throbber
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
`
`C.A. No.2023-0053-JTL
`
`)))))))))))))))))
`
`TY HULS,
`
`Plaintiff,
`
`v.
`
`TEESPRING, INC., a Delaware
`corporation, AMAZE HOLDING
`COMPANY LLC, a Delaware limited
`liability company, AMAZE SOFTWARE
`INC., a Delaware corporation,
`CHRISTOPHER LAMONTAGNE,
`ANNELIES JANSEN, CARMEN
`BECKWITH, EVAN STITES-CLAYTON,
`and NICK BELL,
`
` Defendants.
`
`DEFENDANTS CHRISTOPHER LAMONTAGNE, ANNELIES JANSEN,
`EVAN STITES-CLAYTON, AND NICK BELL’S
`OPENING BRIEF IN SUPPORT OF THEIR
`MOTION TO DISMISS THE VERIFIED COMPLAINT
`
`LEWIS BRISBOIS
`BISGAARD & SMITH LLP
`Sean M. Brennecke (Bar No. 4686)
`500 Delaware Avenue, Suite 700
`Wilmington, Delaware 19801
` (302) 985-6009
`Sean.Brennecke@LewisBrisbois.com
`
`Attorney for Defendants Christopher
`Lamontagne, Annelies Jansen, Evan
`Stites-Clayton and Nick Bell
`
`Dated: April 11, 2023
`
`93160422.1
`
`EFiled: Apr 11 2023 04:30PM EDT
`Transaction ID 69791132
`Case No. 2023-0053-JTL
`
`

`

`TABLE OF CONTENTS
`
`Page
`
`INTRODUCTION.....................................................................................................1
`NATURE AND STAGE OF PROCEEDINGS.........................................................3
`STATEMENT OF FACTS........................................................................................4
`ARGUMENT.............................................................................................................5
`I.
`Applicable Standards.......................................................................................5
`a.
`Rule 12(b)(6).........................................................................................5
`b.
`Rule 9(b) ...............................................................................................6
`The Complaint Lacks Any Allegations Against Stites-Clayton or Bell..........7
`II.
`III. Huls Claim Of Fraudulent Transfer Fails As A Matter Of Law. ....................8
`IV.
`The Complaint Fails To Allege A Claim For Fraud. ....................................11
`V.
`The Complaint Fails to Allege a Claim for Breach of the Fiduciary
`Duty of Loyalty. ............................................................................................13
`a.
`Count IV improperly asserts a direct claim for breach of
`fiduciary duty by a creditor.................................................................13
`The Complaint fails to adequately allege that either
`LaMontagne or Jansen were self-interested or acted in bad faith.......14
`The Complaint Fails To Allege A Claim For Breach Of The Fiduciary
`Duty Of Disclosure........................................................................................18
`VII. The Complaint Fails To Allege A Claim For Breach Of 8 Del. C. §
`228.................................................................................................................18
`CONCLUSION .......................................................................................................18
`
`VI.
`
`b.
`
`93160422.1
`
`i
`
`

`

`TABLE OF AUTHORITIES
`
`Page
`
`Cases
`Cede & Co. v. Technicolor, Inc.,
`634 A.2d 345 (Del. 1993)...................................................................................14
`Crystallex Int’l Corp. v. Petróleos de Venez., S.A.,
`213 F. Supp. 3d 683 (D. Del. 2016) .....................................................................8
`Edgewater Growth Cap. Partners, LP v. HIG Cap., Inc.,
`2010 Del. Ch. LEXIS 42 (Del. Ch. Mar. 3, 2020)................................................8
`Fortis Advisors LLC v. Dialog Semiconductor PLC,
`2015 Del. Ch. LEXIS 22 (Del. Ch. Jan. 30, 2015).............................................12
`In re Genworth Fin. Consol. Deriv. Litig.,
`2021 Del. Ch. LEXIS 223 (Del. Ch. Sep. 29, 2021) ............................................7
`Halperin v. Moreno (In re Green Field Energy Servs),
`2018 Bankr. LEXIS 517 (Del. Bankr. 2018)......................................................10
`Hummanigen, Inc. v. Savant Neglected Diseases, LLC,
`2021 Del. Ch. LEXIS 503 (Del. Ch. July 12, 2021)...................................8, 9, 10
`LVI Grp. Invs., LLC v. NCM Grp. Holdings, LLC,
`2018 Del. Ch. LEXIS 101 (Del. Ch. Mar. 28, 2018)....................................12, 13
`Lyondell Chem. Co. v. Ryan,
`970 A.2d 235 (Del. 2009)...................................................................................16
`In re McCook Metals, L.L.C.,
`319 B.R. 570 (Bankr. N.D. Il., 2005) ...................................................................9
`Metro. Life Ins. Co. v. Tremont Grp. Holdings, Inc.,
`2012 Del. Ch. LEXIS 287 (Del. Ch. Dec. 20, 2012)........................................5, 6
`Midcap Funding C Tr. v. Graebel Cos.,
`2020 Del. Ch. LEXIS 171 (Del. Ch. Apr. 30, 2020)............................................6
`In re Morton’s Rest. Grp., Inc. S’holders Litig.,
`74 A.3d 656 (Del. Ch. 2013) ................................................................................5
`ii
`93160422.1
`
`

`

`N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla,
`930 A.2d 92 (Del. 2007).....................................................................................13
`In re Oracle Corp. Deriv. Litig.,
`2022 Del. Ch. LEXIS 118 (Del. Ch. May 20, 2022)..........................................17
`
`Partners & Simons, Inc. v. Sandbox Acquisitions, LLC
`2021 Del. Ch. LEXIS 169 (Del. Ch. July 26, 2021)...........................................11
`Price v. E.I. DuPont de Nemours & Co.,
`26 A.3d 162 (Del. 2011).......................................................................................5
`Quadrant Structured Prods. Co. v. Vertin,
`102 A.3d 155 (Del. Ch. 2014) ......................................................................13, 14
`Skye Min. Inv’rs, LLC v. DXS Capital (U.S.) Ltd.,
`2020 Del. Ch. LEXIS 72 (Del. Ch. Feb. 24, 2020) ..............................6, 7, 11, 12
`In re SwervePay Acq., LLC,
`2022 Del. Ch. LEXIS 208 (Del. Ch. Aug. 26, 2022) .........................................12
`Teamsters Loc. 677 Health Servs. & Ins. Plan v. Martell,
`2023 Del. Ch. LEXIS 29 (Del. Ch. Jan. 31, 2023).......................................15, 16
`In re TIBCO Software Inc. S’holders Litig,
`2015 Del. Ch. LEXIS 265 (Del. Ch. Oct. 20, 2015) ....................................16, 17
`Trenwick Am. Litig. Tr. v. Ernst & Young, L.L.P.,
`906 A.2d 168 (Del. Ch. 2006) aff’d sub nom., Trenwick Am. Litig.
`Tr. v. Billett, 931 A.2d 438 (Del. 2007) ...............................................................8
`Trusa v. Nepo,
`2017 Del. Ch. LEXIS 57 (Del. Ch. Apr. 13, 2017)............................................12
`In re Tyson Foods, Inc.,
`919 A.2d 563 (Del. Ch. 2007) ..............................................................................5
`
`Village of Five Points Ventures, Ltd. Liab. Co. v. Vill. of Five Points
`Prop. Owners Assoc.,
`2020 Del. Ch. LEXIS 335 (Del. Ch. Nov. 13, 2020) ...............................5, 10, 14
`Yu v. GSM Nation, LLC,
`2018 Del. Ch. LEXIS 382 (Del. Super. Apr. 24, 2018) .......................................8
`
`93160422.1
`
`iii
`
`

`

`Statutes
`6 Del. C. § 1301 et seq...............................................................................................8
`8 Del. C. § 228.....................................................................................................1, 18
`Court Rules
`Court of Chancery Rule 9(b) .............................................................6, 10, 11, 12, 13
`Court of Chancery Rule 12(b)(6)...............................................................................5
`Other Authorities
`Donald J. Wolfe, Jr. & Michael A. Pittenger, CORPORATE AND
`COMMERCIAL PRACTICE IN THE DELAWARE COURT OF CHANCERY,
`Second Edition, § 4.06 (Mattew Bender & Co. (2021)........................................6
`
`93160422.1
`
`iv
`
`

`

`INTRODUCTION
`This action is another step in a long campaign by a creditor to collect on a
`
`judgment he obtained against Teespring, Inc. (“Teespring”).
`
`The salient facts can be summarized in a few sentences. In September 2021,
`
`Plaintiff Ty Huls (“Huls” or “Plaintiff”) obtained a judgment against his former
`
`employer—Teespring. Anxious to recover on that judgment Huls entered into an
`
`agreement with Teespring which he believed would provide a “more efficient way
`
`to get paid than trying to execute on” that judgment. ¶ 77.
`
`In November 2022, Teespring entered into an Asset Purchase Agreement
`
`with Holdco (defined below) pursuant to which Holdco agreed to acquire all of
`
`Teespring’s assets for what the parties agreed was valuable consideration (the
`
`“Transaction”). The Transaction was approved by the majority of Teespring’s
`
`stockholders and Huls was notified less than two weeks after closing.
`
`In January 2023, Huls filed a ten-count scattershot complaint claiming that
`
`the Transaction deprived him of his rights as creditor and seeking to hold all of the
`
`defendants liable for a host of perceived wrongs. Five of the ten counts are
`
`directed to the Individual Defendants—Count I (fraudulent transfer); Count II
`
`(fraud); Count IV (breach of fiduciary duty of loyalty); Count V (breach of
`
`fiduciary duty of disclosure); and Count X (violation of 8 Del. C. § 228).
`
`93160422.1
`
`1
`
`

`

`As discussed herein, and in the Amaze Brief and the Beckwith Brief
`
`(defined below), the Complaint must be dismissed for several reasons.
`
`As an initial matter, the Complaint is devoid of any allegations against two
`
`of the defendants—Evan Stites-Clayton and Nick Bell.
`
`Count I is based on a statute that does not provide a cause of action against
`
`the Individual Defendants. While Delaware courts have recognized a narrow
`
`exception, the Complaint lacks any non-conclusory allegations that support
`
`applying that exception to the Individual Defendants.
`
`Count II must be dismissed because the Complaint fails to satisfy the
`
`heightened pleading standard applicable to fraud claims and lacks any non-
`
`conclusory allegations as to several of the elements of fraud—including that any of
`
`the Individual Defendants actually made any representations.
`
`Counts IV and V must be dismissed because they are direct claims asserted
`
`by a creditor which are not permitted by Delaware law. Furthermore, the
`
`Complaint lacks any non-conclusory allegations that Lamontagne or Jansen were
`
`self-interested or acted in bad faith in connection with the Transaction.
`
`Count V must also be dismissed because the Individual Defendants did not
`
`owe Huls the fiduciary duties he seeks to enforce, and even if they did, the
`
`Complaint does not allege that the Individual Defendants were required to, or did,
`
`provide Huls with any false information.
`
`93160422.1
`
`2
`
`

`

`Count X must be dismissed because, contrary to the conclusory allegations
`
`in the Complaint, Huls was promptly notified of the Transaction. However, even if
`
`he could demonstrate a delay in notifying him of the Transaction, Huls has not, and
`
`indeed cannot, demonstrate any damage caused by such a delay.
`
`NATURE AND STAGE OF PROCEEDINGS
`On January 18, 2023, Plaintiff filed a Verified Complaint (the “Complaint”)
`
`against Teespring, Christopher LaMontagne (“LaMontagne”), Annelies Jansen
`
`(“Jansen”), Evan Stites-Clayton (“Stites-Clayton”), Nick Bell (“Bell”), Amaze
`
`Holding Company, LLC (“Holdco”) Amaze Software Inc. (“Amaze”, collectively
`
`with Holdco, the “Amaze Defendants”), and Carmen Beckwith (“Beckwith”). D.I.
`
`1. LaMontagne, Jansen, Stites-Clayton and Bell will be referred to herein as the
`
`“Individual Defendants”.
`
`The Amaze Defendants, Beckwith, and the Individual Defendants filed
`
`motions to dismiss the Complaint on February 8, 2023, February 22, 2023, and
`
`March 10, 2023, respectively. D.I. 18, 20, 36. Teespring answered the Complaint
`
`on February 23, 2023. D.I. 23.
`
`On March 28, 2023, the Amaze Defendants and Beckwith filed their opening
`
`briefs in support of their motions to dismiss (the “Amaze Brief” and the “Beckwith
`
`Brief” respectively). D.I. 46, 48. This is the Individual Defendants’ Opening Brief
`
`in Support of Their Motion to Dismiss.
`
`93160422.1
`
`3
`
`

`

`Pursuant to the Amended Stipulation and [Proposed] Order Governing
`
`Briefing on Motions to Dismiss, entered by the Court on April 10, 2023 (D.I. 35),
`
`Plaintiff will file a combined answering brief in opposition to all three motions on
`
`or before May 11, 2023, and Beckwith, the Amaze Defendants, and the Individual
`
`Defendants, will file their reply briefs on or before May 31, 2023. D.I. 35. Oral
`
`argument has not yet been scheduled.
`
`STATEMENT OF FACTS
`The Individual Defendants incorporate and adopt the Statement of Facts
`
`contained in the Beckwith Brief and the Amaze Brief with one clarification—the
`
`Complaint does not allege that Jansen was a director of Teespring (¶¶ 15, 52).1
`
`1 Citations to “¶__” refer to the paragraphs of the Complaint.
`
`93160422.1
`
`4
`
`

`

`ARGUMENT
`
`I.
`
`Applicable Standards
`The Individual Defendants have moved to dismiss the Complaint pursuant to
`
`Court of Chancery Rules 12(b)(6) and 9(b).
`
`Rule 12(b)(6)
`a.
`A motion to dismiss brought pursuant to Court of Chancery Rule 12(b)(6)
`
`must be granted where the “plaintiff would not be entitled to recover under any
`
`reasonably conceivable set of circumstances susceptible of proof.” In re Tyson
`
`Foods, Inc., 919 A.2d 563, 571 (Del. Ch. 2007) (internal quotation marks omitted).
`
`That is, the motion should be granted if the Court finds that the “complaint does
`
`not assert sufficient facts that, if proven, would entitle the plaintiff to relief.”
`
`Metro. Life Ins. Co. v. Tremont Grp. Holdings, Inc., 2012 Del. Ch. LEXIS 287, at
`
`*49 (Del. Ch. Dec. 20, 2012). The Court need not “accept conclusory allegations
`
`unsupported by specific facts or . . . draw unreasonable inferences in favor of the
`
`non-moving party.” Village of Five Points Ventures, Ltd. Liab. Co. v. Vill. of Five
`
`Points Prop. Owners Assoc., 2020 Del. Ch. LEXIS 335, at *6 (Del. Ch. Nov. 13,
`
`2020) (quoting Price v. E.I. DuPont de Nemours & Co., 26 A.3d 162, 166 (Del.
`
`2011)). “Moreover, the court is not required to accept every strained interpretation
`
`of the allegations proposed by the plaintiff.” In re Morton’s Rest. Grp., Inc.
`
`S’holders Litig., 74 A.3d 656, 660 (Del. Ch. 2013). “[F]ailure to plead an element
`
`93160422.1
`
`5
`
`

`

`of a claim precludes entitlement to relief and, therefore, is grounds to dismiss that
`
`claim.” Metro. Life Ins. Co., 2012 Del. Ch. LEXIS 287, at *50.
`
`Rule 9(b)
`b.
`Pursuant to Court of Chancery Rule 9(b), “[i]n all averments of fraud or
`
`mistake, the circumstances constituting fraud or mistake shall be stated with
`
`particularity. Malice, intent, knowledge and other condition of mind of a person
`
`may be averred generally.” This imposes a high burden on Plaintiff who must
`
`specifically allege “(1) the time, place, and contents of the false representation; (2)
`
`the identity of the person making the representation; … (3) what the person intended
`
`to gain by making the representations [and (4)] … their reasonable reliance on
`
`allegedly fraudulent misstatements and omissions”. Skye Min. Inv’rs, LLC v. DXS
`
`Capital (U.S.) Ltd., 2020 Del. Ch. LEXIS 72, at *76 (Del. Ch. Feb. 24, 2020). If a
`
`complaint fails to meet any of those requirements “a court will grant a defendant’s
`
`motion to dismiss fraud claims.” Donald J. Wolfe, Jr. & Michael A. Pittenger,
`
`CORPORATE AND COMMERCIAL PRACTICE IN THE DELAWARE COURT OF CHANCERY,
`
`Second Edition § 4.06 (Matthew Bender & Co., 2021) (citing Midcap Funding C Tr.
`
`v. Graebel Cos., 2020 Del. Ch. LEXIS 171, at *27 (Del. Ch. Apr. 30, 2020) (internal
`
`citations
`
`93160422.1
`
`6
`
`

`

`II.
`
`The Complaint Lacks Any Allegations Against Stites-Clayton or Bell
`The Complaint does not contain a single allegation regarding Stites-Clayton
`
`or Bell. In fact, their names only appear in the Complaint three times—in the
`
`caption, the description of the parties (¶¶ 17, 18), and the definition of “individual
`
`defendants” (¶ 54).
`
`The fact that Count II (Fraud) and Count V (Breach of Fiduciary Duty of
`
`Disclosure) are brought against the “individual defendants” is of no moment. To
`
`sustain a fraud claim Plaintiff was required, but failed, to identify the wrongs
`
`and/or statements Stites-Clayton and Bell allegedly committed or made. Skye Min.
`
`Inv’rs, LLC, 2020 Del. Ch. LEXIS 72, at *76 (requiring plaintiff to identify who
`
`made the allegedly false statements). Having failed to do so, Count II must be
`
`dismissed as against Stites-Clayton and Bell. Id.
`
`Furthermore, when alleging a breach of fiduciary duty, Huls was required to
`
`“adequately plead a breach of fiduciary duty claim against each
`
`individual director or officer; so-called ‘group pleading’ will not suffice”. In re
`
`Genworth Fin. Consol. Deriv. Litig., 2021 Del. Ch. LEXIS 223, at *51-52 (Del.
`
`Ch. Sep. 29, 2021). The Complaint simply groups Stites-Clayton and Bell into the
`
`definition of “individual defendants” and must therefore be dismissed.
`
`93160422.1
`
`7
`
`

`

`III. Huls Claim Of Fraudulent Transfer Fails As A Matter Of Law.
`The Individual Defendants incorporate and adopt the arguments set forth in
`
`the Beckwith Brief regarding Count I. See Beckwith Brief at 11-16.
`
`Count I must also be dismissed as to the Individual Defendants because the
`
`Complaint lacks non-conclusory allegations that any of the Individual Defendants
`
`were transferors, transferees, or beneficiaries of the Transaction.
`
`Count I is based on the Delaware Uniform Fraudulent Transfer Act (6 Del.
`
`C. § 1301 et seq.) (the “DUFTA”). However, the DUFTA only applies to
`
`transferors or transferees, and does not provide for derivative liability against their
`
`respective directors, officers and fiduciaries. See Edgewater Growth Cap.
`
`Partners, LP v. HIG Cap., Inc., 2010 Del. Ch. LEXIS 42, *8 (Del. Ch. Mar. 3,
`
`2020); Yu v. GSM Nation, LLC, 2018 Del. Ch. LEXIS 382, *32 (Del. Super. Apr.
`
`24, 2018); Trenwick Am. Litig. Tr. v. Ernst & Young, L.L.P., 906 A.2d 168, 203
`
`(Del. Ch. 2006) aff’d sub nom., Trenwick Am. Litig. Tr. v. Billett, 931 A.2d 438
`
`(Del. 2007); Crystallex Int’l Corp. v. Petróleos de Venez., S.A., 213 F. Supp. 3d
`
`683, 692 (D. Del. 2016), and Beckwith Brief at 11-16.
`
`Delaware courts recognize an exception to that rule which provides that in
`
`certain circumstances a beneficiary of a fraudulent transfer may be held liable. See
`
`e.g., Hummanigen, Inc. v. Savant Neglected Diseases, LLC, 2021 Del. Ch. LEXIS
`
`93160422.1
`
`8
`
`

`

`503, *19 (Del. Ch. July 12, 2021) (citing In re McCook Metals, L.L.C., 319 B.R.
`
`570, *3-4 (Bankr. N.D. Il., 2005)).
`
`While it is unclear from the Complaint, Huls appears to rely on this
`
`exception as a basis to allege the Individual Defendants are liable for the damages
`
`Huls allegedly suffered as a result of the Transaction.
`
`The Complaint first alleges that LaMontagne and Jansen benefitted from the
`
`Transaction because they were among the forty-six Teespring employees who
`
`received offers of employment for which they “may receive, ‘among other things,
`
`cash compensation and equity compensation’ in Amaze”. ¶ 52, see also, ¶¶ 54, 64,
`
`74, 78. That fact, however, is not enough to make LaMontagne and Jansen
`
`beneficiaries under the DUFTA.
`
`To be considered a “beneficiary” a person must be the “ultimate beneficiary”
`
`of the transaction and have received a quantifiable, accessible benefit which is
`
`capable of disgorgement. In re McCook Metals, L.L.C., 319 B.R. at 570, at *3-4.
`
`A merely theoretical benefit is not sufficient. Hummanigen, Inc., 2021 Del. Ch.
`
`LEXIS 503, *19-20. An offer of employment, which is what LaMontagne and
`
`Jansen actually received in connection with the Transaction, clearly does not
`
`satisfy this test.2
`
`2 As the Complaint recognizes, LaMontagne and Jansen were two of forty-six
`people who received employment offers in connection with the Transaction. ¶ 52.
`It is telling that Plaintiff has not sued any of the other forty-four people. If Plaintiff
`9
`93160422.1
`
`

`

`The Complaint also appears to allege that the Individual Defendants
`
`benefitted from the Transaction because “their company, Teespring, avoid[ed]
`
`paying Mr. Huls what it agreed to pay him…” ¶ 78. Such a conclusory allegation
`
`is insufficient. Village of Five Points Ventures, Ltd. Liab. Co., 2020 Del. Ch.
`
`LEXIS 335, at *6 (the Court need not accept conclusory allegations unsupported
`
`by specific facts”); Hummanigen, Inc., 2021 Del. Ch. LEXIS 503, at *9 (claims of
`
`fraudulent transfer must meet the heightened pleading standard of [Rule 9(b)
`
`which] requires particularized pleading of the circumstances surrounding the
`
`alleged fraud”).
`
`It is unclear what the phrase “their company” means given that the
`
`Complaint does not allege that any of the Individual Defendants held an interest in
`
`Teespring (through debt, or ownership of stock or stock options).
`
`Even if the Complaint alleged that any of the Individual Defendants held an
`
`ownership interest in Teespring, any benefit they received was an indirect result of
`
`their ownership of Teespring stock. Such an indirect benefit is not sufficient to
`
`hold a person liable for a fraudulent transfer. Halperin v. Moreno (In re Green
`
`Field Energy Servs), 2018 Bankr. LEXIS 517, at *4-5 (Del. Bankr. 2018).
`
`believed that the receipt of an employment offer was sufficient grounds to hold a
`non-transferor or non-transferee liable, it is curious why he did not seek relief from
`any of the other forty-four people.
`
`93160422.1
`
`10
`
`

`

`IV. The Complaint Fails To Allege A Claim For Fraud.
`Count II asserts a claim for fraud against Teespring, Beckwith and the
`
`Individual Defendants. ¶¶ 69-80. The Individual Defendants incorporate and
`
`adopt the arguments in the Beckwith Brief as to Count II. See Beckwith Brief at
`
`16-23.
`
`Count II must also be dismissed as to the Individual Defendants for failure to
`
`satisfy the specificity requirements of Court of Chancery Rule 9(b).
`
`Rule 9(b) requires fraud claims to contain specific allegations of “(1) the
`
`time, place, and contents of the false representation; (2) the identity of the person
`
`making the representation; and (3) what the person intended to gain by making the
`
`representations [and] … their reasonable reliance on allegedly fraudulent
`
`misstatements and omissions”. Skye Min. Inv’rs, LLC, 2020 Del. Ch. LEXIS 72, at
`
`*76, and Partners & Simons, Inc. v. Sandbox Acquisitions, LLC, 2021 Del. Ch.
`
`LEXIS 169, at *10 (Del. Ch. July 26, 2021).
`
`The Complaint does not identify a single representation made by any of the
`
`Individual Defendants. In fact, the only representations identified in the Complaint
`
`were allegedly made by “Teespring” (¶¶ 4, 6, 77), its counsel (¶ 35), or Huls’s
`
`“contact at Teespring…” (¶ 39). There are simply no allegations that any of the
`
`Individual Defendants made any representations—false or otherwise. That alone
`
`requires dismissal of Count II. Skye Min. Inv’rs, LLC, 2020 Del. Ch. LEXIS 72, at
`
`93160422.1
`
`11
`
`

`

`*76 (Rule 9(b) requires particularized allegations of the contents of each alleged
`
`statement).
`
`The only allegation which could conceivably connect the Individual
`
`Defendants to any fraudulent conduct is the conclusory statement that “Teespring,
`
`through the [I]ndividual Defendants, deliberately misled Mr. Huls…” (¶¶ 64, 65).
`
`That allegation is insufficient because it does not identify which of the Individual
`
`Defendants made a representation, what exactly the representation was, when it
`
`was made, and how it was made. In re SwervePay Acq., LLC, 2022 Del. Ch.
`
`LEXIS 208, at *27 (Del. Ch. Aug. 26, 2022) (dismissing fraud claims as to certain
`
`defendants because the allegations did not identify which of the defendants made
`
`which allegedly fraudulent statements); Trusa v. Nepo, 2017 Del. Ch. LEXIS 57, at
`
`*26 (Del. Ch. Apr. 13, 2017) (dismissing a fraud claim for, among other things,
`
`failing to identify the means by which the alleged misrepresentations were made);
`
`and Fortis Advisors LLC v. Dialog Semiconductor PLC, 2015 Del. Ch. LEXIS 22,
`
`*22 (Del. Ch. Jan. 30, 2015) (“In short, contrary to the purpose of the particularity
`
`requirement in Rule 9(b), [the Individual Defendants are] … left to guess when
`
`[Plaintiff] contends that [they] allegedly made any of the … false statements
`
`attributed to [them].”).
`
`Simply stated, the Complaint leaves it to each of the Individual Defendants
`
`to guess the basis for the claims against them. Delaware law requires more. LVI
`
`93160422.1
`
`12
`
`

`

`Grp. Invs., LLC v. NCM Grp. Holdings, LLC, 2018 Del. Ch. LEXIS 101, at *30
`
`(Del. Ch. Mar. 28, 2018) (“The purpose of Rule 9(b) is to provide the defendant
`
`with ‘detail sufficient to apprise the defendant[s] of the basis for the claim”’).
`
`V.
`
`The Complaint Fails to Allege a Claim for Breach of the Fiduciary Duty
`of Loyalty.
`Count IV alleges that LaMontagne, Beckwith, and Jansen breached their
`
`fiduciary duty of loyalty by deliberately misrepresenting Teespring’s willingness to
`
`pay its creditor (Huls) while simultaneously negotiating the Transaction. ¶¶ 86-90.
`
`As explained below, and in the Beckwith Brief, Count IV must be dismissed for
`
`several reasons.
`
`a.
`
`Count IV improperly asserts a direct claim for breach of fiduciary
`duty by a creditor.
`As explained in sections D.1 and D.2 of the Beckwith Brief, which the
`
`Individual Defendants incorporate and adopt, Count IV asserts a direct claim by a
`
`creditor for breach of fiduciary duty. Delaware law is clear that creditors do not
`
`have the right to assert this type of claim, therefore, Count IV must be dismissed.
`
`N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92, 101
`
`(Del. 2007) (“no direct claim for breach of fiduciary duties may be asserted by the
`
`creditors of a solvent corporation that is operating in the zone of insolvency”);
`
`Quadrant Structured Prods. Co. v. Vertin, 102 A.3d 155,176 (Del. Ch. 2014) (“as a
`
`93160422.1
`
`13
`
`

`

`practical matter Gheewalla holds that directors never owe fiduciary duties directly
`
`to creditors”) (emphasis in original).
`
`b.
`
`The Complaint fails to adequately allege that either LaMontagne
`or Jansen were self-interested or acted in bad faith.
`Even if the Complaint asserted a breach of fiduciary as a shareholder, Count
`
`IV must still be dismissed.
`
`As the Delaware Supreme Court explained in Cede & Co. v. Technicolor,
`
`Inc.
`
`The duty of loyalty mandates that the best interest of the corporation
`and its shareholders takes precedence over any interest possessed by a
`director, officer or controlling shareholder and not shared by the
`stockholders generally. … Classic examples of director self-interest in
`a business transaction involve either a director appearing on both sides
`of a transaction or a director receiving a personal benefit from a
`transaction not received by the shareholders generally.
`
`Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993).
`
`Huls fiduciary duty allegation is based on the conclusory allegations that
`
`“LaMontagne, Beckwith, and Jansen acted in bad faith” and were “self-interested
`
`in the Transaction”. ¶¶ 88, 89. While the Complaint uses the buzzwords, it is
`
`devoid of any factual support. That fact alone requires dismissal. Village of Five
`
`Points Ventures, Ltd. Liab. Co., 2020 Del. Ch. LEXIS 335, at *6.
`
`Furthermore, the allegations in the Complaint do not establish a breach of
`
`fiduciary of loyalty. It is indisputable that the Complaint does not allege that
`
`LaMontagne and Jansen appeared “on both sides” of the Transaction, controlled
`
`93160422.1
`
`14
`
`

`

`either of the parties to it, received any of the assets transferred or that they even
`
`had an interest in Teespring. In fact, the Complaint does not allege that they
`
`played any role in the Transaction.
`
`The fact that LaMontagne and Jansen received employment offers in
`
`connection with the Transaction does not make them interested in the Transaction
`
`or constitutes a violation of their fiduciary duty of loyalty. Teamsters Loc. 677
`
`Health Servs. & Ins. Plan v. Martell, 2023 Del. Ch. LEXIS 29, at *51-53 (Del. Ch.
`
`Jan. 31, 2023).
`
`In Teamsters Loc. 677, the plaintiff, a former stockholder of CoreLogic, Inc.,
`
`brought an action against CoreLogic’s board of directors and CEO for, among
`
`other things, breach of fiduciary duty, arising from a merger of CoreLogic which
`
`plaintiff considered to detrimental to the interest of CoreLogic’s minority
`
`stockholders. 2023 Del. Ch. LEXIS 29, at *4. Plaintiff alleged that the CEO
`
`“spearheaded” the sale process and was motivated to direct the company to reject
`
`an allegedly superior offer by an “undisclosed self-interest in his continued
`
`employment and executive pay”. Id. at *51-52. The Court granted the CEO’s
`
`motion to dismiss, finding that the complaint lacked any allegations of specific acts
`
`the CEO committed which would constitute a breach of fiduciary duty, and that the
`
`allegations regarding the CEO’s compensation and potential employment was an
`
`effort to “make something out of nothing”. Id. at *52, 53.
`
`93160422.1
`
`15
`
`

`

`As was the case in Teamsters Loc. 677, the Complaint is devoid of any
`
`specific allegations of wrongdoing by LaMontagne or Jansen. Instead, Huls
`
`alleges they breached their fiduciary duties because they received employment
`
`offers in connection with a transaction that, “from [his] perspective” (¶ 58) was
`
`inappropriate. As the Court made clear in Teamsters Loc. 677, those allegations do
`
`not state a claim for breach of fiduciary duty. Id. at *52.
`
`Even if employment offers were considered benefits for purposes of a
`
`fiduciary duty analysis, and if the Court determined that LaMontagne and Jansen
`
`owed Huls fiduciary duties in this context, as Huls recognized, forty-six people
`
`received such offers. ¶ 52. Therefore, neither LaMontagne nor Jansen received a
`
`unique personal benefit.
`
`Huls’s bald allegation that LaMontagne and Jansen acted in “bad faith” fairs
`
`no better. Demonstrating bad faith is an onerous task. As the Delaware Supreme
`
`Court held in Lyondell Chem. Co. v. Ryan, “an extreme set of facts is required to
`
`sustain a disloyalty claim premised on the notion that disinterested directors were
`
`intentionally disregarding their duties.” 970 A.2d 235, 243 (Del. 2009) (internal
`
`citations omitted). In In re TIBCO Software Inc. S'holders Litig., the Court of
`
`Chancery explained that this test requires a plaintiff to “show that the fiduciary’s
`
`actions were so far beyond the bounds of reasonable judgment that it seems
`
`essentially inexplicable on any ground other than bad faith.” 2015 Del. Ch. LEXIS
`
`93160422.1
`
`16
`
`

`

`265, at *69-71 (Del. Ch. Oct. 20, 2015). Findings of bad faith are “rare”. In re
`
`Oracle Corp. Deriv. Litig., 2022 Del. Ch. LEXIS 118, *20 (Del. Ch. May 20,
`
`2022).
`
`The Complaint falls well short of that standard. Rather than detailing an
`
`“extreme set of facts”, the Complaint simply alleges that LaMontagne and Jansen
`
`“deliberately misrepresented Teespring’s willingness to pay Mr. Huls” while
`
`negotiating the April Order and the Final Judgment. ¶ 88. As discussed
`
`previously, the Complaint does not identify a single action LaMontagne or Jansen
`
`allegedly took, or a single statement they made (or failed to make), that would
`
`suggest they intentionally disregarded their duties or that their conduct was “so far
`
`beyond the bounds of reasonable judgment that it seems essentially inexplicable on
`
`any ground other than bad faith.” In re TIBCO, 2015 Del. Ch. LEXIS 265, at *69-
`
`71.
`
`Furthermore, Huls’s claim is built on the false premise that Teespring was
`
`not “willing[]” to pay Huls. In fact, Teespring paid Huls under the terms of the
`
`April Order. ¶ 38. The Complaint alleges that those payments stopped in
`
`November 2022, however, it does not indicate whether Teespring made any
`
`payments during the months between entry of the Final Order and the allegedly
`
`missed payment in November. Thus, the assertion that Teespring was not willing
`
`93160422.1
`
`17
`
`

`

`to pay Huls is belied by the other allegations in the Complaint and Count IV must
`
`be dismissed.
`
`VI. The Complaint Fails To Allege A Claim For Breach Of The Fiduciary
`Duty Of Disclosure.
`The Individual Defendants incorporate and adopt the arguments in the
`
`Beckwith Brief regarding the dismissal of Count V alleging a breach of the
`
`fiduciary duty of disclosure.
`
`VII. The Complaint Fails To Allege A Claim For Breach Of 8 Del. C. § 228.
`The Individual Defendants incorporate and adopt the arguments in the
`
`Beckwith Brief regarding the dismissal of Count X

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