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By Michael Greene
Nov. 28 — Claims for civil conspiracy and aiding and abetting against Plimus, Inc's former shareholders and directors, alleging that they fraudulently induced a buyer to acquire the company survived a motion to dismiss in the Delaware Chancery Court.
In a Nov. 26 ruling, Vice Chancellor Sam Glasscock III opined that the plaintiff's' pleadings adequately allege facts from which the court could infer “knowing participation in the underlying wrong” by defendant directors.
Plaintiff Great Hill Equity Partners IV, LP and Great Hill Investors, LLC acquired Plimus, Inc., a company that facilitates payment to sellers of goods online.
Plimus's relationship with payment processors were critical to its business model. After the merger closed, a dispute arose about whether material information was withheld from the buyers during the sale process regarding the deteriorating relationship that Plimus had with its major payment processors. More specifically, the plaintiffs claim “that they paid for what they believed was thriving company but got a near-moribund operation instead.”
Subsequently, the plaintiffs filed a complaint alleging that two Plimus executives made fraudulent misrepresentations in connection with the sale.
In addition to seeking recovery from the two executives who allegedly perpetrated the fraud, plaintiffs also sought to recover against four members of Plimus's board of directors, one of the company's major investors and that investor's registered agent. These defendants moved to dismiss, claiming that the plaintiffs failed to plead the alleged fraud with specificity.
At the outset of the opinion, the court noted that the adequacy of the fraud pleading was unchallenged with respect to two of Plimus's executives. The court therefore concluded the only element of civil conspiracy that could be challenged was whether a confederation existed between the moving defendants and the alleged defrauding executives.
According to the defendants, the plaintiffs failed to sufficiently allege a confederation because they did not plead “knowing participation.” The court, however, agreed with the plaintiffs' assertion that the four defendant directors' involvement in the sales process supports an inference that they were aware of the company's problems leading up the merger and the misleading disclosures.
The court also found that it was reasonable to impute knowledge to the company's largest investor and its agent because two of the directors were principles of these entities.
Vice Chancellor Glasscock opined that the four directors “collectively had control over the Company’s CEO, the apparent ringleader of the alleged fraud relating to payment processors. As large blockholders within the Company, they also had a financial motive not to exercise that control to stop him.”
He added that because it was reasonable to infer that the defendants had knowledge of the fraud, “it was also reasonable to infer that there was at least a tacit agreement among them to perpetrate that fraud.”
The court also declined to dismiss claims for aiding and abetting. The court noted that in this case, the aiding and abetting claims may be duplicative of the civil conspiracy count.
However, the court found that there was little utility in dismissing this claim at this stage because there was no benefit in term of judicial economy because the claims will require similar discovery to the conspiracy claim.
After going through the elements of this claim, the court concluded that the plaintiffs' claims were not beyond the bounds of reasonable conceivability.
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The opinion is available at http://courts.delaware.gov/opinions/download.aspx?ID=215360.
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