Simpson Trust et al v. Invicta Networks, Inc. et al
MEMORANDUM. Signed by Judge Mark A. Kearney on 10/18/2017. (nmfn)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
MARSHAL T. SIMPSON TRUST, et al.
INVICTA NETWORKS, INC. et al.
: CIVIL ACTION
: NO. 16-173
October 18, 2017
Outside investors in Delaware corporations are entitled to accurate information
concerning the corporation before the investment and in communications sent during the
investment. But they cannot ignore warnings and then wait for years before filing suit
challenging the truth of representations made several years ago. As shareholders of a Delaware
corporation, they can seek the corporation’s books and records and if rebuffed, file a summary
lawsuit allowing expedited review of records which may assist in understanding ongoing
operations. When finally filing suit for fraud and presumably based on facts provided by the
corporation - voluntarily or involuntarily - the investors must plead facts showing us why they
did not or could not have sued within the statute of limitations and describing their reliance on
specific representations causing them to lose money. When the investors fail to meet these wellknown pleading requirements and admit they can plead no further facts absent discovery, we
must enter the accompanying Order dismissing their claims with prejudice.
On November 11, 2014, investors Marshal T. Simpson Trust, Donald S. Simpson Trust,
and Christopher Boyd (collectively “Investors”) sued Invicta Networks, Inc. (“Invicta”), its
board of directors William Esrey, Robert Hallman, R. James Woolsey (“Directors”), and Victor
Sheymov as Invicta’s, President, Chief Executive Officer and Chairman in the United States
District Court for the Western District of Missouri alleging breach of fiduciary duty, negligence,
fraud, and negligent misrepresentation.1 The Simpson Trusts and Mr. Boyd allege they relied on
misrepresentations made by Invicta, its Directors, and CEO Sheymov in deciding whether to
invest in the company.2
Invicta is a Delaware corporation with its principal place of business in Virginia. 3 Mr.
Sheymov is a Virginia resident.4 Invicta began as a computer security company and developed
two security products, InvisiLAN and WizArmor.5
A. Mr. Sheymov and Invicta’s private placement memorandum followed by Donald
Simpson’s investment in January 2007.
In July 2006, Invicta and Mr. Sheymov began soliciting investments from Marshal
Simpson in Missouri.6 On July 17, 2006, Invicta sent Marshal Simpson an email touting Invicta’s
InvisiLAN technology as “unhackable.”7 Two days later, Mr. Sheymov sent a similar email to
Marshal Simpson regarding InvisiLAN technology and attached an Executive Summary, an Ebrochure, and Invicta’s business plan.8
Invicta’s business plan promoted the InvisiLAN product as “unhackable;” claimed
“numerous tests by [the] world’s most capable attackers from governments and industry
produced no penetrations;” “no attacker was able to penetrate beyond the first layer of
InvisiLAN’s multiple layers of protection;” and “several patents have been granted and more are
pending and contemplated.”9 Marshal Simpson shared the materials with Donald Simpson and
On January 31, 2007, Invicta gave its private placement memorandum to Donald
Simpson.11 Invicta’s private placement memorandum referred to two independent valuations, and
attached unaudited financial statements, including summary balance sheets showing its projected
total revenue, actual total liabilities, and expected equity contributions.12
Based on the representations in Invicta’s private placement memorandum, financial
statements, and other solicitation documents provided to Marshal Simpson in 2006, Donald
Simpson invested $400,000 in Invicta in late January 2007.13 In November 2014, the Investors
allege representations in these documents are false.14
B. Mr. Sheymov, Mr. Esrey, and Invicta’s private placement memorandum and
Marshal Simpson’s and Mr. Boyd’s investments in 2009.
On June 27, 2008, Donald Simpson emailed Mr. Sheymov asking for an update on
Invicta.15 In response, Mr. Sheymov reported InvisiLAN “has been certified by the Russian
government which makes sales prospects there good;” he “expected orders from them soon . . .
progressing to significant numbers during the next year;” the United States government “agreed
to buy a small complex of InvisiLAN,” a sale he expected to complete within two to three weeks;
and the United States government “expressed interest in a new InvisiLAN based product” which
“we are in the process of rapidly developing” within several weeks.16
Based on earlier materials he received and after Donald Simpson’s investment, Marshal
Simpson began discussions with Invicta about possible investment.17 On December 27, 2008,
Mr. Esrey emailed Marshal Simpson, stating Invicta “received the money from Russia” and a
“mid western electric utility.”18 In November 2014, the Investors allege the representations in
the emails are false.19
On January 13, 2009, Invicta sent Marshal Simpson and Mr. Boyd a private placement
memorandum dated January 12, 2009 to solicit investors for the private offer and sale of the
company’s common stock.20 The 2009 private placement memorandum stated “several test and
pilot platform systems are being tested by various entities for specific applications;” “first
shipping orders were made both domestically and internationally” which “may lead to significant
increase in revenues in the next 12-24 months;” the development of computer security
technology by a subsidiary of Invicta; and made representations about the value of Invicta based
on independent valuations.21
In January 2009, Marshal Simpson invested $150,000 in Invicta and another $1,000 in
November 2009. Mr. Boyd invested $50,000 in January 2009.22
In November 2014, the
Investors allege representations made in the 2009 private placement memorandum are false.23
C. Invicta’s 2011 and 2012 representations.
In March 2011, Mr. Sheymov emailed Invicta shareholders, including Marshal Simpson,
Donald Simpson, and Mr. Boyd, announcing Invicta’s spin-off of two subsidiaries, Wiz
Enterprises and CyPhone Technologies, Inc.24
Mr. Sheymov represented stock certificates
would be issued “at a later date, but your ownership record is in the companies’ books.” 25 The
Simpsons and Mr. Boyd never received stock certificates for the subsidiaries.26
In late 2011, the Simpsons asked Mr. Sheymov for an update on Invicta. Mr. Sheymov
responded on October 1, 2011 outlining the company’s disappointing performance but did not
disclose Invicta’s security products previously touted as “unhackable” were compromised.27 In a
November 3, 2011 Bloomberg article, Mr. Sheymov admitted a group of college students hacked
into one of Invicta’s systems.28
A year later, on November 1, 2012, Marshal Simpson asked Mr. Esrey “Is Invicta still in
business?”29 Mr. Esrey responded by forwarding Mr. Sheymov’s October 1, 2011 email and
directing all communication to Mr. Sheymov.30 A few days later, Donald Simpson emailed Mr.
Sheymov requesting Invicta’s financial records.31 Mr. Sheymov responded with the same
October 1, 2011 email and, in response to the request for financial records, reported Invicta
lacked money to pay for accounting services.32
D. Mr. Sheymov’s October 4, 2013 email.
In May 2013, Marshal Simpson emailed Mr. Sheymov asking for an update on Invicta.
Mr. Sheymov responded “not much has happened since the last update” and reported “various
government agencies” offered money to companies to develop what Invicta already developed,
and expressed frustration “we are just being ignored and nothing I can do about it [sic].”33 Mr.
Sheymov stated “I still think that under the circumstances the only feasible option is either to
lease or to sell the company’s intellectual property.”34 Mr. Sheymov reported one European
company is interested in leasing and he “hear[d]” Intel/McAfee “is still a possibility.” 35 Mr.
Sheymov told Marshal Simpson he would let him know of any significant development.
Several months passed, and Marshal Simpson emailed Mr. Sheymov with questions
regarding Invicta and “press his case for a potential customer” for Invicta’s products. 36 In
November 2014, the Investors allege Mr. Sheymov “resisted these efforts.”37 Marshal Simpson
demanded a conference call with Mr. Sheymov to explain the status of the company.38
Mr. Sheymov responded on October 4, 2013, stating “I am working on a sale of Invicta.
There are no other activities at the company at this time.”39 The Investors allege they did not
discover, and could not have reasonably discovered, Defendants’ malfeasance until Mr.
Sheymov’s October 4, 2013 email.40 Investors allege Mr. Sheymov’s representations from April
14, 2009 to October 4, 2013 were false, and made to either induce additional investments or
guarantee continued ownership of Invicta shares.41
E. Investors’ abandoned demand for information.
Before filing his complaint, Marshal Simpson made a Section 22042 demand under
Delaware law for Invicta’s books and records.43 Marshal Simpson revised and narrowed his
Section 220 demand after Mr. Sheymov responded “the demand was too voluminous.”44
According to the Investors, Mr. Sheymov did not respond to the 220 demand.45 Inexplicably,
Mr. Simpson abandoned his demand for records. Instead, the Investors filed suit in the United
States District Court for the Western District of Missouri in November 2014 without the
F. Transfer from Missouri to Delaware and Judge Robinson’s dismissal of claims
against the Directors.
In Missouri, Directors Esrey, Hallman, and Woolsey moved to dismiss the breach of
fiduciary duty and negligence claims against them and Mr. Esrey moved to dismiss the fraud and
negligent misrepresentation claims against him. The Missouri district court granted the motion to
dismiss in part, finding it did not have personal jurisdiction over Messrs. Hallman and
Woolsey.46 The Missouri district court then granted Plaintiffs’ motion to transfer the case under
28 U.S.C. § 1406(a) to the District of Delaware.47
After transfer, the Directors again moved to dismiss under Rule 12(b)(6) before Judge
Robinson.48 On April 19, 2017, Judge Robinson granted their motion dismissing the breach of
fiduciary duty and negligence claims against Directors Esrey, Hallman, and Woolsey and the
fraud and negligent representation claims against Mr. Esrey without prejudice. 49 Admitting they
had no further information, the Investors never amended their complaint.
On May 24, 2017, Judge Robinson ordered the Investors to serve Mr. Sheymov and move
for default judgment against Invicta.50 Upon reassignment, we granted the Investors’ motion for
default judgment and, after Invicta and Mr. Sheymov filed an unopposed motion to vacate
default judgment, vacated the default judgment.51 Invicta and Mr. Sheymov then moved to
Invicta and Mr. Sheymov move to dismiss the Investors’ breach of fiduciary duty and
negligence claims53 and the fraud and negligent misrepresentation claims.54 Invicta and Mr.
Sheymov argue Judge Robinson’s April 19, 2017 Order dismissing the breach of fiduciary duty
and negligence claims against Directors Esrey, Hallman, and Woolsey are law of the case and
the fraud and negligent misrepresentation claims are time barred and fail to meet the specificity
required by Federal Rules of Civil Procedure 9(b) and 8(a).
A. Investors do not contest dismissal of their breach of fiduciary duty and
Invicta and Mr. Sheymov argue Judge Robinson’s memorandum opinion dismissing
Directors Esrey, Hallman, and Woolsey from the breach of fiduciary duty and negligence claims
is law of the case.55 In her opinion, Judge Robinson found the negligence claim duplicative of
the breach of fiduciary duty claim; the fiduciary duty claim is derivative; and the Investors failed
to plead they made a demand or futility of demand required by Federal Rule of Civil Procedure
23.1. Judge Robinson dismissed the breach of fiduciary duty and duplicative negligence claim
without prejudice. The Investors elected not to amend their complaint candidly telling us during
oral argument of no additional facts available to them to amend.
The Investors do not contest dismissal of their breach of fiduciary duty and negligence
B. We dismiss the fraud and negligent misrepresentation claims.
Invicta and Mr. Sheymov argue the Investors’ fraud and negligent misrepresentation
claims must be dismissed because they are time-barred and they fail to meet pleading standards
of Rules 9(b) and 8(a). We agree.
Investors’ claims are time-barred under Delaware’s choice-of-law rules.
Invicta and Mr. Sheymov contend the law of four different states and their statutes of
limitations could apply to the Investors’ fraud and negligent misrepresentation claims:
Delaware, where Invicta is incorporated, has a three-year statute of limitations;57
Virginia, where Mr. Sheymov resides and the location of Invicta’s principal place of
business, has a two-year statute of limitations; 58
Kansas, where Donald Simpson and Mr. Boyd reside, has a two-year statute of
limitations; 59 and
Missouri, where Marshal Simpson resides, has a five-year statute of limitations from the
date a cause of action accrues which is either when the fraud is discovered or ten (10)
years after the fraud takes place, whichever occurs first.60
As a federal court sitting in diversity, we apply the choice-of-law rules of Delaware as the
forum state.61 “Under Delaware’s choice-of-law rules, a statute of limitations is procedural, not
substantive.”62 Delaware law “generally determines whether an action is barred by the statute of
limitations.”63 Delaware’s choice-of-law rules include a borrowing statute which modifies this
general rule.64 When a cause of action arises outside of Delaware, the borrowing statute applies
the shorter of Delaware’s statute of limitations and the statute of limitations of the place where
the claim arose:
Where a cause of action arises outside of this State, an action cannot be brought in a
court of this State to enforce such cause of action after the expiration of whichever is
shorter, the time limited by the law of this State, or the time limited by the law of the
state or country where the cause of action arose, for bringing an action upon such cause
of action. ….65
If the Investors’ claims arose in Delaware, the borrowing statute does not apply; by its
terms, the statute applies “where a cause of action arises outside this State.” 66 If the cause of
action arose in Virginia or Kansas, a two-year statute of limitations applies and, under the
borrowing statute, we would apply the shorter statute. If the cause of action arose in Missouri,
we would apply Delaware’s three-year statute of limitations because it is shorter than Missouri’s
The last investment made by Marshal Simpson occurred in November 2009, after
making his initial January 2009 investment. Donald Simpson invested in January 2007 and Mr.
Boyd invested in January 2009. Applying Delaware’s three-year statute of limitations to the last
investment, the complaint must have been brought by November 2012. Investors did not sue
until November 2014. The Investors’ fraud and negligent misrepresentation claims are timebarred unless tolled.
2. Delaware’s tolling doctrines do not apply as pleaded.
The Investors argue the question of which state’s statute of limitations applies is
irrelevant because Delaware allows for tolling under the discovery rule. They allege the earliest
possible date they could have discovered Defendants’ fraud and misrepresentations occurred
through Mr. Sheymov’s October 4, 2013 email: “I am working on a sale of Invicta. There are no
other activities at the company at this time.”
We examine three tolling doctrines under Delaware law67: (1) inherently unknowable
injuries; (2) fraudulent concealment; and (3) equitable tolling.68 A plaintiff bears the burden of
showing the statute of limitations is tolled, and “relief from the statute extends only until the
plaintiff is put on inquiry notice.”69 “No theory will toll the statute beyond the point where the
plaintiff was objectively aware, or should have been aware, of facts giving rise to the wrong.”70
Inquiry notice exists “when person person[s] of ordinary intelligence and produce [have facts
sufficient to place them] on inquiry which, if pursued, would lead to the discovery of the
injury.”71 A plaintiff is “on inquiry notice if [he] is in possession of facts sufficient to make [him]
suspicious, or that ought to make [him] suspicious.”72 While the “plaintiff-friendly inferences”
required of a Rule 12(b)(6) analysis applies to the timeliness of claims, it “does not govern
assertion of tolling exceptions to the operation of a statute of limitations” . . . and a plaintiff
“asserting a tolling exception must plead facts supporting the applicability of that exception.”73
“Inherently unknowable injuries” applies “where it would be practically impossible for a
plaintiff to discover the existence of a cause of action.”74 “No objective or observable factors
may exist that might have put the plaintiffs on notice of an injury, and the plaintiffs bear the
burden to show that they were ‘blamelessly ignorant’ of both the wrongful act and the resulting
The fraudulent concealment doctrine applies where a defendant “fraudulently conceal[s]
from a plaintiff the facts necessary to put him on notice of the truth.” 76 “Under this doctrine, a
plaintiff must allege an affirmative act of ‘actual artifice’ by the defendant that either prevented
the plaintiff from gaining knowledge of material facts or led the plaintiff away from the truth.”77
Equitable tolling applies “while a plaintiff has reasonably relied upon the competence and
good faith of a fiduciary” until the “investor ‘knew or had reason to know of the facts
constituting the wrong.’”78
The Investors argue we may not dismiss because they pleaded the elements of all three
Delaware tolling doctrines. Mr. Sheymov and Invicta disagree, arguing the Investors have the
burden to plead tolling with particularity and they failed to do so, making only conclusory
allegations. We find the Investors did not meet their burden.
a. Inherently unknowable injuries
The Investors argue they relied on Mr. Sheymov’s representations as Invicta’s President,
CEO, and board member, and they repeatedly sought information from Mr. Sheymov concerning
Invicta’s affairs and he repeatedly assured them “the company was fine” all while refusing to
provide information on Invicta’s finances. Investors contend “Defendants” refused to provide
them with information as evidenced by: their Section 220 demand at some unspecified time
before filing their November 2014 complaint and never received documents; Mr. Sheymov’s
October 1, 2011 email providing Donald Simpson an update on Invicta; Mr. Esrey’s November
1, 2012 email providing Marshal Simpson with the same October 1, 2011 Sheymov email; Mr.
Sheymov’s November 12, 2012 email to Donald Simpson reporting there are not enough funds
to pay for accounting services to compile Invicta’s financial reports; and, Mr. Sheymov’s
October 4, 2013 email.79 Investors contend they justifiably relied on Mr. Sheymov’s and
Invicta’s representations and had “no objective basis to believe they were engaged in deception”
until Mr. Sheymov’s October 4, 2013 email where he “finally concede[d]”: “There are no other
activities at the company at this time.”
The Investors do not plead facts allowing us to apply the “inherently unknowable
injuries” tolling doctrine. Investors made a Section 220 demand before November 2014 and,
when they did not receive a response, abandoned their demand. They fail to explain why. Mr.
Sheymov’s October 1, 2011 email told Donald Simpson “[t]he past year was very
disappointing;” “funding is tied up . . . with not much progress in sight;” and “[o]verall, given
the realities of government, economy, and the industry, we are looking into a possibility of
selling the companies/technologies.” This email is far more ominous than the October 2013
email when Mr. Sheymov said: “I am working on a sale of Invicta. There are no other activities
at the company at this time.”
Investors fail to allege how it would have been “practically impossible” to discover fraud
and negligent misrepresentation claims against Invicta and Mr. Sheymov and how the October 1,
2011 email did not put them on inquiry notice. Investors fail to allege how they relied on any
representations made by Mr. Sheymov before October 4, 2013. Investors have not come close to
meeting their burden their injuries were not inherently unknowable before October 4, 2013. They
had the same information in October 2011 and we have no information they could not have
obtained information, particularly with the availability of Section 220 litigation in Delaware,
long before they filed suit.
b. Fraudulent concealment
The Investors also do not meet their burden of showing tolling based on fraudulent
concealment; there are no allegations of “an affirmative act of actual artifice” by Invicta, Mr.
Sheymov, or any of its Directors to either prevent the Investors from “gaining knowledge of
material facts or [lead] [Investors] away from the truth.” The Investors cite bare allegations in
the fraud and negligent misrepresentation counts reciting the elements of the claims. There are
no allegations Mr. Sheymov or Invicta intended to put Investors “off the trail of inquiry” or
conceal Invicta’s financial status.80
c. Equitable tolling
The Investors repeat the same reasons in support of equitable tolling, contending they
reasonably relied on the competence and good faith of Mr. Sheymov and Invicta. Investors
“must plead specific facts to demonstrate [their] reliance on a self-dealing fiduciary, and that this
reliance prevented [them] from being on inquiry notice of the wrongs perpetuated by its
fiduciary.”81 Investors’ fraud and negligent misrepresentation claims allege representations in
the 2006 Invicta business plan through the 2009 private placement memorandum are not true and
made to induce the Investors to rely and act on them. They do not go beyond the bare allegations
all the statements in every document from 2006 through 2009 are “not true.” Investors fail to
plead facts sufficient to support equitable tolling.
3. Even if not time-barred, the Investors fail to plead reliance to support fraud
and negligent misrepresentation claims with particularity.
Even assuming we found the Investors pleaded facts supporting tolling of the statute of
limitations, we must still dismiss their fraud and misrepresentation claims as they do not plead
facts sufficient to plead reliance or fraud with particularity. The laws of Delaware, Virginia,
Missouri, and Kansas all require reliance as an element of fraud82 and negligent
misrepresentation.83 The Investors fail to plead reliance on representations made by Mr.
Sheymov and Invicta after November 2009. There are no allegations Investors took any action in
reliance on any statements after Marshal Simpson’s last investment in November 2009. To the
extent the claims are based on fraud and negligent misrepresentations made after November
2009, they fail to state a claim under Rule 12(b)(6) and are dismissed.
For the reasons explained in Judge Robinson’s April 19, 2017 opinion dismissing the
Investors’ fraud and negligent misrepresentation claims against Mr. Esrey, we find the Investors
similarly failed to meet Rule 9(b) and 8(a) in their claims against Invicta and Mr. Sheymov. The
dismissed allegations against Mr. Esrey are identical to the allegations against Mr. Sheymov with
his name simply plugged in for Mr. Esrey’s name. The Investors fail to identify which statements
made by Mr. Sheymov were false, how, and why they are false. 84 Similarly, while the Investors
identify a series of representations made by Invicta beginning with its 2006 business plan
through its 2009 private placement memorandum, they fail to identify which statements are false
and how and why they are false. Like Judge Robinson, we find the Investors’ allegations are
threadbare recitals of the elements of fraud and negligent misrepresentation.85
Judge Robinson granted Mr. Esrey’s motion to dismiss the fraud and negligent
misrepresentation claim without prejudice. The Investors elected not to amend their complaint to
cure deficiencies. During oral argument, the Investors’ counsel candidly conceded he knew of no
additional facts to plead. The Investors admit wanting discovery to see if they can find fraud.
Given counsel’s candor and professionalism, we find no basis to allow yet another time period to
find facts they admit are not available to them.
In the accompanying Order, we grant Invicta’s and Victor Sheymov’s motion to dismiss
as there are no facts upon which we could allow the Investor’s time-barred and purely
speculative claims of fraud based on representations years ago to proceed into discovery.
ECF Doc. No. 1.
Marshal T. Simpson, a Missouri resident, is the trustee and beneficiary of the Marshal T.
Simpson Trust. Id. at ¶ 3. Donald S. Simpson, a Kansas resident, is the trustee and beneficiary of
the Donald S. Simpson Trust. Id. at ¶ 4. Christopher Boyd is a Kansas resident. Id. at ¶ 5.
Id. at ¶ 6.
Id. at ¶ 7.
Id. at ¶¶ 13-15.
Id. at ¶ 19.
Id. at ¶¶ 20-24.
Id. at ¶¶ 25-29.
Id. at ¶¶ 30-33.
Id. at ¶ 34.
Id. at ¶ 36.
Id. at ¶¶ 36-43.
Id. at ¶ 44.
Id. at ¶ 45.
Id. at ¶ 46.
Id. at ¶ 47.
Id. at ¶ 48.
Id. at ¶ 49.
Id. at ¶¶ 50-52.
Id. at ¶¶ 53-60.
Id. at ¶¶ 61-63.
Id. at ¶ 64.
Id. at ¶ 66.
Id. at ¶ 67.
Id. at ¶¶ 68-70.
Id. at ¶ 70.
Id. at ¶ 71.
Id. at ¶¶ 72-73.
Id. at ¶¶ 71-79.
Id. at ¶ 74.
Id. at ¶ 75.
Id. at ¶¶ 76-77.
Id. at ¶ 67.
Id. at ¶ 79.
Id. at ¶ 80.
Id. at ¶¶ 90-92.
Id. at ¶ 82.
8 Del.C. § 220. Section 220(b) of Delaware’s General Corporation Law provides: “Any
stockholder, in person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business to inspect for any
proper purpose, and to make copies and extracts from: (1) The corporation's stock ledger, a list
of its stockholders, and its other books and records; and (2) A subsidiary’s books and records …”
8 Del.C. § 220(b)
ECF Doc. No. 1 at ¶ 16.
Id. at ¶ 17.
Id. at ¶ 18.
ECF Doc. No. 35.
ECF Doc. No. 40.
ECF Doc. Nos. 50, 51. Investors had not served Mr. Sheymov and Invicta had not responded
at the time Directors Esrey, Hallman, and Woolsey moved to dismiss before Judge Robinson.
Marshal T. Simpson Trust v. Invicta Networks, Inc., No. 16-173, ___ F.Supp. 3d ___, 2017
WL 1424944 (D.Del. Apr. 19, 2017).
ECF Doc. No. 62.
ECF Doc. No. 66, 78.
In deciding a motion to dismiss under Rule 12(b)(6), we accept all well-pleaded allegations in
the complaint as true and draw all reasonable inferences in favor of the non-moving party, but
we “are not compelled to accept unsupported conclusions and unwarranted inference, or a legal
conclusion couched as a factual allegation.” Castleberry v. STI Group, 863 F.3d 259, 263 (3d
Cir. 2017) (quoting Morrow v. Balaski, 719 F.3d 160, 165 (3d Cir. 2013)). “To survive a motion
to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim
to relief that is plausible on its face.’” Edinboro Coll. Park Apartments v. Edinboro Univ.
Found., 850 F.3d 567, 572 (3d Cir. 2017) (quoting In re Vehicle Carrier Serv. Antitrust Litig.,
846 F.3d 71, 79 n.4 (3d Cir. 2017)). A claim satisfies the plausibility standard when the facts
alleged “allow the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Maiden Creek Assoc., L.P. v. U.S. Dep’t of Transp., 823 F.3d 184, 189 (3d
Cir. 2016) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). While the plausibility standard
is not “akin to a ‘probability requirement,’” there nevertheless must be more than a “sheer
possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (citing Twombly, 550
U.S. at 556). “Where a complaint pleads facts that are ‘merely consistent with’ a defendant's
liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.’”
Id. (quoting Twombly, 550 U.S. at 557).
Our Court of Appeals requires us to apply a three-step analysis under a 12(b)(6) motion: (1) “it
must ‘tak[e] note of the elements [the] plaintiff must plead to state a claim;’” (2) “it should
identify allegations that, ‘because they are no more than conclusions, are not entitled to the
assumption of truth;’” and, (3) “[w]hen there are well-pleaded factual allegations, [the] court
should assume their veracity and then determine whether they plausibly give rise to an
entitlement for relief.” Connelly v. Lane Constr. Corp., 809 F.3d 780, 787 (3d Cir. 2016)
(quoting Iqbal, 556 U.S. at 675, 679).
Counts I and II allege breach of fiduciary duty and negligence against “all Individual
Counts III and IV and V and VI allege fraud and negligent misrepresentation against Invicta
and Mr. Sheymov.
Under Delaware’s law of the case doctrine, “‘[o]nce an issue is decided, it will not be
relitigated in the same case, except in unusual circumstances. The purpose of this doctrine is to
promote the ‘judicial system’s interest in finality and in efficient administration.’” Gibbs v.
Coup, No. 14-790, 2017 WL 2493785, at *3 (D.Del. June 8, 2017) (quoting Hayman Cash
Register Co. v. Sarokin, 669 F.2d 162, 165 (3d Cir. 1982)).
See Investors’ brief in opposition at 1 (ECF Doc. No. 91).
Del. Code Ann. tit. 10, § 8106 (West 2017); Vichi v. Koninklijke Philips Elec., N.V., 85 A.3d
725, 788 (Del.Ch. 2014).
Va. Code Ann. § 8.01-243 (West 2017).
Kan. Stat. Ann. § 60-513 (West 2017).
Mo. Ann. Stat. § 516.120 (West 2017); Ellison v. Fry, 437 S.W.3d 762, 769 (Mo. 2014).
White v. Sunoco, Inc., 870 F.3d 257, 263 (3d Cir. 2017) (citing LeJenue v. Bliss-Salem, Inc.,
85 F.3d 1069, 1071 (3d Cir. 1996)).
Gavin v. Club Holdings, LLC, No. 15-175, 2016 WL 1298964, at *3 (D.Del. Mar. 31, 2016)
(citing Norman v. Elkin, No. 06-5, 2007 WL 2822798, at *3 (D.Del. Sept. 26, 2007), aff’d, 860
F.3d 111 (3d Cir. 2017)); David B. Lilly Co., Inc. v. Fisher, 799 F.Supp. 1562, 1568 (D.Del.
1992), aff’d 18 F.3d 1112 (3d Cir. 1994) (“Generally, statutes of limitations are deemed to be
procedural for conflict of law purposes and the Court would apply its own state’s statute of
limitations.”) (citing Wells v. Simonds Abrasive Co., 345 U.S. 514, 517–18 (1953); Guar. Trust
Co. v. York, 326 U.S. 99 (1945)).
Gavin, 2016 WL 1298964, at *3 (citing Juran v. Bron, No. 16464, 2000 WL 1521478, *10
(Del. Ch. Oct. 6, 2000)). In Gavin, Judge Andrews applied Delaware’s three-year statute of
limitations to the Plaintiff Trustee’s state law claims including fraudulent misrepresentation and
inducement and negligent misrepresentation over the statutes of limitations of Colorado and
TL of Florida, Inc. v. Terex Corp., 54 F.Supp. 3d 320, 326-27 (D.Del. 2014) (citing Nat’l
Iranian Oil Co. v. Mapco Int’l, Inc., 983 F.2d 485, 494 (3d Cir. 1992)).
Del.Code Ann. tit. 10, § 8121 (West 2017).
The Investors rely on Delaware’s tolling doctrines.
Gregorovich v. E.I. du Pont de Nemours, 602 F.Supp. 2d 511, 518 (D.Del. 2009) (footnotes
omitted) (citing In re Tyson Foods, Inc., 919 A.2d 563, 584 (Del. Ch. 2007)).
Id. at 519 (citing In re Tyson Foods, Inc. at 585).
Smith v. Whelan, No. 11-1188, 2013 WL 3169373, at * 2 (D.Del. June 21, 2013) (footnote
omitted) (quoting Eluv Holdings(BVI) Ltd. v. Dotomi, LLC, No. 6894, 2013 WL 1200273, at *7
(Del.Ch. Mar. 26, 2013)).
Smith at *2 (quoting Smith v. McGee, No. 2101, 2006 WL 3000363, at *3 (Del. Ch. Oct. 16,
State ex rel. Brady v. Pettinaro Enters., 870 A.2d 513, 525 (Del. Ch. 2005) (citing In re Dean
Witter P’ship Litig., No. 14816, 1998 WL 442456, at *6 (D. Del. July 17, 1998)); Eni Holdings
v. Kbr Grp. Holdings, No. 8075, 2013 WL 6186326, at *11 (Del. Ch. Nov. 27, 2013) (citing
State ex rel. Brady, 870 A.2d at 524-25)).
In re Tyson Foods, Inc., 919 A.2d at 584.
In re Tyson Foods, Inc., 919 A.2d at 585 (citing In re Dean Witter P’ship Litig., 1998 WL
442456 at *5; Ruger v. Funk, No. 93C-04-210, 1996 WL 110072, at *2 (Del. Super. Jan. 22,
In re Tyson Foods, Inc., 919 A.2d at 585.
Id. (citations omitted).
Id. (quoting In re Dean Witter P’ship Litig., 1998 WL 442456, at *6).
ECF Doc. No. 1 at ¶¶ 16-18, 68-69, 71, 73-76, 79-80.
Machala v. Boehringer Ingelheim Pharm., Inc., No. N16C-12-231, 2017 WL 2814728, at *6*7 (Del. Super. June 29, 2017).
Eni Holdings, LLC, 2013 WL 6186326, at *13.
Elements of fraud:
Delaware: “(1) a false representation made by the defendant; (2) the defendant's knowledge or
belief that the representation was false, or reckless indifference to the truth; (3) an intent to
induce the plaintiff to act or to refrain from acting; (4) the plaintiff's action or inaction taken in
justifiable reliance upon the representation; and (5) causally related damages to the plaintiff.”
Vichi, 85 A.3d at 773 (citation omitted).
Virginia: “(1) a false representation, (2) of a material fact, (3) made intentionally and knowingly,
(4) with intent to mislead, (5) reliance thereon by the party misled, and (6) resulting damage to
the party misled.” Owens v. DRS Automotive Fantomworks, Inc., 764 S.E.2d 256, 260 (Va.
Missouri: “(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of
its falsity, or ignorance of its truth; (5) the speaker's intent that it should be acted on by the
person and in the manner reasonably contemplated; (6) the hearer's ignorance of the falsity of the
representation; (7) the hearer's reliance on the representation being true; (8) the hearer's right to
rely thereon; and (9) the hearer's consequent and proximately caused injury.” Trimble v. Pracna,
167 S.W.3d 706, 712–13 (Mo. 2005).
Kansas: “(1) false statements were made as a statement of existing and material fact; (2) the
representations were known to be false by the party making them or were recklessly made
without knowledge concerning them; (3) the representations were intentionally made for the
purpose of inducing another party to act upon them; (4) the other party reasonably relied and
acted upon the representations made; and (5) the other party sustained damage by relying upon
them.” Kelly v. VinZant, 197 P.3d 803, 808 (Kan. 2008).
Elements of negligent misrepresentation:
Delaware: “(1) the defendant had a pecuniary duty to provide accurate information, (2) the
defendant supplied false information, (3) the defendant failed to exercise reasonable care in
obtaining or communicating the information, and (4) the plaintiff suffered a pecuniary loss
caused by justifiable reliance upon the false information.” Vichi, 85 A.3d at 822 (citation
Virginia: Negligent misrepresentation is construed as constructive fraud requiring “that a false
representation of a material fact was made innocently or negligently, and the injured party was
damaged as a result of ... reliance upon the misrepresentation.” Richmond Metropolitan Auth. v.
McDevitt Street Bovis, Inc., 507 S.E.2d 344, 347 (Va. 1998) (quoting Mortarino v. Consultant
Eng’g Serv., 467 S.E.2d 778, 782 (Va. 1996)).
Missouri: “(1) the speaker supplied information in the course of his business; (2) because of the
speaker's failure to exercise reasonable care, the information was false; (3) the information was
intentionally provided by the speaker for the guidance of limited persons in a particular business
transaction; (4) the hearer justifiably relied on the information; and (5) due to the hearer's
reliance on the information, the hearer suffered a pecuniary loss.” Renaissance Leasing, LLC v.
Vermeer Mfg. Co., 322 S.W.3d 112, 134 (Mo. 2010).
Kansas: “One who, in the course of any transaction in which he or she has a pecuniary interest,
supplies false information for the guidance of another person is liable for damages suffered by
such other person caused by reasonable reliance upon the false information if: (1) the person
supplying the false information failed to exercise reasonable care or competence in obtaining or
communicating the false information; (2) the person who relies upon the information is the
person for whose benefit and guidance the information is supplied; and (3) the damages are
suffered in a transaction that the person supplying the information intends to influence.”
Stechschulte v. Jennings, 298 P.3d 1083, 1097–98 (Kan. 2013) (citation omitted).
See Marshal T. Simpson Trust, 2017 WL 1424944, at *4.
In the Directors’ motion to dismiss, Mr. Esrey argued Missouri law applies to the fraud and
negligent misrepresentation claim. The Investors did not disagree, and Judge Robinson applied
Missouri law to her Rule 12(b)(6) analysis of the fraud and negligent misrepresentation claims
against Mr. Esrey.
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