`IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
`HEARTHSTONE INVESTMENTS LTD.,
`Plaintiff,
`v.
`PHARMAJET, INC., JOHN BUCKLEY,
`HEATHER CALLENDER-POTTERS,
`GORDON CLANCY, MARK
`JACOBSON, WOUTER LATOUR,
`MARKUS PEDRIKS, PRAFUL SHAH,
`AL STEPHAN, AND ROBERT
`WARDROP,
`Defendants.
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`C.A. No. 2025-0380-JTL
`DEFENDANTS’ OPENING BRIEF IN SUPPORT OF MOTION FOR
`PARTIAL DISMISSAL
`OF COUNSEL:
`Steven M. Lucks
`(admitted pro hac vice)
`S. Aaron Loterstein
`(admitted pro hac vice)
`Brendan Herrmann
`(admitted pro hac vice)
`FISHKIN LUCKS
`The Woolworth Building
`233 Broadway, Suite 820
`New York, NY 10279
`(646) 755-9200
`slucks@fishkinlucks.com
`aloterstein@fishkinlucks.com
`bherrmann@fishkinlucks.com
`MELUNEY ALLEMAN & SPENCE, LLC
`Sean A. Meluney (#5514)
`William M. Alleman, Jr. (#5449)
`Matthew D. Beebe (#5980)
`1143 Savannah Rd., Suite 3-A
`Lewes, DE 19958
`(302) 551-6740
`sean.meluney@maslawde.com
`bill.alleman@maslawde.com
`matt.beebe@maslawde.com
`Counsel to Defendants PharmaJet, Inc., John
`Buckley, Heather Callender-Potters, Gordon
`Clancy, Mark Jacobson, Wouter Latour,
`Markus Pedriks, Praful Shah, Al Stephan, and
`Robert Wardrop
`PUBLIC VERSION FILED
`ON JUNE 19, 2025
`
`EFiled: Jun 19 2025 03:33PM EDT
`Transaction ID 76496212
`Case No. 2025-0380-JTL
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`TABLE OF CONTENTS
`Page
`PRELIMINARY STATEMENT...............................................................................1
`RELEVANT FACTS.................................................................................................4
`PROCEDURAL HISTORY ....................................................................................10
`ARGUMENT ..........................................................................................................11
`I. BECAUSE HEARTHSTONE’S INTERPRETATION OF THE SHA
`IS WRONG, ITS CORRESPONDING FIDUCIARY DUTY AND
`IMPLIED COVENANT CLAIMS FAIL ...........................................11
`II. HEARTHSTONE’S BREACH OF FIDUCIARY DUTY CLAIM
`FAILS ON THE MERITS BECAUSE PHARMAJET’S TAG-
`ALONG NOTICE TO SHAREHOLDERS WAS ACCURATE........13
`III. HEARTHSTONE’S GOOD FAITH AND FIDUCIARY DUTY
`CLAIMS IMPROPERLY DUPLICATE ITS DEFECTIVE BREACH
`OF CONTRACT CLAIMS.................................................................16
`A. Hearthstone Attempts Improperly to Bootstrap a Fiduciary Duty
`Claim to Its Breach of Contract Claims....................................17
`B. Hearthstone’s Implied Covenant Claim Is Improperly Premised
`on the SHA’s Express Provisions.............................................22
`CONCLUSION .......................................................................................................25
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`ii
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`TABLE OF AUTHORITIES
`Page(s)
`Cases
`AQSR India Private, Ltd. v. Bureau Veritas Holdings, Inc.,
`2009 WL 1707910 (Del. Ch. June 16, 2009).......................................................24
`ARC Glob. Investments II, LLC v. Digital World Acquisition Corp.,
`2024 WL 4212709 (Del. Ch. Sept. 16, 2024) ..........................................19, 20–21
`Bäcker v. Palisades Growth Cap. II, L.P.,
`246 A.3d 81 (Del. 2021) ......................................................................................17
`CIM Urban Lending GP, LLC v. Cantor Com. Real Estate Sponsor, L.P.,
`2016 WL 768904 (Del. Ch. Feb. 26, 2016) ...................................................21, 22
`Conte v. Greenberg,
`2024 WL 413430 (Del. Ch. Feb. 2, 2024), aff’d, 2025 WL 274639 (Del. Jan. 23,
`2025) ....................................................................................................................16
`Eurofins Panlabs, Inc. v. Ricerca Biosciences, LLC,
`2014 WL 2457515 (Del. Ch. May 30, 2014).......................................................23
`Firefighters’ Pension Sys. of City of Kansas City, Mo. Tr. v. Presidio, Inc.,
`251 A.3d 212 (Del. Ch. 2021)..............................................................................16
`Garfield ex rel. ODP Corp. v. Allen,
`277 A.3d 296 (Del. Ch. 2022)..............................................................................20
`Nemec v. Shrader,
`991 A.2d 1120 (Del. 2010) ......................................................................17, 20, 21
`New Enters. Assocs. 14, L.P. v. Rich,
`292 A.3d 112 (Del. Ch. 2023)..............................................................................13
`Ogus v. SportTechie, Inc.,
`2020 WL 502996 (Del. Ch. Jan. 31, 2020)........................................18–19, 20, 22
`P-5 GRA, LLC v. Ivankovich,
`2025 WL 1483625 (Del. Ch. May 23, 2025).......................................................21
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`iii
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`Pfeffer v. Redstone,
`965 A.2d 676 (Del. 2009) ....................................................................................13
`Stansell v. Rosensweig,
`2024 WL 2958465 (Del. Ch. June 12, 2024)...........................................14, 15–16
`Stewart v. BF Bolthouse Holdco, LLC,
`2013 WL 5210220 (Del. Ch. Aug. 30, 2013) ................................................22–23
`Stroud v. Grace,
`606 A.2d 75 (Del. 1992) ......................................................................................14
`STX Bus. Solutions, LLC v. Fin.-Info.-Techs., LLC,
`2024 WL 4645104 (Del. Ch. Oct. 31, 2024) .......................................................23
`Turnbull v. Klein,
`2025 WL 353877 (Del. Ch. Jan. 31, 2025)..........................................................15
`US Ecology, Inc. v. Allstate Power Vac, Inc.,
`2018 WL 3025418 (Del. Ch. June 18, 2018),
`aff’d, 202 A.3d 510 (Del. 2019)...........................................................................24
`In re WeWork Litig.,
`2020 WL 6375438 (Del. Ch. Oct. 30, 2020) .................................................17, 22
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`Defendants PharmaJet, Inc. (“PharmaJet” or the “Company”), John Buckley,
`Heather Callender-Potters, Gordon Clancy, Mark Jacobson, Wouter Latour, Markus
`Pedriks, Praful Shah, Al Stephan, and Robert Wardrop (collectively, the “Director
`Defendants” and, together with PharmaJet, the “Defendants”), by and through their
`undersigned counsel, respectfully submit this brief in support of their motion to
`dismiss Counts III and IV of Plaintiff Hearthstone Investments Ltd.’s
`(“Hearthstone”) verified complaint, under Del. Ch. R. 12(b)(6) for failure to state a
`claim.
`PRELIMINARY STATEMENT
`This dispute arises from Hearthstone’s purchase of PharmaJet common stock
`from one of the Company’s shareholders, non-party Ron Lowy, and the ensuing
`process through which other shareholders were permitted to participate in tag-along
`sales of their own stock to Hearthstone pursuant to the Company’s Shareholders
`Agreement (“SHA”).
`Hearthstone erroneously asserts that: (i) even though it purchased only
`common stock from Mr. Lowy, other shareholders may sell Hearthstone preferred
`stock through tag-along sales; and (ii) PharmaJet has no right of first refusal
`(“ROFR”) to purchase the stock that other shareholders proposed to sell through tag-
`along sales. As PharmaJet has already explained in its cross-motion for summary
`judgment seeking dismissal of Hearthstone’s two declaratory judgment claims,
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`Hearthstone’s positions run counter to the plain language of the SHA. Indeed, the
`SHA says that tag-along sales must be on the same “terms and conditions” as the
`original transaction that triggered the tag-along process, including the type of stock
`at issue in that transaction. Therefore, because Hearthstone offered to purchase only
`common stock from Mr. Lowy, other shareholders can only sell common stock
`through tag-along sales. Additionally, the SHA provides PharmaJet a ROFR to
`purchase stock whenever a shareholder receives an offer to purchase their stock.
`Given that each tag-along sale entails an offer from Hearthstone to purchase each
`tag-along seller’s stock, PharmaJet may exercise a ROFR for each proposed sale to
`purchase the stock for itself.
`No matter how the Court resolves the parties’ motions for summary judgment,
`it should dismiss Hearthstone’s additional claims for breach of fiduciary duty and
`the implied covenant of good faith and fair dealing. If the Court rules in PharmaJet’s
`favor on summary judgment (meaning that the Court finds PharmaJet’s
`interpretations of the SHA to be correct), Hearthstone’s fiduciary duty and implied
`covenant claims—both of which are based on its erroneous interpretation of the
`SHA—must also be dismissed. But even if Hearthstone’s contract claims were to
`somehow survive summary judgment, its fiduciary duty and implied covenant
`claims must be dismissed.
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`The sole basis for those claims is that PharmaJet sent a notice to shareholders,
`in connection with the tag-along process, explaining its interpretation of the SHA
`and informing the shareholders of Hearthstone’s contrary position (by sharing a copy
`of Hearthstone’s proposed notice). PharmaJet did not actually take any action
`adverse to Hearthstone after issuing the notice. The Company did not, for example,
`void any tag-along sales of preferred stock or exercise a ROFR to purchase any tag-
`along shares, and Hearthstone does not allege otherwise. Rather, because
`Hearthstone (erroneously) believes that the notice described an incorrect
`interpretation of the SHA, Hearthstone asserts that the mere act of issuing the notice
`breached PharmaJet’s obligation to deal in good faith and the Director Defendants’
`fiduciary duty of loyalty.
`PharmaJet’s notice to its shareholders cannot be a breach of fiduciary duty as
`a matter of law. Apart from describing the parties’ dueling interpretations of the
`SHA, Hearthstone does not allege that any information included in PharmaJet’s
`notice to shareholders was inaccurate. Indeed, even the notice’s description of
`shareholders’ potential rights under the SHA was accurate because the notice
`presented both parties’ interpretations for shareholders to consider (and Hearthstone
`does not allege otherwise). Given that the notice to shareholders was completely
`accurate, and Hearthstone does not allege any other misconduct by the Director
`Defendants, they cannot possibly have breached their fiduciary duty.
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`Moreover, Hearthstone’s fiduciary duty claim is based solely on its allegation
`that the Director Defendants’ substantive interpretation of the SHA conflicts with
`Hearthstone’s—the very allegation that underlies its contract claims. Thus,
`Hearthstone’s fiduciary duty claim must be dismissed for the independent reason
`that it is duplicative of Hearthstone’s contract claims. The alleged breach of
`fiduciary duty is based on exactly the same facts as Hearthstone’s contract claim,
`and this Court has routinely held that, under such circumstances, a plaintiff’s only
`relief is contractual.
`Likewise, Hearthstone’s claim that PharmaJet breached the implied covenant
`of good faith and fair dealing must also be dismissed. The parties’ dispute about the
`SHA hinges on its express terms, and Hearthstone has identified no separate, implied
`obligation that PharmaJet has supposedly breached.
`RELEVANT FACTS
`PharmaJet is a medical technology company organized under the laws of
`Delaware. Compl. ¶ 2. Hearthstone is PharmaJet’s largest shareholder, with an
`ownership interest of slightly less than as of the events giving rise to this action.
`Id. ¶¶ 5, 20. Hearthstone’s claims arise from its offer to purchase the common stock
`of another PharmaJet shareholder, non-party Ron Lowy. Id. ¶ 9. That offer triggered
`disputes between Hearthstone and the Company regarding two aspects of
`PharmaJet’s Shareholders’ Agreement: (i) the interplay between a ROFR and a
`ownership interest of slightly less than as of the events giving rise to this action.
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`provision for tag-along rights in connection with stock sales, and (ii) the scope of
`other shareholders’ tag-along rights to participate in such sales. Id. ¶¶ 10–18.
`Hearthstone offered to purchase shares of common stock from Mr.
`Lowy, for per share, on or about February 10, 2025. Compl. ¶ 61. That same
`day, Lowy notified PharmaJet of the intended transaction, thereby commencing a
`ROFR process set forth in the SHA. Id. ¶ 63. Specifically, Section 2.2(a) of the
`SHA applies whenever a shareholder receives an “Offer,” which is defined as “a
`bona fide offer to purchase all or any portion of such Shareholder’s Shares, including
`from another Shareholder, which offer the Shareholder intends to accept.” Compl.,
`Ex. A § 2.2(a). The selling shareholder must provide the Company and other
`shareholders with written notice of the Offer in an “Offer Notice,” which must state,
`among other things, the “price for each class of Shares covered by the Offer, the
`number of Shares of each class proposed to be sold, the type of consideration
`proposed to be paid for such Shares and any other terms and conditions of the Offer.”
`Id.
`Section 2.2 gives the Company thirty days to exercise its ROFR to purchase
`the shares that the selling shareholder intends to sell. Compl., Ex. A § 2.2(a). If the
`Company declines to exercise its ROFR or only elects to purchase a subset of the
`shares offered for sale, other shareholders can, on a pro rata basis as specified in
`Hearthstone offered to purchase shares of common stock from Mr.
`Lowy, for per share, on or about February 10, 2025. Compl. ¶ 61. That same
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`Section 2.2, elect to purchase any shares that the Company has not elected to
`purchase.1 Id. §§ 2.2(a), (d).
`Thus, after receiving Mr. Lowy’s notice (an Offer Notice under SHA § 2.2(a)),
`PharmaJet had “the option, but not the obligation, to purchase all or any portion of
`the Shares offered on the same terms and conditions set out in the Offer Notice.”
`Compl., Ex. A § 2.2(a).
`PharmaJet decided not to purchase any of Mr. Lowy’s shares. Compl. ¶ 64.
`On March 10, 2025, when PharmaJet’s period to do so expired, it informed the
`Company’s other shareholders of their right to exercise their ROFRs. Id. Certain
`shareholders agreed to purchase of Mr. Lowy’s shares before their ROFR
`period expired on March 26, 2025. Id.
`Once the ROFR period ended, the tag-along period began. Compl. ¶¶ 65–66.
`The SHA provides that after PharmaJet and its shareholders have declined to
`exercise a ROFR for all shares at issue in a proposed sale, the remaining shareholders
`may decide, within 15 days, to sell their owns shares to the purchaser “upon the same
`1 Each shareholder can elect to purchase up to its “Pro Rata Share” of the available
`shares, which is determined by dividing (i) the total number of shares held by the exercising
`shareholder, by (ii) the total number of shares held by all shareholders “having a right to
`purchase Shares from the selling Shareholder.” Compl., Ex. A § 2.2(d).
`shareholders agreed to purchase of Mr. Lowy’s shares before their ROFR
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`terms and conditions offered to such selling Shareholder (as set forth in the Offer
`Notice).” Compl., Ex. A § 2.8(a).2
`The purchaser need not agree to purchase all of the additional shares that
`shareholders attempt to sell through the tag-along process. Compl., Ex. A § 2.8(b).
`Rather, the SHA gives the purchaser discretion as to how many shares to purchase.
`If the purchaser decides that he or she wants to purchase less than all of the tag-along
`shares offered, a formula dictates how the transaction is allocated among
`participating shareholders. Id. The SHA, therefore, shows that the purchaser needs
`to make another offer to purchase the tag-along shares—or decline to make such an
`offer—before any tag-along sales occur.
`After the ROFR period expired, Mr. Lowy submitted to PharmaJet a proposed
`notice that Hearthstone had drafted, to be distributed to all shareholders, which
`purported to advise them about their tag-along rights. Compl. ¶ 66 & Ex. B. That
`notice inaccurately told shareholders that, even though tag-along sales must be
`“upon the same terms and conditions” as the underlying transaction, and Hearthstone
`had only offered to purchase from Mr. Lowy common stock, other shareholders
`could sell to Hearthstone either common stock or any of PharmaJet’s thirteen classes
`2 The shareholders that decide to participate in a tag-along sale may offer to sell up
`to their “Tag Along Pro Rata Share,” which the SHA defines as the same percentage of
`shares that the selling shareholder offered to sell, relative to his or her total shares. Compl.,
`Ex. A § 2.8(b).
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`of preferred stock.3 Compl., Ex. B pp. 1–2; Compl. ¶¶ 68. Mr. Lowy’s proposed
`notice further stated, “irrespective of which class of stock you elect to sell[,] the price
`per share will be meaning the same price at which Mr. Lowy agreed to sell
`his common stock to Hearthstone. Id. The notice also explained that, for any
`shareholder to participate through a tag-along sale, they would need to enter into
`their own purchase agreement with Hearthstone, meaning that Hearthstone would
`need to extend separate offers to purchase shares from each tag-along shareholder.
`Compl., Ex. B p. 2.
`Given those inaccuracies, PharmaJet informed Hearthstone that it did not
`intend to distribute Mr. Lowy’s notice without also explaining that PharmaJet
`interpreted the SHA to permit sales of only common stock during the tag-along
`process because only common stock had been offered for sale by Mr. Lowy. Compl.
`¶¶ 68–69. Hearthstone objected to PharmaJet’s plan for providing notice with
`PharmaJet’s proposed clarifying information, and the Company’s board of directors
`met on March 28, 2025, to discuss the issue. Id. ¶¶ 70–73. The board recommended
`not to disseminate Mr. Lowy’s improper notice. Id. ¶ 73. That same day, PharmaJet
`informed its shareholders by email that the tag-along process related to
`3 PharmaJet is authorized to issue two classes of stock: common stock and preferred
`stock. Compl. ¶ 20. Preferred stock is further subdivided into thirteen series. Id. Each
`class and series of stock provides shareholders with materially different economic rights.
`Dkt. 32 pp. 3–5.
`per share will be meaning the same price at which Mr. Lowy agreed to sell
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`Hearthstone’s purchase of Mr. Lowy’s shares had started, that it would end on April
`10, 2025, and that the Company would follow up to provide shareholders with
`additional information about the process. Id. ¶ 74.
`PharmaJet provided additional information about the tag-along process
`through a notice sent to the Company’s shareholders on April 2, 2025. Compl. ¶ 80.
`That notice reiterated that shareholders had until April 10, 2025, to state their intent
`to participate in any potential tag-along sales and to identify the amount of shares
`they wished to sell. Compl., Ex. E p. 1. The notice explained that PharmaJet and
`Hearthstone disagreed as to whether shareholders could sell preferred stock during
`the tag-along process given that Mr. Lowy had agreed to sell only common stock to
`Hearthstone. Id. pp. 1–2. To illustrate that disagreement, PharmaJet attached to its
`notice a full copy of the notice that Hearthstone had proposed sending, along with a
`letter from Hearthstone’s counsel advocating for Hearthstone’s interpretation of the
`SHA. Id. pp. 5–39.
`PharmaJet’s notice did not prohibit shareholders from attempting to sell
`preferred stock, but it did say that “the Company reserves its right to ensure that any
`sale of preferred shares is conducted in accordance with the Shareholder Agreement,
`which may result in escrow arrangements until final legal clarification is made.”
`Compl., Ex. E p. 2. The notice also included information about the historical sale
`prices for each series of PharmaJet’s preferred stock, all of which exceeded the
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` hare price at which Mr. Lowy agreed to sell his common stock to
`Hearthstone. Id. Hearthstone does not allege that any of this share price information
`was inaccurate. Compl. ¶¶ 78(b), 82.
`PharmaJet’s notice to shareholders further explained that, once shareholders
`had elected to sell shares through the tag-along process, Hearthstone would have an
`opportunity to consider whether it wanted to purchase them. Compl., Ex. E pp. 2–
`3. If Hearthstone made any such offers, PharmaJet would decide whether to exercise
`its ROFR with respect to such tag-along sales. Id. p. 3.
`Hearthstone disagrees with PharmaJet’s interpretation of the SHA and
`believes that: (i) PharmaJet is not entitled to exercise a ROFR for any tag-along
`sales, and (ii) shareholders are entitled to sell preferred stock during the tag-along
`sales. Compl. ¶¶ 90–91, 97.
`PROCEDURAL HISTORY
`Hearthstone commenced this action on April 8, 2025, asserting three claims
`against the Company and one claim against the Director Defendants. Hearthstone’s
`first two claims seek a declaratory judgment interpreting the SHA. Compl. ¶¶ 85–
`99. Specifically, Hearthstone seeks declarations that, in connection with the
`Hearthstone/Lowy transaction: (i) shareholders are entitled to sell preferred shares
`during the tag-along process (Count I), and (ii) that PharmaJet may not exercise a
`new ROFR following any tag-along sales (Count II). Id. Hearthstone has moved
` hare price at which Mr. Lowy agreed to sell his common stock to
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`for summary judgment on those claims, and PharmaJet has both opposed that motion
`and cross-moved for summary judgment dismissing the claims. That motion is
`scheduled for oral argument on June 30, 2025.
`Hearthstone’s third claim asserts that PharmaJet breached the implied
`covenant of good faith and fair dealing inherent in the SHA by rejecting
`Hearthstone’s preferred tag-along notice to shareholders and distributing its own tag-
`along notice. Compl. ¶¶ 100–08. Hearthstone contends that PharmaJet’s notice was
`improper because it “contain[ed] information that contradicted the SHA.” Id. ¶ 104.
`Hearthstone’s fourth and final claim alleges PharmaJet’s tag-along notice
`“constitute[s] a violation of Director Defendants’ fiduciary duties to PharmaJet and
`its stockholders.” Id. ¶¶ 82, 109–18.4
`ARGUMENT
`I. BECAUSE HEARTHSTONE’S INTERPRETATION OF THE SHA IS
`WRONG, ITS CORRESPONDING FIDUCIARY DUTY AND
`IMPLIED COVENANT CLAIMS FAIL
`Hearthstone’s fiduciary duty and implied covenant claims are premised on its
`erroneous interpretation of the SHA. That is, those claims presume that the Director
`Defendants and the Company acted unlawfully in declining to endorse Hearthstone’s
`4 Hearthstone also alleges that an unspecified group of the “Defendants” “have
`further sought to interfere with Hearthstone’s right to purchase shares during the Tag-
`Along Period by meeting individually with stockholders who have expressed an interest in
`selling their shares during the Tag-Along Period and attempting to dissuade them from
`selling their shares.” Compl. ¶ 81.
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`view that (i) there is no second ROFR after tag-along sales; and (ii) tag-along sellers
`participating alongside Mr. Lowy can sell any class or series of stock, even though
`Hearthstone only offered to purchase common stock.
`But as PharmaJet laid out in its brief in opposition to Hearthstone’s motion
`for summary judgment and in support of PharmaJet’s cross-motion, neither premise
`is true.
`Rather, the SHA unambiguously (i) mandates a ROFR following any Offer,
`including as part of a tag-along sale and (ii) limits tag-along sales to the classes (or
`series) of stock being sold in the underlying transaction that triggered the tag-along
`process.5 Dkt. 32 pp. 15–28.
`If the Court finds that, as Defendants argued in connection with the parties’
`cross-motions for summary judgment, the SHA unambiguously supports
`PharmaJet’s positions concerning the ROFR and tag-along rights, the Court must
`also dismiss Hearthstone’s fiduciary duty and implied covenant claims.
`5 To avoid burdening the Court, PharmaJet will not repeat its summary judgment
`arguments in full here. Moreover, because PharmaJet’s cross-motion for summary
`judgment seeks dismissal of Counts I and II, PharmaJet does not separately seek dismissal
`of those claims here. Of course, if the Court finds dismissal is warranted based on the plain
`language of the SHA, it can dismiss Counts I and II along with the two claims against
`which Defendants move here.
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`II. HEARTHSTONE’S BREACH OF FIDUCIARY DUTY CLAIM FAILS
`ON THE MERITS BECAUSE PHARMAJET’S TAG-ALONG NOTICE
`TO SHAREHOLDERS WAS ACCURATE
`Even if the Court were to disagree with Defendants’ interpretation of the SHA,
`Hearthstone’s fiduciary duty claim still fails as a matter of law. Although
`Hearthstone does not clearly explain the nature of the fiduciary duty that the Director
`Defendants supposedly breached, Hearthstone appears to assert a disclosure-based
`claim premised on the tag-along notice that PharmaJet distributed to shareholders.
`Compl. ¶¶ 109–18. Any disclosure-based claim fails because the notice to
`shareholders was accurate.
`“[T]he duty of disclosure is not an independent duty, but derives from the
`duties of care and loyalty. Corporate fiduciaries can breach their duty of disclosure
`under Delaware law by making a materially false statement, by omitting a material
`fact, or by making a partial disclosure that is materially misleading.” Pfeffer v.
`Redstone, 965 A.2d 676, 684 (Del. 2009).6 “The scope and requirements of the duty
`of disclosure depend on context.” New Enters. Assocs. 14, L.P. v. Rich , 292 A.3d
`112, 144 (Del. Ch. 2023). Where, as here, the Director Defendants were disclosing
`information in connection with potential action by shareholders (i.e., their tag-along
`6 Unless noted, case law quotations in this memorandum of law accept all alterations
`and omit internal quotation marks, citations, and footnotes.
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`sales), “the directors have a duty to provide the stockholders with all material
`information reasonably available to them.” Id.
`Hearthstone has not identified any information in PharmaJet’s tag-along
`notice that was supposedly inaccurate (or any additional information that the notice
`should have included). Although Hearthstone contends that the notice described
`PharmaJet’s supposedly incorrect interpretation of the SHA, PharmaJet’s notice
`clearly stated that it was the Company’s interpretation, acknowledged that
`Hearthstone disputed that interpretation, and noted that future legal proceedings
`might be necessary to confirm whether tag-along sales of preferred stock could
`occur. Compl., Ex. E pp. 1–2 (explaining that “the Company reserves its right to
`ensure that any sale of preferred shares is conducted in accordance with the
`Shareholder Agreement” and that proposed sales of preferred stock “may result in
`escrow arrangements until final legal clarification is made”). 7 Moreover, not only
`7 To the extent Hearthstone contends that the Director Defendants failed to disclose
`that PharmaJet’s interpretation of the SHA was legally incorrect, and that following that
`interpretation would be a breach of contract, Hearthstone’s claim must fail because “[i]t is
`well settled that in making disclosures a board is not required to engage in self-
`flagellation,” and “a board is not required to state a plaintiff’s characterization of the facts.”
`Stansell v. Rosensweig, 2024 WL 2958465, at *5 (Del. Ch. June 12, 2024) (granting motion
`to dismiss disclosure claim against directors); see also Stroud v. Grace , 606 A.2d 75, 84
`n.1 (Del. 1992) (“We recognize the long-standing principle that to comport with its
`fiduciary duty to disclose all relevant material facts, a board is not required to engage in
`‘self-flagellation’ and draw legal conclusions implicating itself in a breach of fiduciary
`duty from surrounding facts and circumstances prior to a formal adjudication of the
`matter.”).
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`did PharmaJet’s notice openly state that Hearthstone interprets the SHA differently,
`but PharmaJet included as an exhibit to its notice a full copy of the notice that
`Hearthstone had proposed, along with a letter from Hearthstone’s counsel that
`purported to explain why Hearthstone’s interpretation of the SHA was correct. Id.
`pp. 5–39. Lastly, although Hearthstone complains generally that PharmaJet included
`in the notice the historical sale prices of the Company’s common and preferred stock,
`Hearthstone does not even allege that this information was inaccurate. Compl. ¶¶
`78(b), 82. Simply put, PharmaJet’s disclosure included no inaccurate information,
`and the Director Defendants cannot have breached their fiduciary duty by approving
`it.
`Hearthstone will undoubtedly argue that the accuracy of PharmaJet’s tag-
`along notice is an issue of fact. However, this Court regularly dismisses disclosure-
`based fiduciary duty claims at the pleading stage where, as here, the accuracy of the
`disclosure can be determined by reviewing the disclosure itself. See Turnbull v.
`Klein, 2025 WL 353877, at *22 (Del. Ch. Jan. 31, 2025) (granting motion to dismiss
`disclosure claim against directors because “[p]laintiffs fail[ed] to identify any
`facts . . . that should have been, but were not, disclosed”); see also Stansell, 2024
`WL 2958465, at *7 (granting motion to dismiss disclosure claim because plaintiff’s
`complaint “lack[ed] well-pleaded facts to support a claim that . . . Director
`Defendants made materially misleading disclosures or omitted material
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`information”); Firefighters’ Pension Sys. of City of Kansas City, Mo. Tr. v. Presidio,
`Inc., 251 A.3d 212, 290 (Del. Ch. 2021) (granting motion to dismiss part of
`plaintiff’s disclosure claim because directors’ disclosure “was accurate” and,
`therefore, “the plaintiff’s allegations d[id] not support a disclosure claim”); see also
`Conte v. Greenberg , 2024 WL 413430, at *13–14 (Del. Ch. Feb. 2, 2024), aff’d,
`2025 WL 274639 (Del. Jan. 23, 2025) (holding that plaintiff had failed to allege that
`directors had “substantial likelihood of liability” for disclosure claim, and dismissing
`disclosure claim for failure to plead demand futility, because “[p]laintiff failed to
`meet his burden in establishing th[e defendants’] statement was false”). The Court
`should do the same here and dismiss Hearthstone’s fiduciary duty claim on the
`merits.
`III. HEARTHSTONE’S GOOD FAITH AND FIDUCIARY DUTY CLAIMS
`IMPROPERLY DUPLICATE ITS DEFECTIVE BREACH OF
`CONTRACT CLAIMS
`Even if Hearthstone’s breach of contract claims survive summary judgment,
`and even if the Court is not inclined to resolve the merits of the fiduciary duty claim
`at the pleading stage, Hearthstone’s fiduciary duty and implied covenant claims must
`nevertheless be dismissed because they improperly duplicate its breach of contract
`claims.
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`A. Hearthstone Attempts Improperly to Bootstrap a Fiduciary Duty
`Claim to Its Breach of Contract Claims
`Hearthstone’s claim that the Director Defendants breached their fiduciary
`duty of loyalty must be dismissed because the claim—whether based on a disclosure
`theory or some other, ill-defined premise—is solely based on Hearthstone’s
`assertions that the Director Defendants have wrongly interpreted the SHA. “It is a
`well-settled principle that where a dispute arises from obligations that are expressly
`addressed by contract, that dispute will be treated as a breach of contract claim.”
`Nemec v. Shrader, 991 A.2d 1120, 1129 (Del. 2010). In those circumstances, “any
`fiduciary claims arising out of the same facts that underlie the contract obligations
`would be foreclosed as superfluous.” Id. This prohibition against “‘bootstrap[ping]’
`a breach of fiduciary duty claim into a breach of contract claim” requires courts to
`“dismiss the breach of fiduciary duty claim where the two claims overlap completely
`and arise from the same underlying conduct or nucleus of operative facts.” Bäcker
`v. Palisades Growth Cap. II, L.P. , 246 A.3d 81, 109 (Del. 2021). “Applying these
`principles, this [C]ourt has dismissed fiduciary duty claims as duplicative of contract
`claims on many occasions.” In re WeWork Litig., 2020 WL 6375438, at *12 (Del.
`Ch. Oct. 30, 2020). The Court should do the same here because there is complete
`overlap between Hearthstone’s fiduciary duty claim and its breach of contract
`claims.
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`Hearthstone’s breach of fiduciary duty claim is based on exactly the same
`operative facts as Hearthstone’s contract claims. Hearthstone interprets the SHA to
`permit shareholders in every tag-along sale to sell either common or preferred stock.
`Compl. ¶¶ 88–90. This (erroneous) interpretation is at the core of its claim for a
`declaratory judgment in Count I, in which Hearthstone alleges that “[c]ontrary to
`SHA § 2.8