Stay current on changes and developments in corporate law with a wide variety of resources and tools.
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.
To contact the reporter on this story: Michael Greene in Washington at email@example.com
To contact the editor responsible for this story: Ryan Tuck at firstname.lastname@example.org
The opinion is available at http://courts.delaware.gov/opinions/download.aspx?ID=215360.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)