IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
DANIEL FELDMAN, JONATHAN ) WYATT GRUBER, JOHN CHARLES ) POPE REVOCABLE TRUST and ) TIERNEY FAMILY INVESTORS, ) LLC, ) ) Plaintiffs, ) ) v. ) C.A. No. 2020-0314-PAF ) AS ROMA SPV GP, LLC, JAMES J. ) PALLOTTA, RICHARD A. ) D’AMORE, THE RUANE ) IRREVOCABLE GST TRUST OF ) 2007, SHAMROCK HOLDINGS OF ) CALIFORNIA, INC. and RAPTOR ) HOLDCO, LLC, ) ) Defendants. )
MEMORANDUM OPINION Date Submitted: April 13, 2021 Date Decided: July 22, 2021
Peter B. Ladig, Brett M. McCartney, Sarah T. Andrade, BAYARD, P.A., Wilmington, Delaware; Rishi Bhandari, MANDEL BHANDARI LLP, New York, New York; Attorneys for Plaintiffs Daniel Feldman, Jonathan Wyatt Gruber, John Charles Pope Revocable Trust, and Tierney Family Investors, LLC.
John L. Reed, Ronald N. Brown, III, Peter H. Kyle, DLA PIPER LLP (US), Wilmington, Delaware; Attorneys for Defendants AS Roma SPV GP, LLC, James J. Pallotta, Richard A. D’Amore, The Ruane Irrevocable GST Trust of 2007, Shamrock Holdings of California, Inc., and Raptor Holdco, LLC.
FIORAVANTI, Vice Chancellor Associazione Sportiva Roma S.p.A. (“AS Roma” or the “Club”) is a storied
Italian professional soccer club founded in 1927. Based in Rome, the team competes
in Italy’s highest and most prestigious league, Serie A. Nicknamed the “Giallorossi”
for its colors of yellow and red, AS Roma has won the league title three times,
earning the right to wear the coveted scudetto (or little shield) bearing the colors of
the Italian flag on the team’s jersey the following year.1
A decade ago, a group of American investors acquired control of the Club.
They held that controlling interest through a Delaware limited liability company.
Plaintiffs are minority members of the company. In 2019, the control group sought
to sell the company’s interest in the Club. When the COVID-19 pandemic swept
through Italy in early 2020, the sale process stalled, and controlling members of the
company sought additional investment from its members to sustain the Club.
Plaintiffs declined to make any additional investment and, instead, have alleged an
assortment of claims challenging the control group’s actions. Defendants have
moved to dismiss those claims. This opinion resolves that motion.
1 See John Foot, CALCIO: A HISTORY OF ITALIAN FOOTBALL 17 (2d ed. 2007); see also id. 118–21 (describing the origins and history of the Club). 2 I. FACTUAL BACKGROUND 2
A. The Parties
AS Roma is publicly traded on the Borsa Italiana, the Italian stock market. In
the summer of 2011, a group led by Thomas DiBenedetto, including Defendants
James J. Pallotta and Richard A. D’Amore, and non-party Michael Ruane, who
controls Defendant The Ruane Irrevocable GST Trust of 2007 (the “Ruane Trust”),
acquired a controlling interest in the team. 3 DiBenedetto’s group became the first
foreign owner of an Italian top league football club.4 Pallotta later became the
team’s president.5
The American group held its interest in the Club through non-party AS Roma
SPV, LLC (the “Company”), a Delaware limited liability company. Am. Compl.
¶ 1. Plaintiffs are all members of the Company, each owning a minority equity
interest. Id. ¶¶ 29–32.
2 The facts are drawn from the allegations in the First Amended Verified Complaint (Dkt. 8, the “Amended Complaint” or “Am. Compl.”), documents integral thereto, and facts subject to judicial notice. Citations of “Ex. 1,” “Ex. 2,” “Ex. 3,” and “Ex. 4” refer to exhibits submitted with Defendants’ briefs (Dkts. 18, 23). Unless otherwise indicated, the facts are those existing at the time of the filing of the Amended Complaint. 3 See Associated Press, Roma’s New Owner Reveals Broad Plans, ESPN (Nov. 18, 2011, 1:50 PM), www.espn.com/sports/soccer/news/_/id/7250811/as-roma-new-us-owner- thomas-dibenedetto-reveals-ambitious-plans. 4 See Giulia Segreti, US Investor Buys Majority Stake in AS Roma, FINANCIAL TIMES (August 18, 2011), https://www.ft.com/content/1cc2940a-c9b3-11e0-b88b-00144feabdc0. 5 See History, OFFICIAL AS ROMA WEBSITE, https://www.asroma.com/en/club/history (last visited July 21, 2021). 3 Defendant AS Roma SPV GP, LLC (“AS Roma GP”), a Delaware limited
liability company, is the Company’s Managing Member. Id. ¶ 33. AS Roma GP’s
Managing Member is Defendant Raptor Holdco GP, LLC (“Raptor”), which is also
a Delaware limited liability company. Id. ¶ 34. Pallotta exercises control over
Raptor, and he owns, directly or indirectly, a majority of the units in the Company.
Id. ¶¶ 2, 35.
To help sustain the Company in recent years, some of its members provided
loans (the “Existing Loans”). As of the filing of the Complaint, the balance on the
Existing Loans was approximately €147 million, including interest. Id. ¶¶ 58, 62.
Of the Existing Loans, Pallotta held Company notes with an outstanding principal
balance of not less than €44 million. Id. ¶ 59. D’Amore held Company notes with
an outstanding principal balance of not less than €3 million, and The Ruane Trust
held Company notes with an outstanding principal balance of not less than €13
million. Id. ¶¶ 60–61. The Existing Loans do not give the note holders any
additional rights to equity of the Company. Id. ¶ 63.
The Company is governed by a Fifth Amended and Restated Limited Liability
Company Agreement (the “LLC Agreement”). 6 Management of the Company is
vested in the Managing Member, although certain actions require approval of a five-
6 The LLC Agreement is Exhibit A to the Amended Complaint. 4 member Investor Committee. The members of the Investor Committee are Pallotta,
Ruane, D’Amore, DiBenedetto, and a designee of ASR SOF-IX Investment, L.L.C.7
B. Pallotta Looks for an Exit.
By October 2019, the Company had engaged Goldman Sachs, Inc. (“Goldman
Sachs”) as a financial advisor to seek out a strategic transaction to sell the
Company’s controlling interest in AS Roma and provide an exit for the Company’s
investors. Am. Compl. ¶ 65. Goldman Sachs and the Investor Committee identified
more than 40 potential bidders, ultimately resulting in a prospective purchaser being
granted exclusivity. Id. ¶ 66; Ex. 1 at 1. Following extensive due diligence that
resulted in a letter of intent, the Company and the exclusive bidder engaged in
negotiations on a definitive transaction beginning in December 2019. Am. Compl.
¶ 66; Ex. 1 at 1. Following Italian media reports, AS Roma confirmed in late
December 2019 that it was in negotiations with American-based The Friedkin Group
(“TFG”), led by its CEO, Daniel Friedkin, concerning a potential transaction. 8 The
Company stated that “any potential transaction with The Friedkin Group remains
7 Id. § 6.6. The Complaint refers to Pallotta, D’Amore, and the Ruane Trust as the “Investor Committee Defendants,” even though it is non-party Ruane, and not the Ruane Trust, that serves on the Investor Committee. Am. Compl. ¶¶ 37, 40. Plaintiffs refer to the same three defendants as the “Lender Defendants.” Id. ¶ 39. This opinion uses the same defined terms for those defendants as does the Amended Complaint. 8 See Official AS Roma Statement: 29 December 2019, OFFICIAL AS ROMA WEBSITE (Dec. 29, 2019), https://www.asroma.com/en/news/2019/12/official-as-roma-statement-29- december-2019. 5 subject to a successful completion of a legal due diligence upon the AS Roma
Group.”9
C. The COVID-19 Pandemic Strikes Italy and the Company Seeks to Raise Capital.
Italy became the epicenter of the COVID-19 pandemic in Europe starting in
mid-February 2020. Ex. 1 at 2. The Italian government eventually suspended all
Italian sporting events, including Serie A matches. Id. The tender process for
broadcasting rights for the Serie A league for the 2021–24 seasons was delayed. Id.
AS Roma was forced to close its offices. Id. AS Roma also implemented a series
of cost cutting and deferral initiatives, including an agreement with certain of its
players and technical staff to defer salary and the election of management to
renounce a portion of their salary. Ex. 2 at 1.
On March 23, 2020, the Investor Committee sent a letter to members of the
Company (the “March 23 Letter”), providing an update on the status of strategic
discussions and detailing the Company’s current financial situation. Compl. ¶ 68;
Ex. 1. The March 23 Letter noted that the “spread of COVID-19 has created
significant uncertainty for Serie A and its member clubs, including [AS Roma] . . .
and has had a chilling effect on global M&A and capital markets.” Id. at 1. The
March 23 Letter stated: “While the prospective purchaser has continued to express
9 Id. 6 interest in acquiring the Club and we remain open to assessing any good faith
proposals, the transaction resulting from the auction process stalled this month and
the most recent communications have involved substantial modifications to the deal
terms (both economic and structural) which have not yet proven to be actionable.”
Id.
With the near-term prospects of a strategic transaction uncertain, the March
23 Letter described an immediate need for additional capital on top of the Existing
Loans. Id. at 3. The March 23 Letter noted that the Company had previously
anticipated that AS Roma would be able to address its near-term financial needs
through player trading activity in the transfer market. But player injuries, the
outbreak of COVID-19, and the uncertain prospects of a near-term strategic
transaction created a need for additional capital to support AS Roma’s current
financial obligations, including minimum capital requirements under the Italian
Civil Code. Id.
To meet those needs, the Investor Committee proposed a financing (the
“Preferred Equity Offering”), available to all members, which would raise €50
million via the issuance of new Class C membership units. The Class C units would
have priority over the Company’s existing Class A and Class B units and would have
a 1.5x liquidation preference. Am. Compl. ¶¶ 69–70. In addition, the Company
sought to recapitalize €147 million in Existing Loans by exchanging them for Class
7 C units on the same terms (the “Recapitalization”). As part of the proposed
Recapitalization, the Company offered members the opportunity to participate in all
member loans (to the extent members previously declined to participate) on a pro
rata basis. As a result, each member had the right to participate on a pro rata basis
in both the Preferred Equity Offering and the Recapitalization with their pro rata
participation right determined on the aggregate €197 million value of the combined
issuances. Any member that so participated would not be diluted and would receive
pari passu Class C units. Ex. 2 at 3.
The March 23 Letter attached three exhibits: a term sheet, an election notice,
and an amendment (the “Amendment”) to the LLC Agreement. Ex. 1. Two days
later, on March 25, 2020, the Company hosted a conference call for its members in
which Plaintiffs participated. Am. Compl. ¶ 73. During the call, Pallotta explained
that, given the circumstances, if minority members wanted to preserve any interest
in the Company, they should participate in the Preferred Equity Offering. Id. ¶ 75.
In anticipation of the Preferred Equity Offering and Recapitalization, the Company
effected the Amendment on March 18, 2020. Id. ¶ 7. Section 1.d of the Amendment
provides, among other things:
At the Initial Closing or a Subsequent Closing, as applicable, pursuant to the terms of those certain subscription agreements entered into between the Company, on the one hand, and the applicable Class C Member, on the other hand (collectively, the “Class C Subscription Agreements”), each Class C Member (x) has made a Capital Contribution to the Company, and (y) the Company has issued to such 8 Class C Member the number of Class C Units, in each case, as set forth in such Class C Member’s Class C Subscription Agreement, at a price of €487.025 per Class C Unit (the “Original Class C Unit Price”).
Ex. 1 (Amendment). As described in the Amendment, the Capital Contribution
made by a member in exchange for Class C units could consist of cash and/or
cancellation of Existing Loans. Following issuance, the Class C units could be
converted at the option of the holder into Class A units. Am. Compl. ¶ 8. Under
Section 1.a of the Amendment, “‘Initial Closing’ means on or about March 25,
2020.” Ex. 1 (Amendment).
Even with the 1.5x liquidation preference and the risk of holding a junior
equity security in the Company, “the Company did not achieve sufficient
participation . . . to meet [AS Roma’s] capital requirements [and] the Investor
Committee determined not to proceed.” Ex. 2 at 3. As a result, the Preferred Equity
Offering and Recapitalization were “abandoned and were ‘not proceeding as
contemplated.’” Am. Compl. ¶ 11; Ex. 2 at 3. No subscription agreements were
ever entered into and no Class C units were ever issued. Am. Compl. ¶ 85.
Nonetheless, Plaintiffs allege that “[t]he fact that the Amendment allows [Existing]
Loans to be converted to Class C shares, plus the Class C shares’ conversion right,
together with the low initial price for Class C shares, immediately diluted and
impaired the value of existing Class A shares.” Am. Compl. ¶ 9.
9 D. The Company Proposes the 2020 Member Loans
After abandoning the Preferred Equity Offering and Recapitalization, the
Company sought alternative financing. In a May 14, 2020 update to investors (the
“May 14 Letter”), AS Roma GP and the Investor Committee proposed a new
financing transaction. Am. Compl. ¶ 15. The new transaction called for a €30
million secured bridge loan from lenders led by Goldman Sachs and €25 million in
new member loans (the “2020 Member Loans”). Ex. 2 at 3–4. The 2020 Member
Loans would accrue interest at 9% and, in the event of a sale of the Company, would
receive a premium payment equal to 50% of the outstanding principal amount. Am.
Compl. ¶ 87. The 2020 Member Loans would be senior to the Company’s
outstanding units and the Existing Loans. Id. The outstanding principal and unpaid
interest on the 2020 Member Loans would be due and payable by the Company on
February 1, 2021. Id. ¶ 20. The Investor Committee offered all Class A members
their pro rata opportunity to participate in the 2020 Member Loans. Ex. 2 at 4.
The May 14 Letter also provided members with a further update on the sale
process. The May 14 Letter stated: “At the current time, there is no actionable
proposal with any prospective purchasers of the Club.” Id. at 2. It provided
members with further detail as to the status of a potential sale, including that the
Company was informed that the prospective purchaser is “currently unable to pursue
a transaction as originally contemplated. While they remain interested, no formal
10 proposal has been presented.” Id. The May 14 Letter also disclosed that the Investor
Committee was seeking other competitive proposals “and has commenced a process
to engage a second investment banking firm for strategic guidance.” Id. at 2–3; see
also Am. Compl. ¶ 88.
On June 22, the 2020 Member Loans closed with approximately 80% of the
existing membership interests participating. Defs.’ Opening Br. 15.
E. The Litigation
Plaintiffs filed their original complaint on April 27, 2020, which was focused
primarily on the Preferred Equity Offering and Recapitalization. Once the Company
abandoned those proposed transactions, Plaintiffs filed a six-count Amended
Complaint on May 29, 2020. The Amended Complaint takes aim at the 2020
Member Loans and the Amendment. Count I alleges that AS Roma GP breached
the LLC Agreement by approving the Amendment and failing to disclose all material
information to the Class A unitholders in connection with the 2020 Member Loans.
Count II alleges AS Roma GP breached its fiduciary duties to the Company and the
non-managing members. Count III alleges that Pallotta, D’Amore, and the Ruane
Trust breached their fiduciary duties as members of the Investor Committee. Count
IV alleges that Raptor aided and abetted AS Roma GP’s fiduciary duties. Count V
11 alleges that the Lender Defendants (Pallotta, D’Amore, and the Ruane Trust) were
unjustly enriched by the rights granted to them under the Amendment.10
Defendants have moved to dismiss the Amended Complaint for failure to
plead demand futility under Court of Chancery Rule 23.1, failure to state a claim
under Rule 12(b)(6), and for lack of subject matter jurisdiction under Rule 12(b)(1).
F. The Company Sells Its Controlling Interest in AS Roma to TFG.
Defendants filed their opening brief in support of their motion to dismiss on
August 5, 2020. On that same day, the Company announced that it had entered into
a definitive agreement with TFG to acquire the Company’s controlling interest in
AS Roma. In a letter sent to the Class A members announcing the deal, AS Roma
GP and the Investor Committee disclosed that the enterprise value of the transaction
was €591 million and was “structured in a manner to achieve a swift closing with
minimal post-closing liabilities for the Company.” Ex. 3 at 1. The letter also
provided a summary of the due diligence process, stating that “it was not until the
Club resumed play in early June that TFG re-engaged” and noting that TFG’s re-
engagement “coincided with public reports that other third parties were engaged in
due diligence on the Club.” Id. at 2.
10 Plaintiffs voluntarily dismissed Defendant Shamrock Holdings of California, Inc. on July 2, 2020. Dkt. 14. 12 In a follow-up letter to Class A members on August 24, 2020, AS Roma GP
and the Investor Committee announced that the transaction had closed on August
17, 2020. Ex. 4 at 1. The letter explained that TFG paid €199 million for the
Company’s controlling interest in the Club. That amount, along with €34 million
cash on hand, would enable the Company to repay the Goldman Sachs bridge loan,
transaction expenses, the 2020 Member Loans, and nearly all of the Existing Loans.
The letter further stated that €10 million was being held in reserve, and if the
Company could implement an efficient winding-up process, the Company may be
able to pay the balance of the Existing Loans and effect a small distribution to Class
A members. Id. at 2.11
The parties thereafter completed briefing on the motion, and the court held
oral argument on April 13, 2021.
II. ANALYSIS
On a motion to dismiss for failure to state a claim under Court of Chancery
Rule 12(b)(6):
(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are well-pleaded if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the non-moving party; and ([iv]) dismissal is inappropriate
11 Although the transaction was not mentioned in the opening brief, Defendants point to the transaction in their reply brief as a further basis to dismiss Plaintiffs’ claims on grounds of mootness.
13 unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible to proof.
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (internal citations and
quotation marks omitted). The pleading standards are minimal. Central Mortg. Co.
v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011).
Nevertheless, “a trial court is required to accept only those ‘reasonable inferences
that logically flow from the face of the complaint’ and ‘is not required to accept
every strained interpretation of the allegations proposed by the plaintiff.’” In re Gen.
Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (quoting Malpiede
v. Townson, 780 A.2d 1075, 1083 (Del. 2001)). The court need not accept as true
allegations that are contradicted by documents upon which the complaint is based.
Peter Schoenfeld Asset Mgmt. LLC v. Shaw, 2003 WL 21649926, at *2 (Del. Ch.
July 10, 2003). “Moreover, a claim may be dismissed if allegations in the complaint
or in the exhibits incorporated into the complaint effectively negate the claim as a
matter of law.” Malpiede, 780 A.2d at 1083.
“On a motion to dismiss under Rule 12(b)(1), the plaintiff ‘bear[s] the burden
of establishing subject matter jurisdiction,’ and ‘a court may consider documents
outside the complaint.’” CelestialRX Invs., LLC v. Krivulka, 2019 WL 1396764, at
*14 (Del. Ch. Mar. 27, 2019) (quoting HBMA Hldgs., LLC v. LSF9 Stardust Hldgs.
LLC, 2017 WL 6209594, at *3 (Del. Ch. Dec. 8, 2017)); see also NAMA Hldgs.,
LLC v. Related World Mkt. Ctr., LLC, 922 A.2d 417, 435 n.43 (Del. Ch. 2007) 14 (“Because the requirement of an actual controversy goes directly to the court’s
subject matter jurisdiction over an action, a motion to dismiss based on [mootness]
grounds is properly viewed in the context of Court of Chancery Rule 12(b)(1), and
the court may consider documents and materials extrinsic to the complaint.”).
Plaintiffs’ claims in the Amended Complaint are confined to two discrete
issues: (1) the disclosures made to Class A unitholders in connection with the 2020
Member Loans; and (2) the Amendment, which is the remnant of the abandoned
Preferred Equity Offering and Recapitalization. The parties dispute whether
Plaintiffs’ claims are direct or derivative. They also dispute the extent to which any
defendant, other than AS Roma GP, owes fiduciary duties to Plaintiffs and the other
Class A members. I need not resolve those issues to decide the pending motion,
because the Amended Complaint does not state a claim, regardless of how the claims
are characterized and to whom they are directed.
A. The Amended Complaint Does Not State a Disclosure Claim.
The Delaware Limited Liability Company Act provides that an LLC
Agreement can modify or eliminate common law fiduciary duties. 6 Del. C. § 18-
1101(c) (“To the extent that . . . a member or manager . . . has duties (including
fiduciary duties) . . . , the member’s or manager’s . . . duties may be expanded or
restricted or eliminated by provisions in the limited liability company agreement.”).
An LLC agreement may impose fiduciary duties as a matter of contract. See Gatz
15 Props., LLC v. Auriga Cap. Corp., 59 A.3d 1206, 1213 (Del. 2012) (concluding LLC
agreement “contractually adopt[ed] the fiduciary duty standard of entire fairness”).
The LLC Agreement provides that AS Roma GP “shall have the same fiduciary duty
to the Company and its Non-Managing Members as does a director of a Delaware
corporation to such corporation and its shareholders.” LLC Agreement § 6.2(d).
Accordingly, the court applies the same standard to Plaintiffs’ disclosure claim as it
would apply to a disclosure claim asserted against a director of a Delaware
corporation.
In a request for stockholder action, directors are under a duty to disclose fully
and fairly all material facts within their control bearing on the request. Stroud v.
Milliken Enters., Inc., 552 A.2d 476, 480 (Del. 1989). A stockholder states a claim
for breach of this duty if it can allege facts to support “a rational inference that
material facts were not disclosed or that the disclosed information was otherwise
materially misleading.” Morrison v. Berry, 191 A.3d 268, 282 (Del. 2018). “An
omitted fact is material if there is a substantial likelihood that a reasonable
shareholder would consider it important in deciding how to vote.” Rosenblatt v.
Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus., Inc. v. Northway,
Inc., 426 U.S. 438, 449 (1976)) (internal quotations omitted). “[T]here must be a
substantial likelihood that the disclosure of the omitted fact would have been viewed
by the reasonable investor as having significantly altered the ‘total mix’ of
16 information made available.” Rosenblatt, 493 A.2d at 944 (quoting TSC Indus., 426
U.S. at 449). For purposes of resolving the pending motion, I assume, without
deciding, that the proposed 2020 Member Loans was a request for member action to
which fiduciary duties attached. 12
The Amended Complaint alleges that AS Roma GP breached its fiduciary
duties by failing to fully and fairly disclose all material information within its control
when asking Class A members to participate in the 2020 Member Loans. First, the
Amended Complaint makes the naked assertion that “the financial statements
provided by the Defendants are incomplete and misleading.” Am. Compl. ¶ 89. The
Amended Complaint identifies no financial information that is lacking and contains
no well-pleaded facts to support this conclusory allegation. “[I]t is inherent in
disclosure cases that the misstated or omitted facts be identified and that the pleading
not be merely conclusory.” Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135,
140 (Del. 1997). “Conclusory allegations will not be accepted as true without
specific supporting factual allegations.” In re Santa Fe Pac. Corp. S’holder Litig.,
12 Defendants argue that there was no duty of disclosure in connection with the 2020 Member Loans. Defendants rely on Dohmen v. Goodman, 234 A.3d 1161 (Del. 2020), where the Delaware Supreme Court, responding to a certified question, held that a general partner’s request to a single limited partner for a one-time capital contribution did not give rise to a fiduciary duty of disclosure. Id. at 1164–65. Plaintiffs argue that Dohmen is inapposite because the disclosures concerning the 2020 Member Loans were presented to all Class A members, who were asked to participate on a pro rata basis. Pls.’ Ans. Br. 25– 26. I need not resolve that dispute in order to decide the pending motion. 17 669 A.2d 59, 65–66 (Del. 1995); see In re Boston Celtics Ltd. Partnership S’holders
Litig., 1999 WL 641902, at *3 (Del. Ch. Aug. 6, 1999) (“Mere conclusory
allegations, however, will not be accepted as true.”); see also, e.g., Steinman v.
Levine, 2002 WL 31761252, at *13 n.67 (Del. Ch. Nov. 27, 2002) (allegation that
financial statements did not accurately reflect the deteriorating financial condition
of the company was conclusory in that it failed to point to a single flaw in the
financial statements). At oral argument, Plaintiffs abandoned their disclosure claim
based upon the Company’s financial statements, conceding that “[those are] not the
particular disclosures that we’re challenging here.” Oral Arg. Tr. 42. The
conclusory allegation of incomplete and misleading financial statements does not
state a disclosure claim, and it is dismissed.
Second, Plaintiffs allege that AS Roma GP failed to disclose “information
concerning the prospective sale of the club.” Am. Compl. ¶ 122. The terms of the
2020 Member Loans provided for a 1.5x payment if a sale of the Club occurred by
February 1, 2021. Therefore, Plaintiffs argue, “one critical piece of information that
any investor in the 2020 Member Loan needs to know is how likely it is that a
liquidation transaction will occur prior to February 1, 2021 because if such a
transaction occurs, there will be a 50% liquidation preference on any money invested
as part of the May 14, 2020 round of financing.” Id. ¶ 21.
18 The May 14 Letter provided the following disclosure concerning the status of
the sale process:
At the current time, there is no actionable proposal with any prospective purchasers of the Club. As you may expect, the current worldwide COVID-19 situation has created significant uncertainty and had a chilling effect on global M&A and capital markets.
The prospective purchaser with whom the Company entered into an exclusivity arrangement has indicated that the COVID-19 situation has materially impaired its other lines of business. As a result, we have been advised that they are currently unable to pursue a transaction as originally contemplated. While they remain interested, they have indicated that any prospective transaction would require a substantial reduction in enterprise value and would require that the Class A Members retain a minority equity position in the Club for an extended period of time. Notwithstanding these indications, no formal proposal has been presented.
The Investor Committee continues to seek out other competitive proposals, and has commenced a process to engage a second investment banking firm for strategic guidance.13
Delaware law does not require a blow-by-blow description of fluid sale
negotiations. See Matador Cap. Mgmt. Corp. v. BRC Hldgs., Inc., 729 A.2d 280,
295 (Del. Ch. 1998) (“The application of [the reasonable investor] standard does not
require a blow-by-blow description of events leading up to the proposed
transaction.”). Plaintiffs essentially complain that they were entitled to a prediction
of whether a sale would occur before February 1, 2021. I am not persuaded that AS
13 Ex. 2 at 2–3. 19 Roma GP was required to be an oddsmaker for Plaintiffs concerning a potential sale
transaction occurring by a specific date. See Arnold v. Soc’y for Sav. Bancorp, Inc.,
650 A.2d 1270, 1280 (Del. 1994) (“Delaware law does not require disclosure of
inherently unreliable or speculative information which would tend to confuse
stockholders or inundate them with an overload of information.”); In re Bioclinica,
Inc. S’holder Litig., 2013 WL 5631233, at *10 (Del. Ch. Oct. 16, 2013) (“The
Plaintiffs have the burden of bringing claims based on actual facts and reasonable
inferences, rather than speculation.”). The Amended Complaint does not allege that
AS Roma GP’s May 14, 2020 disclosure about the status of the sale process was
false or materially misleading. Nor does the Amended Complaint identify any
specific information concerning the status of the sale process at the time of the May
14 Letter that AS Roma GP withheld from the Class A unitholders. 14 At best, “[t]his
is simply a ‘tell me more’ request that, unlike a viable disclosure claim, fails to
identify how the [disclosure] is misleading or incomplete.” Dent v. Ramtron Int’l
14 In their answering brief, Plaintiffs argue that “Defendants were aware of a potential sale of the Company to the Friedkin Group but chose not to reveal information about the status of that sale when presenting the 2020 Member Loans opportunity to minority members.” Pls.’ Ans. Br. 28. Plaintiffs cannot amend their complaint through briefing. See Sparton Corp. v. O’Neil, 2017 WL 3421076, at *5 n.36 (Del. Ch. Aug. 9, 2017) (observing that a plaintiff “is bound to the factual allegations contained in its complaint [and] cannot supplement the complaint through its brief.”). In any event, the May 14 Letter disclosed that the “prospective purchaser with whom the Company entered into an exclusivity arrangement [i.e., TFG] . . . remain[s] interested . . . .” Ex. 2 at 2. Thus, the May 14 Letter was not misleading. 20 Corp., 2014 WL 2931180, at *13 (Del. Ch. June 30, 2014). Accordingly, the
Amended Complaint does not state a breach of fiduciary duty claim concerning the
disclosures about the status of sale negotiations in connection with the 2020 Member
Loans.
B. The Amended Complaint’s Claims Concerning the Abandoned Preferred Equity Offering, Recapitalization, and the Amendment Fail.
As proposed on March 23, 2020, AS Roma GP invited all Class A members,
including Plaintiffs, to participate in (1) the Preferred Equity Offering to purchase
Class C units, which was designed to raise an additional €50 million, and (2) the
Recapitalization, which allowed the holders of €147 million in existing Company
debt to convert that debt into Class C units. The Company also offered all Class A
members the opportunity to participate pro rata in the Preferred Equity Offering and
Recapitalization to the extent that any Class A member previously declined to
participate in the prior loan offerings. See Ex. 1 (Summary of Terms); Ex. 2 at 3.
The Amendment created the Class C units. Under the Amendment, proceeds
from a Liquidity Event would first be paid to Class C members until each Class C
unitholder has received an amount equal to the greater of (a) 1.5 times its purchase
price per unit or (b) such amount per Class C unit as would have been payable had
all Class C units converted into Class A units immediately prior to the Liquidity
21 Event. The Amendment also provided that the Class C units were optionally
convertible into Class A units.
In a May 14, 2020 letter to its Class A members, AS Roma GP and the Investor
Committee announced that they had “determined not to proceed with the Preferred
Equity Offering or the Recapitalization.” Ex. 2 at 3. Instead, they determined to
address the Company’s financial situation with the 2020 Member Loans. When AS
Roma GP and the Investor Committee abandoned the Preferred Equity Offering and
Recapitalization, however, they did not further amend the LLC Agreement to rescind
the Amendment.
Plaintiffs continue to pursue claims and assert harms as to the continued
existence of the Amendment. As alleged in the Amended Complaint, “[t]he fact that
the Amendment allows Member Loans to be converted to Class C shares, plus the
Class C shares’ conversion right, together with the low initial price for Class C
shares, immediately diluted and impaired the value of existing Class A shares.” Am.
Compl. ¶ 9; see also id. ¶ 110 (“AS Roma SPV GP, LLC breached its obligations
under the contract . . . by (i) approving the Amendment, which diluted and impaired
the value of Class A shares.”). Plaintiffs’ claims must be dismissed for failure to
state a claim and, in any event, they fail to present a justiciable controversy.
22 1. The Amended Complaint Fails to State a Claim that Plaintiffs Have Been Harmed by the Issuance of Class C Units.
To the extent that Plaintiffs allege that they have been harmed by the issuance
of Class C units, Plaintiffs fail to state a claim because this allegation is negated by
other allegations in the Amended Complaint.
The Complaint acknowledges that the proposed Preferred Equity Offering and
Recapitalization were abandoned. Am. Compl. ¶¶ 10–15. Defendants repeatedly
informed Plaintiffs of this fact. Id. ¶¶ 81, 85. The Initial Closing never occurred,
and no Class C units were ever issued. 15 Plaintiffs do not allege otherwise. There
are no well-pleaded allegations that the Preferred Equity Offering or the
Recapitalization—which included the ability of holders of Existing Loans to convert
the debt into Class C units—ever came to pass. At bottom, Plaintiffs dispute the
bona fides of AS Roma GP’s and the Investor Committee’s representations that they
had abandoned the Preferred Equity Offering and Recapitalization. Plaintiffs’
assertion of harm arising from the issuance of Class C units is not reasonably
conceivable and contradicted by the Amended Complaint and the documents integral
thereto, such as the May 14 Letter.
15 An August 24, 2020 letter to Class A members listed the use of proceeds from the TFG transaction. There are no Class C units identified. Instead, it states that €38 million in proceeds would be used to repay the 2020 Member Loans and €144 million would be used as partial repayment of the Existing Loans. Ex. 4 at 1. 23 2. The Amended Complaint Fails to State a Claim that Plaintiffs Have Been Harmed by a Possibility of Conversion.
Plaintiffs allege that, because the Company did not rescind the Amendment,
Plaintiffs continue to “[face] the Amendment to the [LLC] Agreement concerning
Class C shares that stands to wrongfully dilute their Class A interests in the
Company.” Am. Compl. ¶ 90. Plaintiffs “seek damages to the extent the value of
their Class A shares has already been impaired by . . . (iii) a modification to the
[LLC] Agreement allowing the conversion of [Existing] Loans to Class C shares, as
set forth in the Amendment.” Am. Compl. ¶ 25; id. ¶ 94(b) (alleging impairment
due to “the possibility that [Existing] Loans could be converted to Class C shares at
any time”). Plaintiffs fail to state a claim because these allegations are negated by
the terms of the Amendment and other allegations in the Amended Complaint.
The Amendment provided that conversion of the Existing Loans of
approximately €147 million into Class C units—the Recapitalization—would occur
at the Initial Closing, and that the issuance of the remaining Class C units for €50
million—the Preferred Equity Offering—would occur at the Initial Closing or a
Subsequent Closing. The “Initial Closing” was defined to mean “on or about March
25, 2020.” Ex. 1 (Amendment) at 2. A Subsequent Closing was defined as any
purchase or sale of Class C units consummated after the Initial Closing. Ex. 1
(Amendment) at 1. The Investor Committee informed the Company’s investors that
Subsequent Closings would occur before December 31, 2020. Ex. 1 (Summary of 24 Terms). Thus, the Amendment unambiguously provided that the conversion of the
Existing Loans into Class C units would occur on or around March 25, 2020 and that
the purchase of the remaining Class C units would occur at either the Initial Closing
or a Subsequent Closing. The Amendment did not provide for the conversion of the
Existing Loans at a Subsequent Closing.
The Initial Closing never happened. Plaintiffs admit that “days after Plaintiffs
filed their initial complaint in this action [on April 27, 2020], they were informed
that the capital raise and Member Loan conversion described in the March 23 letter
had been abandoned and were ‘not proceeding as contemplated.’” Am. Compl. ¶ 11.
Plaintiffs allege that counsel for the Investor Committee sent a letter to Plaintiffs,
informing them that “the Investor Committee had ‘determined not to proceed with
the Preferred Offering’ described in the March 23 letter. A follow-up letter sent the
next day stated that if the Investor Committee ‘pursues financing that requires the
participation and/or approval of Class A Members, a formal communication with
new and different terms will be sent to them . . . .” Id. ¶ 81 (emphasis in original).
Apparently unsatisfied with those representations, Plaintiffs asked Defendants “[o]n
numerous occasions” since April 27, 2020 “for information sufficient to determine
when and why the improper, self-dealing transaction had been abandoned and to
provide an assurance that no such transaction would be undertaken.” Id. ¶ 12.
Plaintiffs complain that “Defendants failed to substantiate [their] claim that the
25 [Existing] Loan conversion had been abandoned”; instead, “Defendants stated that
they had not rescinded the [A]mendment.” Id. ¶ 13.
In addition to Defendants’ direct representations to Plaintiffs that the March
23 transaction had been abandoned, AS Roma GP and the Investor Committee sent
the May 14 Letter to all Class A unitholders, which again stated that “the Investor
Committee determined not to proceed with the Preferred Equity Offering or the
Recapitalization.” Ex. 2 at 3. Instead, the Investor Committee decided to pursue
“other financing alternatives, which are discussed in more detail below.” Id. The
other alternatives described in the May 14 Letter are a bridge loan facility of up to
€30 million and the 2020 Member Loans of up to €25 million. Id. at 3–4. The May
14 Letter also mentioned this litigation and Plaintiffs’ claims. The May 14 Letter
stated: “The Company promptly informed [Plaintiffs] and their legal counsel that
the Investor Committee had already determined not to proceed with the Preferred
Equity Offering and the Recapitalization given the insufficient participation and was
actively seeking other financing alternatives.” Id. at 5.
The Amended Complaint acknowledges that the Recapitalization did not
occur and that Defendants informed Plaintiffs and all Class A unitholders that the
Recapitalization would not proceed. The Amendment itself demonstrates that the
Recapitalization cannot occur. Once the Preferred Equity Offering and the
Recapitalization were abandoned, there was no ability for the holders of Existing
26 Loans to convert their debt into Class C units. That conversion could only have
occurred upon AS Roma GP’s acceptance of the underlying subscription agreements
and the holding of the Initial Closing as provided for in the Amendment. Neither of
those events occurred, and Plaintiffs do not identify any language in the Amendment
that enabled the holders of Existing Loans qua debt holders unilaterally to convert
their debt into Class C units. Because the Amendment only provided for conversion
of Existing Loans into Class C units at the Initial Closing “on or about March 25,
2020,” the threat for dilution by conversion never came to pass. Furthermore,
because there was no Initial Closing, there was no Subsequent Closing, and the
opportunity for Defendants to issue Class C units at an Initial Closing or a
Subsequent Closing has likewise passed. Plaintiffs’ allegation that the Amendment
impaired and continues to impair the value of the Class A units fails to state a claim.16
3. Plaintiffs’ Claims Fail Because They Do Not Present a Justiciable Controversy.
“Delaware law requires that a justiciable controversy exist before a court can
adjudicate properly a dispute brought before it.” Crescent/Mach I P’rs, L.P. v. Dr
16 At oral argument, Plaintiffs seemed to argue that the mere existence of the Amendment caused harm with respect to the offer to participate in the 2020 Member Loans. This argument appeared to rest on the proposition that a member considering whether to participate in the 2020 Member Loans needed to know whether there was a potential issuance of a security with a higher priority than the 2020 Member Loans in the event of a liquidating transaction. Oral Arg. Tr. at 58–60. This argument fails, however, because the 2020 Member Loans had priority over all other loans and equity. Am. Compl. ¶ 87. 27 Pepper Bottling Co. of Tex., 962 A.2d 205, 208 (Del. 2008) (internal quotation marks
omitted). Delaware “law requires that a dispute not be moot and that it be ripe for
adjudication to avoid wasting judicial resources on academic disputes.” Id. If a
claim is moot or not ripe, the Court cannot assert subject matter jurisdiction over it.
See Stroud v. Milliken Enter., Inc., 552 A.2d 476, 480 (Del. 1989) (holding that the
Delaware courts may not address moot cases); Bebchuk v. CA, Inc., 902 A.2d 737,
740 (Del. Ch. 2006) (“Ripeness, the simple question of whether a suit has been
brought at the correct time, goes to the very heart of whether a court has subject
matter jurisdiction.”).
“A ripe dispute arises where litigation ‘sooner or later appears to be
unavoidable’ and where ‘the material facts are static.’” Julian v. Julian, 2009 WL
2937121, at *3 (Del. Ch. Sept. 9, 2009) (quoting Stroud, 552 A.2d at 481). That is,
“[a] claim is not ripe for adjudication if it rests upon ‘contingent future events that
may not occur as anticipated, or indeed may not occur at all.’” Texas v. United
States, 523 U.S. 296, 300 (1998) (quoting Thomas v. Union Carbide, 473 U.S. 568,
580–81 (1985)). “In deciding whether a claim is ripe for decision, Delaware courts
additionally look at ‘whether the interests of those who seek relief outweigh the
interests of the court and of justice in postponing review until the question arises in
some more concrete and final form.’” Julian, 2009 WL 2937121, at *3 (quoting
Bebchuk, 902 A.2d at 740). Accordingly, absent some “compelling reason,”
28 Delaware courts will “refrain from issuing a purely advisory opinion on an ill
developed record.” Bebchuk, 902 A.2d at 745.
“Mootness arises when controversy between the parties no longer exists such
that a court can no longer grant relief in the matter.” Mentor Graphics Corp. v.
Shapiro, 818 A.2d 959, 963 (Del. 2003). “[A] controversy that has become moot
normally will be dismissed.” Glazer v. Pasternak, 693 A.2d 319, 320 (Del. 1997).
“Delaware courts do not address ‘disagreements that have no significant current
impact.’” Crescent/Mach I, 962 A.2d at 209 (quoting Stroud, 552 A.2d at 480).
To the extent that Plaintiffs contend that they may be harmed if the Class C
units are ever issued, their claim is unripe. It is undisputed that no Class C units
have been issued, and as explained above, AS Roma GP and the Investor Committee
would need to take further action before any Class C units could be issued.
Therefore, the claims concerning the Class C units and the Amendment are unripe
because additional steps would need to be taken to issue any Class C units in the
future. See In re Allergan, Inc. S’holder Litig., 2014 WL 5791350, at *7 (Del. Ch.
Nov. 7, 2014) (finding that a claim regarding a “provision as it might apply in a
hypothetical situation . . . is a classic example of a request for an advisory opinion
that is not ripe, and many never become ripe, for judicial review”).
To the extent that Plaintiffs claim damage resulting from the March 23, 2020
proposal and potential issuance of Class C units, that claim is moot for reasons that
29 are similar to why the allegations fail to state a claim. The transaction was
abandoned, Defendants have not issued Class C units, and the holders of the Existing
Loans cannot unilaterally convert their debt into Class C units. See, e.g., Belanger
v. Fab Indus., Inc., 2004 WL 3030517, at *1 (Del. Ch. Dec. 29, 2004) (noting that
“the defendants abandon[ed] their transaction and thereby moot[ed] the plaintiff’s
claims”). Furthermore, the TFG transaction has mooted Plaintiffs’ claim that the
continued existence of the Amendment causes them harm. Having sold its
ownership stake in AS Roma to TFG, the Company began the process of winding
up. Even if the Amended Complaint had stated a claim at the time of filing
pertaining to the Amendment, which I conclude it did not, the TFG transaction
mooted the claim. A decision on the Amendment’s implications would, thus, have
no significant practical effect on the parties. Plaintiffs’ claim for breach of the LLC
Agreement and breach of fiduciary duty with regard to the Amendment and the
abandoned Preferred Equity Offering and Recapitalization are dismissed as moot.
C. The Amended Complaint Does Not State a Claim for Aiding and Abetting.
Plaintiffs allege in Count IV that the Lender Defendants and Raptor aided and
abetted AS Roma GP’s breaches of fiduciary duties in approving the Amendment
and failing to disclose to Plaintiffs material information relating to the 2020 Member
Loans. Am. Compl. ¶¶ 140–41. To state a claim for aiding and abetting a breach of
fiduciary duty, a plaintiff must allege: “(1) the existence of a fiduciary relationship, 30 (2) a breach of the fiduciary’s duty, (3) knowing participation in that breach by the
defendants, and (4) damages proximately caused by the breach.” Malpiede v.
Townson, 780 A.2d 1075, 1096 (Del. 2001) (citations, internal quotations, and
alterations omitted); accord Stone & Paper Inv’rs, LLC v. Blanch, 2020 WL
3496694, at *13 (Del. Ch. June 29, 2020).
It is axiomatic that to state a claim for aiding and abetting a breach of
fiduciary, a plaintiff must allege an underlying breach of fiduciary duty. See, e.g.,
Weil v. Morgan Stanley DW Inc., 877 A.2d 1024, 1039 (Del. Ch. 2004) (“[H]aving
failed to state an underlying claim for breach of fiduciary duty against Morgan
Stanley itself, Weil’s aiding and abetting claim against HarrisDirect necessarily
fails.”), aff’d, 894 A.2d 407 (Del. 2005); Thermopylae Cap. P’rs, L.P. v. Simbol,
Inc., 2016 WL 368170, at *18 (Del. Ch. Jan. 29, 2016) (“[A]n aiding and abetting
claim is predicated on an underlying breach of fiduciary duties. Here, because I find
that [the breach of fiduciary duty claim] fails to adequately allege a breach of duty,
I must also dismiss [the aiding and abetting claim] for failure to state a claim.”). As
explained above, Plaintiffs have not stated a claim for breach of fiduciary duty.
Accordingly, Count IV is dismissed for failure to state a claim.
D. The Amended Complaint Does Not State a Claim for Unjust Enrichment.
Count V alleges that Pallotta, D’Amore, and the Ruane Trust were “unjustly
enriched by the rights granted to them in the Amendment.” Am. Compl. ¶ 148. 31 Unjust enrichment is the “unjust retention of a benefit to the loss of another, or the
retention of money or property of another against the fundamental principles of
justice or equity or good conscience.” Jackson Nat’l Life Ins. Co. v. Kennedy, 741
A.2d 377, 393 (Del. Ch. 1999). To state a claim for unjust enrichment, Plaintiffs
must allege: (i) an enrichment, (ii) an impoverishment, (iii) a relation between the
enrichment and impoverishment, (iv) the absence of justification, and (v) the
absence of a remedy provided by law. Id.
As explained above, the Recapitalization was abandoned, the Amendment did
not give the holders of Existing Loans the automatic right to convert their debt into
Class C units, and no Class C units were ever issued. Therefore, there was no
enrichment inuring to the benefit of Pallotta, D’Amore, and the Ruane Trust through
the Amendment and no corresponding detriment to the Company or Plaintiffs.
Accordingly, Count V does not state an unjust enrichment claim.
III. CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss the Amended
Complaint is hereby GRANTED.
IT IS SO ORDERED.