Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, C.A. No. 7906 (Del. Ch. Nov. 26, 2014) (Glasscock, V.C.)

In this memorandum opinion, the Court of Chancery largely denied but granted in part defendants’ motion to dismiss claims relating to a 2011 merger in which plaintiffs Great Hill Equity Partners IV, LP and related entities acquired Plimus, Inc. (“Plimus”), a privately held e-commerce payment-processing business.  In declining to dismiss claims under Rule 12(b)(6), the Court rejected defendants’ assertions that plaintiffs failed to plead fraud with specificity as required under Chancery Rule 9(b).

Plaintiffs brought suit against defendants, former shareholders and representatives of Plimus, for allegedly concealing decaying relationships Plimus had with crucial commercial partners.  Specifically, plaintiffs claimed fraudulent inducement, fraud, aiding and abetting, civil conspiracy, indemnification, and unjust enrichment, as well as sought a declaratory judgment relating to those same claims.  In 2013, the Court (Chancellor Strine) resolved a privilege dispute arising out of these claims, finding that the surviving corporation in the Plimus merger retained privilege over relevant documents by operation of 8 Del. C. § 259.  Plaintiffs utilized such documents in litigating their claims.

The Court granted defendants’ motion to dismiss unjust enrichment claims against three of the defendants—a private equity management entity and its two representative’s on the Plimus board of directors—because these defendants received no merger consideration and therefore held no funds resulting from the alleged fraud.  In addition, the Court granted defendants’ motion to dismiss a claim for declaratory judgment because that claim was “completely duplicative” of the affirmative counts of the complaint alleging fraud.

Drawing all inferences in favor of plaintiffs, the Court permitted claims of fraudulent inducement, fraud, aiding and abetting, civil conspiracy, indemnification and unjust enrichment against some or all of defendants to proceed.  In so ruling, the Court noted that, while eventual recovery against certain defendants may only be for either a direct fraud theory or a theory of secondary participation in the fraud, there is no utility in requiring plaintiffs to choose which theory to pursue at this stage in the litigation.

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