, but not probable future
Therefore, Defendants’ and OpenView’s motion to dismiss Count IV as it relates
to back-pay or commissions previously earned is granted. Furthermore, Plaintiffs leave
to amend is denied as it would be futile.127
Count V: Negligent Interference with Prospective Economic Advantage
Since all parties agree this count should be dismissed,128 Count V is dismissed.
D.I. 1 at ¶ 69.
Kuroda, 971 A.2d 872.
Id. at 887.
The court’s reasoning for the difference in outcomes between the stock options and back-pay
and earned commissions is that stock options, by their nature, provide for a future, or prospective,
business opportunity, whereas, back-pay and earned commissions are retrospective.
Granting leave to amend would be futile for this theory of the claim because there are no facts
that can be pled which would convert a completed past transaction into a potential future one.
D.I. 17 at fn. 7; D.I. 22 at 9.
Count VI: Conversion
“Generally speaking, any distinct act of dominion wrongfully exerted over the
property of another, in denial of his right or inconsistent with it, is a conversion.”129 “A
corporation itself may interfere with the rights of the stockholder . . . and thus become
liable for conversion.”130
In order to plead a claim of conversion, the following elements must be alleged:
“(a) the plaintiff held a property interest in the stock [or other property]; (b) [the] plaintiff
had a right to possession of the stock [or other property]; and (c) the defendant
converted plaintiff’s stock [or other property].”131
Plaintiffs properly pled this claim. As noted previously, Plaintiffs held stock, a
property interest, in Exinda. Their property interest consisted of 18% of Exinda’s
common stock.132 Plaintiffs contend, because of Defendants’ dominion and control, they
lost 90% of their ownership.133 Plaintiffs maintain they had a right to the stock through
their equity interest in stock options.134 Further, Plaintiffs pled their right to the stock
was interfered with by the fraudulent actions of the Defendants, and they were
subsequently stripped of their stock options.135 Thus, Plaintiffs adequately pled the
requirements necessary for a claim of conversion. As a result, Defendants’ motion to
dismiss Count VI is denied. However, Plaintiffs have not made sufficient factual
allegations to support a claim of conversion by OpenView. Therefore, OpenView’s
Drug, Inc. v. Hunt, 168 A. 87, 93 (Del. 1933).
Id. (internal quotation marks omitted).
Arnold v. Society for Sav. Bancorp, Inc., 678 A.2d 533, 536 (Del. 1996).
D.I. 1 at ¶ 77.
Id. at ¶ 78.
Id. at ¶ 9.
Id. at ¶¶ 44-45.
motion to dismiss Count VI is granted, and Plaintiffs are granted leave to amend.
Count VII: Bad Faith Termination
Delaware law creates a heavy presumption that a contract for employment is at
will with an indefinite duration.136 The Delaware Supreme Court has identified only four
situations where an “employer’s authority to terminate an employee is limited by the
implied covenant of good faith and fair dealing.”137 These four situations are:
(1) where the employee’s termination violates public policy, (2) where the
employer misrepresents an important fact and the employee relies on it when
deciding to accept a new position or to remain at a present one, (3) where
the employer uses its superior bargaining power to deprive an employee of
identifiable compensation related to an employee’s past service, and (4)
where an employer through deceit, fraud, and misrepresentation manipulates
the record “to create fictitious grounds to terminate employment.”138
An employer would be acting in bad faith and breaching the implied covenant of good
faith and fair dealing,139 if an employee was terminated in one of the four situations
listed above. Therefore, a plaintiff must properly plead one of these four situations in
order to survive a motion to dismiss.
Plaintiffs do not state facts supporting: their termination violated public policy;
they relied on a misrepresentation to accept a new position or to remain at their present
one; or any record was manipulated to create “fictitious grounds to terminate the
Plaintiffs do state a claim under the third exception, depriving them of back-pay
Bailey v. City of Wilmington, 766 A.2d 477, 480 (Del. 2001) (citing Merrill v. Crothall-American,
Inc., 606 A.2d 96, 102 (Del. 1992)).
Id. at 480.
Id. (quoting E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d 436, 443-44 (Del. 1996)).
See Pressman, 679 A.2d at 443-44; see also Bailey, 766 A.2d at 480.
Bailey, 766 A.2d at 480.
and earned commissions through the Defendants’ superior positions as members of
Exinda’s board.141 The amount of back-pay and earned commissions denied to each
plaintiff was $85,000.142 Plaintiffs further support a claim for wrongful termination
because their employment was ended to deprive them of 1.5 million stock options,143
whereby Defendants used these options to enrich themselves,144 and granted new
employees options taken from Plaintiffs.145 Therefore, Defendants’ motion to dismiss
Count VII is denied.
Count VIII: Unjust Enrichment
“Unjust enrichment is the ‘unjust retention of a benefit to the loss of another, or
the retention of money or property of another against the fundamental principles of
justice or equity and good conscience.’”146 In order to plead a claim of unjust
enrichment a plaintiff must allege: “(1) an enrichment, (2) an impoverishment, (3) a
relation between the enrichment and impoverishment, (4) the absence of justification,
and (5) the absence of a remedy provided by law.”147 The impoverishment element
does not require an actual financial loss, “because restitution may be awarded based
solely on the benefit conferred upon the defendant, even in the absence of an
impoverishment suffered by plaintiff.”148
Regarding the matter at bar, by pleading Defendants and OpenView were
D.I. 1 at ¶¶ 12, 16-19, 21
Id. at ¶¶ 65, 71.
Id. at ¶¶ 11, 43, 44, 81.
Id. at ¶¶ 42, 82.
Id. at ¶ 42.
Metcap Sec., LLC v. Pearl Sr. Care, Inc., No. 2129-VCN, 2009 WL 513756, at *5 (Del. Ch. Feb.
27, 2009) (quoting Schock v. Nash, 732 A.2d 217, 232 (Del. 1999)).
Nemec v. Shrader, 991 A.2d 1120, 1130 (Del. Ch. 2010) (quoting Jackson Nat. Life Ins. Co. v.
Kennedy, 741 A.2d 377, 393 (Del. Ch. 1999)).
Id. at 1130 n.37 (quoting Metcap, 2009 WL 513756, at *5 n.26).
enriched by acquiring 90% of Plaintiffs’ former stock ownership and their 1.2 million
stock options, as a result of fraudulent conduct and misrepresentations, and failing to
reimburse them for back-pay and earned commissions, Plaintiffs adequately raise a
claim for unjust enrichment. Plaintiffs assert their loss or damages equates to
Defendants’ and OpenView’s level of enrichment. They further contend there is no
justification for the improper actions of Defendants and OpenView.149 Thus, Plaintiffs
satisfy the first four of the elements for unjust enrichment.
With respect to the fifth element, absence of a remedy at law, in Grace v.
Morgan,150 a plaintiff was allowed to proceed on a claim of unjust enrichment where only
a monetary award, rather than an equitable remedy, was sought. The situation in Grace
is similar to this matter, since Plaintiffs are seeking monetary damages. Additionally,
“[f]ederal rules allow pleading in the alternative;”151 therefore, “it would be premature at
this stage of the proceedings to dismiss the . . . unjust enrichment claim[ ] on this
For the reasons above, Defendants and OpenView’s motion to dismiss Count VIII
Count IX: Unpaid Wages and Liquidated Damages
“The Wage Act was enacted by [Delaware’s] General Assembly to provide
payment of employees’ wages and to enforce collection. It also provides for a penalty in
D.I. 1 at ¶¶ 86-88.
Grace v. Morgan, No. Civ. A. 03C05260JEB, 2004 WL 26858, at *3 (Del. Super. Ct. Jan. 6,
U.S. v. Kensington Hosp., 760 F. Supp. 1120, 1135 (E.D. Pa. 1991).
In re K-Dur Antitrust Litig., 338 F. Supp. 2d 517, 544 (D.N.J. 2004).
19 Del. C. §§ 1101-15.
an amount equal to the amount of the outstanding wages, if the employer withheld pay
from an employee without reasonable grounds.”154 The statute defines an employee as
“any person suffered or permitted to work by an employer under a contract of
employment either made in Delaware or to be performed wholly or partly therein.”155
Further, 19 Del. C. § 1103(a) provides: “whenever an employee quits, resigns, is
discharged, suspended or laid off, the wages earned by the employee shall become due
and payable by the employer . . . .” If any of these events occur and the employer
without reasonable grounds withholds the wages, then the employer shall “be liable to
the employee for liquidated damages in the amount of 10 percent of the unpaid wages
for each day . . . or in an amount equal to the unpaid wages, whichever is smaller.”156
Thus, the elements for a claim under 19 Del. C. § 1103 are: 1) plaintiff was an
employee of the employer, 2) under a contract made in Delaware or to be performed in
Delaware, 3) whose wages were withheld, and 4) there were no reasonable grounds to
withhold the wages.
Plaintiffs fail to state a cause of action under 19 Del. C. § 1103 because they
failed to plead a contract was made in Delaware, and either part of or all of the work
was to be performed in Delaware. It is not enough to merely allege Exinda was
incorporated in Delaware, because incorporation in a particular state does not mean
that all the corporation’s contracts are made or performed in the incorporating state.
Therefore, Defendants motion to dismiss Count IX is granted, with leave to amend
Kutney v. Saggese, No. 99C-11-205-JEB, 2002 WL 1463092, at *1 (Del. Super. Ct. July 8,
2002) (footnote omitted).
Kutney, 2002 WL 1463092 at, *1; 19 Del. C. § 1101(a)(3).
Rypac Pack. Mach. Inc. v. Coakley, No. Civ. A. 16069, 2000 WL 567895, at *13 (Del. Ch. May
1, 2000) (quoting 19 Del. C. § 1103(b)).
granted to Plaintiffs.
Count X: Aiding and Abetting Breaches of Fiduciary Duty
In order to plead a claim of civil conspiracy or aiding and abetting,157 four
elements must be asserted. These elements are: “(1) the existence of a fiduciary
relationship, (2) a breach of the fiduciary’s duty . . . (3) knowing participation in that
breach by the party not in direct fiduciary relationship . . . [and (4)] damages resulting
from the actions of the conspiracy parties.”158 “‘In order to be found liable for aiding and
abetting a breach of fiduciary duty, one must demonstrate that the party knew that the
other’s conduct constituted a breach of a fiduciary duty and gave substantial assistance
or encouragement to the other in committing that breach.’”159 Additionally, “[a] plaintiff
must demonstrate the defendant’s ‘knowing participation’ with specific facts.”160
Plaintiffs fail to state a claim against OpenView for aiding and abetting breach of
fiduciary duty because they neither demonstrated nor alleged any specific facts that
OpenView knowingly participating in the alleged breach of fiduciary duty. Plaintiffs
allege that part of Exinda’s board were partners of OpenView,161 and these partners
falsely represented information to Plaintiffs for the benefit of themselves and
OpenView.162 Such facts are insufficient to give rise to an inference of substantial
Gilbert v. El Paso Co., 490 A.2d 1050, 1057 (Del. Ch. 1984); Weinberger v. Rio Grande Indus.,
Inc., 519 A.2d 116, 131 (Del. Ch. 1986).
Gilbert, 490 A.2d at 1057. “The essence of a criminal conspiracy is the agreement, the
essence of a civil conspiracy is damages.” Gilbert, 490 A.2d at 1057 (quoting Weinberger v. UOP, Inc.,
426 A.2d 1333, 1348 (Del. Ch. 1981), rev’d on other grounds, 457 A.2d 701 (Del. 1983) (citing 16 Am. Jur.
2d Conspiracy §49; 15A C.J.S. Conspiracy §1)).
In re Jevic Hold. Corp., No. 08-11006 (BLS), 2011 WL 4345204, at *13 (Bankr. D. Del. Sept.
15, 2011) (quoting Bd. Of Trs. Of Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 F.3d 164,
174 (3d Cir. 2002) (citing Resolution Trust Corp. v. Spagnoli, 811 F. Supp. 1005, 1014 (D.N.J. 1993))).
Jevic Hold., 2011 WL 4345204, at *13 (quoting Foodtown, 296 F.3d at 174).
D.I. 1 at ¶ 29.
Id. at ¶¶ 32, 34-36.
encourage on the part of OpenView to aid or abet those partners, the Individual
Defendants, in breaching their fiduciary duty to Plaintiffs.
As a result, OpenView’s motion to dismiss Count X is granted, and leave to
amend is granted to Plaintiffs.
ORDER AND RECOMMENDED DISPOSITION
Consistent with the reasoning herein, it is recommended:
1) Defendants’ Motion to Dismiss (D.I. 13), pursuant to FED. R. CIV. P. 12(b)(6),
be granted in-part and denied in-part.
2) Plaintiffs’ Motion to Strike (D.I. 18), pursuant to FED. R. CIV. P. 12(f), be
granted in-part and denied in-part.
3) Plaintiffs shall have until September 7, 2012 to amend their complaint to add
claims of breach of fiduciary duty of care and under 19 Del. C. §1103 against
4) Plaintiff shall have until September 7, 2012 to amend their complaint to add
claims of conversion and aiding and abetting breach of fiduciary duty against
This Report and Recommendation is filed pursuant to 28 U.S.C. § 636(b)(1)(B),
FED. R. CIV. P. 72(b)(1), and D. Del. LR 72.1. The Parties may serve and file specific
written objections within fourteen (14) days after being served with a copy of this Report
and Recommendation. These objections and responses to those objections are limited
to ten (10) pages each.
The parties are directed to the Court’s Standing Order in Non-Pro Se Matters for
Objections Filed under Fed. R. Civ. P. 72 (dated April 7, 2008), a copy of which is found
on the Court’s website (www.ded.uscourts.gov.)
Date: August 7, 2012
/s/ Mary Pat Thynge
United States Magistrate Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?