Fortis Advisors LLC v. Sillajen, Inc.

• Court: Superior Court of Delaware
• Decided: July 25, 2019
• Docket: N18C-09-127 EMD CCLD
• Status: Published

Opinion

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

FORTIS ADVISORS LLC, as Stockholder ) Representative of Former Jennerex Inc. ) Stockholders, ) ) Plaintiff, ) ) v. ) C.A. No.: N18C-09-127 EMD CCLD ) SILLAJEN, INC., ) ) Defendant. ) ) )

Submitted: April 30, 2019 Decided: July 25, 2019

Upon Defendant’s Motion to Dismiss GRANTED in part and DENIED in part

Upon consideration of Defendant Sillajen, Inc.’s Motion to Dismiss the Complaint (the

“Motion”) filed by Defendant Sillajen, Inc. (“Sillajen”); Plaintiff Fortis Advisors LLC’s

Answering Brief in Opposition to Defendant’s Opening Brief in Support of Its Motion to

Dismiss (the “Opposition”) filed by Plaintiff Fortis Advisors LLC (“Fortis”); Defendant Sillajen,

Inc.’s Reply Brief in Further Support of Its Motion to Dismiss (the “Reply”) filed by Sillajen;

Plaintiff Fortis Advisors LLC’s Complaint Against Defendant Sillajen, Inc. (the “Complaint”);

the arguments made in support of the Motion, the Opposition and the Reply at the April 30, 2019

hearing (the “Hearing”) held by the Court; of the official transcript of the Hearing filed on May

29, 2019; and the entire record of this civil action,

1. The Complaint asserts causes of action for: (i) Breach of Contract (Failure to

Make Second Milestone Payment) (Count I); (ii) Breach of Contract (Failure to Make Third

Milestone Payment) (Count II); (iii) Breach of Contract (Failure to Make Fourth Milestone Payment) (Count III); (iv) Breach of Contract (Action to Avoid or Delay Milestone

Payment)(Count IV); and (v) Delaware’s Bad Faith Exception to the American Rule (Fee-

Shifting)(Count V). The Complaint is 91 pages long and contains 243 allegations.

2. The Motion seeks relief under Superior Court Civil Rule 12(b)(6). The Motion

contends, in essence, that Counts I, II and III must dismissed because the facts, as applied to the

express terms of the Merger Agreement, do not support breach of contract claims. Sillajen

further contends that Count IV should be dismissed because (i) it is time barred or (ii) makes

only conclusory allegations. Finally, Sillajen argues that Count V should be dismissed because

Delaware law awards non-statutory, non-contractual attorneys’ fees “almost exclusively for

litigation conduct.”

3. Fortis opposes the Motion. Fortis states that the Complaint makes the requisite

factual allegations to support Counts I-III. In addition, Fortis contends that Court IV properly

pleads a claim under Section 2.14(g)(ii) of the Merger Agreement which forbids Sillajen from

taking action or failing to act with the purpose of avoiding or delaying a Milestone Payment.

Fortis also argues that Count IV is not time barred und the Time of Discovery doctrine. Finally,

Fortis claims that the Complaint sufficiently pleads Delaware’s “Bad Faith Exception” to the

American rule for fees.

4. As an initial matter, the Court will GRANT the Motion as it relates to Count V.

Delaware follows the “American Rule.” 1 Under the American Rule, a prevailing party is

generally expected to pay its own attorney’s fees and costs. 2 Delaware courts have recognized

limited equitable exceptions to the American Rule, including the exception for “bad faith”

1 See, e.g., Montgomery Cellular Holding Co. v. Dobler, 880 A.2d 206, 227-28 (Del. 2005). 2 See Goodrich v. E.F. Hutton Group, Inc., 681 A.2d 1039, 1043 (Del. 1998).

2 conduct during the litigation.3 Although there is no single, comprehensive definition of “bad

faith” that will justify a fee-shifting award, Delaware courts have previously awarded attorneys’

fees where a party has unnecessarily prolonged or delayed litigation, falsified records or

knowingly asserted frivolous claims.4 As stated in Dobler, “the bad faith exception is applied in

‘extraordinary circumstances’ as a tool to deter abusive litigation and to protect the integrity of

the judicial process.5 The Complaint fails, beyond conclusory allegations, to state a “cause of

action” for attorneys’ fees. As it is entitled, the Court will—upon later application of either

party—shift attorneys’ fees if the factual and litigation record supports a claim that a party has

engaged in “abusive litigation” that impeded upon the integrity of the judicial process.

5. Upon a motion to dismiss under Civil Rule 12(b)(6), the Court (i) accepts all well-

pleaded factual allegations as true, (ii) accepts even vague allegations as well-pleaded if they

give the opposing party notice of the claim, (iii) draws all reasonable inferences in favor of the

non-moving party, and (iv) only dismisses a case where the plaintiff would not be entitled to

recover under any reasonably conceivable set of circumstances.6 However, the Court must

“ignore conclusory allegations that lack specific supporting factual allegations.”7

6. While the Court understands Sillajen’s arguments, the Court finds that—at this

stage of the proceedings—Fortis has presented a well-plead Complaint as to Counts I-IV. For

example, Sillajen’s arguments for dismissal rely on dictionary meanings of “on behalf of” as it

relates to the conduct of Sillajen and certain third-parties. Among other arguments, Sillajen

3 See Dobler, 880 A.2d at 227. 4 Id. 5 Id. 6 See Central Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 227 A.3d 531, 536 (Del. 2011); Doe v. Cedars Academy, No. 09C-09-136, 2010 WL 5825343, at *3 (Del. Super. Oct. 27, 2010). 7 Ramunno v. Crawley, 705 A.2d 1029, 1034 (Del. 1998).

3 mostly contends that these third parties acted on their own behalf and not on behalf of Sillajen.

The Complaint alleges facts that support a contrary conclusion. It is too soon in the proceedings

for the Court to rule, as a matter of law that Fortis would not be entitled to recover under any

reasonable conceivable set of circumstances, and this includes a ruling on whether Count IV is

time-barred. Moreover, the Court cannot find that the lengthy and detailed Complaint makes

conclusory allegations in support of Counts I-IV.

7. Ultimately, the Court believes it would be premature to make the ruling requested

by Sillajen and to dismiss Counts I-IV. Sillajen and Fortis are well represented and made strong

arguments for and against dismissal under Civil Rule 12(b)(6); however, the Court finds that it is

too early to dismiss Count I-IV as those counts are alleged in the Complaint.

8. For the reasons set forth at the Hearing and herein, the Motion is DENIED with

respect to Counts I-IV. Dated:

July 25, 2019 Wilmington, Delaware

/s/ Eric M. Davis Eric M. Davis, Judge