Linden J. Fellerman v. Collections Acquisition Company, Inc.
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Opinion
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
LINDEN J. FELLERMAN, in his ) Capacity as the Stockholder’s ) Representative for the former ) Stockholders of Secure Payment ) Systems, Inc., ) ) Plaintiff, ) C.A. No.: 2024-0363-EMD ) v. ) ) COLLECTIONS ACQUISITION ) COMPANY, INC. ) ) Defendant. )
Submitted: October 13, 2025 Decided: December 16, 2025 Redacted: January 21, 2026 1 F
Upon Plaintiff’s Motion for Judgment on the Pleadings, DENIED
Joeseph L. Christensen, Esquire, Anne M. Steadman, Esquire, Christensen Law LLC, Wilmington, Delaware. Attorneys for Plaintiff Linden J. Fellerman.
James H.S. Levine, Esquire, Troutman Pepper Locke LLP, Wilmington, Delaware; Richard J. Zack, Esquire, Brian M. Nichilo, Esquire, Troutman Pepper Locke LLP, Philadelphia, Pennsylvania. Attorneys for Defendant Collections Acquisition Company, Inc.
DAVIS, P.J.
1 The Court received a request from the parties to keep certain portions of the decision confidential to Del. Super. Civ. R. 5(g)(4). The parties seek confidential treatment only as to certain facts and not to any substantive portion of the decision. After review, the Court finds the parties’ request complies with Del. Super. Civ. R. 5(g)(4) and is redacting portions of this decision as confidential. I. INTRODUCTION
This is a breach of contract action filed in the Delaware Court of Chancery and cross-
designated to the Complex Commercial Litigation Division of the Superior Court. 2 On April 4, 1F
2024, Plaintiff Linden J. Fellerman, in his capacity as the Stockholders’ Representative for the
former stockholders of Secure Payment Systems, Inc. (“SPS”), commenced this action against
Defendant Collections Acquisition Company, Inc. (“CAC”). 3 Mr. Fellerman claims that CAC 2F
breached its contractual obligation under the Stock Purchase and Sale Agreement (“PSA”) to
release the holdback of sale proceeds (the “Holdback Amount”). Moreover, Mr. Fellerman
asserts that he is entitled to indemnification pursuant to the PSA.
Initially, CAC moved to dismiss Mr. Fellerman’s Complaint. 4 The Court denied that 3F
motion on November 13, 2024. 5 On December 23, 2024, CAC filed its Answer to the Complaint 4F
(the “Answer”). 6 In the Answer, CAC denied the allegations that it breached its contractual 5F
obligations, and that Mr. Fellerman is entitled to indemnification under the PSA. Further, CAC
asserted counterclaims of fraud and indemnification.
Presently before the Court is Mr. Fellerman’s Motion for Judgement on the Pleadings
(the “Motion”), which was filed on April 30, 2025. 7 CAC filed its opposition on June 18, 2025. 8 6F 7F
The Court heard oral arguments on the Motion on October 13, 2025. 9 At the conclusion 8F
of the hearing, the Court took the Motion under advisement.
2 The Court of Chancery assigned the action to this Court on November 6, 2023, pursuant to the February 23, 2023 Cross-Designation Order under 8 Del. C. § 111. See Cross-Designation Letter and Order (D.I. No. 5). 3 D.I. No. 1. 4 Defendant Collections Acquisition Company, Inc.’s Motion To Dismiss Plaintiff’s Verified Complaint with Certificate Of Service (D.I. No. 7). 5 Chancery Court Proceeding Sheet for Defendant's Motion to Dismiss, heard on November 13, 2024. Defendant's Motion to Dismiss has been DENIED for the reasons stated on the record (D.I. No. 19). 6 D.I. No. 23. 7 D.I. No. 36. 8 D.I. No. 41. 9 D.I. No. 49.
2 For the reasons stated below, the Court DENIES the Motion.
II. BACKGROUND
A. THE PARTIES
1. Plaintiff
Mr. Fellerman is an individual domiciled in the State of Nevada. 10 Mr. Fellerman is the 9F
founder of SPS. 11 Mr. Fellerman served as President and CEO of SPS from its founding until 10F
CAC terminated his employment on May 3, 2022. 12 Under the PSA, Mr. Fellerman is 11F
authorized to act as an “agent, proxy and attorney in fact” on behalf of “the former stockholders
of SPS (the “Stockholders”).” 13 12F
2. Defendant
CAC is an Ohio corporation with its principal place of business in Ohio. 14 CAC is 13F
registered in Delaware as a foreign corporation. 15 CAC is a wholly owned subsidiary of 14F
Payliance, Inc. (“Payliance”) and was created to acquire SPS. 16 15F
B. RELEVANT NON-PARTIES
Payliance is a “payment processing company offering payment, verification, and
recovery services.” 17 Payliance is the parent company of CAC. 18 SPS is a company that 16F 17F
provided “payment processing and information services” to customers. 19 18F
10 Verified Compl. (“Compl.”) (D.I. No. 1) ¶ 12. 11 Id. ¶ 17. 12 Id. ¶ 19. 13 See id. ¶ 12. 14 Id. ¶ 13. 15 Id. 16 Id. ¶ 21. 17 Id. ¶ 20. 18 See id. ¶ 21. 19 Id. ¶ 11.
3 C. NATURE OF THE DISPUTE
1. Negotiations to Acquire SPS
In 2020, Payliance began negotiating with SPS to acquire SPS. 20 On June 30, 2021, SPS 19F
and Payliance executed an initial letter of intent (the “Original LOI”) regarding Payliance’s
proposed acquisition of SPS. 21 The Original LOI specified a proposed total enterprise value of 20F
[REDACTED]. 22 CAC would retain the holdback which would accrue interest at a rate of three 21F
percent per annum. 23 22F
On August 10, 2021, SPS shut down two of its largest cloud storage clients due to the
clients’ unresponsive nature. 24 On August 20, 2021, SPS received notice that the Department of 23F
Justice (“DOJ”) “obtained a temporary restraining order in the matter of USA v. Internet
Transaction Services, Inc., et al., No. 2:21-cv-6582-JFW(KSx) (C.D. Cal.) (the “Civil
Action”).” 25 The Civil Action is a civil enforcement action brought 24F
against numerous individuals and entities, including some of SPS’s merchant clients, alleging they had ‘stolen millions of dollars’ in a multi-year and ‘ongoing bank and wire fraud scheme’ where, among other actions, the defendants used ‘shell entities to charge unauthorized debts against victims’ bank accounts.’ 26 25F
The temporary restraining order resulted in the freezing of assets of certain SPS clients. 27 Mr. 26F
Fellerman informed CAC of the development, but “portrayed SPS as an unknowing victim…and
denied any culpability, including any participation on his part or SPS’s part.” 28 27F
20 Id. ¶ 23. 21 See id. ¶ 23; see also Compl., Ex. B. 22 Id. ¶ 24. 23 Id. 24 See id. ¶ 25. 25 Id. ¶ 1. 26 Defendant Collections Acquisition Company, Inc.’s Answer, Affirmative Defenses, And Counterclaims (“Answer”) (D.I. No. 23) at 51. 27 Compl. ¶ 1. 28 Answer at 51-52.
4 After issuance of the temporary restraining order, SPS and Payliance executed a revised
letter of intent (the “Revised LOI”) on November 12, 2021. 29 The Revised LOI specified a total 28F
enterprise value of [REDACTED]. 30 The holdback was to be held by CAC and accrue at an 29F
interest rate of three percent per annum. 31 On January 3, 2022, SPS and CAC entered into the 30F
PSA based upon the terms contained in the Revised LOI. 32 SPS and CAC closed the transaction 31F
on January 13, 2022. 33 32F
2. The PSA
Under the PSA, the Stockholders agreed to sell the entirety of their interest to CAC for a
total of [REDACTED] (the “Purchase Amount”). 34 The PSA also included a provision that 33F
CAC would retain [REDACTED] of the Purchase Amount as the Holdback Amount for two
years to secure Mr. Fellerman’s and the Stockholders’ indemnification obligations. 353 F
i. Indemnification Obligations
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
LINDEN J. FELLERMAN, in his ) Capacity as the Stockholder’s ) Representative for the former ) Stockholders of Secure Payment ) Systems, Inc., ) ) Plaintiff, ) C.A. No.: 2024-0363-EMD ) v. ) ) COLLECTIONS ACQUISITION ) COMPANY, INC. ) ) Defendant. )
Submitted: October 13, 2025 Decided: December 16, 2025 Redacted: January 21, 2026 1 F
Upon Plaintiff’s Motion for Judgment on the Pleadings, DENIED
Joeseph L. Christensen, Esquire, Anne M. Steadman, Esquire, Christensen Law LLC, Wilmington, Delaware. Attorneys for Plaintiff Linden J. Fellerman.
James H.S. Levine, Esquire, Troutman Pepper Locke LLP, Wilmington, Delaware; Richard J. Zack, Esquire, Brian M. Nichilo, Esquire, Troutman Pepper Locke LLP, Philadelphia, Pennsylvania. Attorneys for Defendant Collections Acquisition Company, Inc.
DAVIS, P.J.
1 The Court received a request from the parties to keep certain portions of the decision confidential to Del. Super. Civ. R. 5(g)(4). The parties seek confidential treatment only as to certain facts and not to any substantive portion of the decision. After review, the Court finds the parties’ request complies with Del. Super. Civ. R. 5(g)(4) and is redacting portions of this decision as confidential. I. INTRODUCTION
This is a breach of contract action filed in the Delaware Court of Chancery and cross-
designated to the Complex Commercial Litigation Division of the Superior Court. 2 On April 4, 1F
2024, Plaintiff Linden J. Fellerman, in his capacity as the Stockholders’ Representative for the
former stockholders of Secure Payment Systems, Inc. (“SPS”), commenced this action against
Defendant Collections Acquisition Company, Inc. (“CAC”). 3 Mr. Fellerman claims that CAC 2F
breached its contractual obligation under the Stock Purchase and Sale Agreement (“PSA”) to
release the holdback of sale proceeds (the “Holdback Amount”). Moreover, Mr. Fellerman
asserts that he is entitled to indemnification pursuant to the PSA.
Initially, CAC moved to dismiss Mr. Fellerman’s Complaint. 4 The Court denied that 3F
motion on November 13, 2024. 5 On December 23, 2024, CAC filed its Answer to the Complaint 4F
(the “Answer”). 6 In the Answer, CAC denied the allegations that it breached its contractual 5F
obligations, and that Mr. Fellerman is entitled to indemnification under the PSA. Further, CAC
asserted counterclaims of fraud and indemnification.
Presently before the Court is Mr. Fellerman’s Motion for Judgement on the Pleadings
(the “Motion”), which was filed on April 30, 2025. 7 CAC filed its opposition on June 18, 2025. 8 6F 7F
The Court heard oral arguments on the Motion on October 13, 2025. 9 At the conclusion 8F
of the hearing, the Court took the Motion under advisement.
2 The Court of Chancery assigned the action to this Court on November 6, 2023, pursuant to the February 23, 2023 Cross-Designation Order under 8 Del. C. § 111. See Cross-Designation Letter and Order (D.I. No. 5). 3 D.I. No. 1. 4 Defendant Collections Acquisition Company, Inc.’s Motion To Dismiss Plaintiff’s Verified Complaint with Certificate Of Service (D.I. No. 7). 5 Chancery Court Proceeding Sheet for Defendant's Motion to Dismiss, heard on November 13, 2024. Defendant's Motion to Dismiss has been DENIED for the reasons stated on the record (D.I. No. 19). 6 D.I. No. 23. 7 D.I. No. 36. 8 D.I. No. 41. 9 D.I. No. 49.
2 For the reasons stated below, the Court DENIES the Motion.
II. BACKGROUND
A. THE PARTIES
1. Plaintiff
Mr. Fellerman is an individual domiciled in the State of Nevada. 10 Mr. Fellerman is the 9F
founder of SPS. 11 Mr. Fellerman served as President and CEO of SPS from its founding until 10F
CAC terminated his employment on May 3, 2022. 12 Under the PSA, Mr. Fellerman is 11F
authorized to act as an “agent, proxy and attorney in fact” on behalf of “the former stockholders
of SPS (the “Stockholders”).” 13 12F
2. Defendant
CAC is an Ohio corporation with its principal place of business in Ohio. 14 CAC is 13F
registered in Delaware as a foreign corporation. 15 CAC is a wholly owned subsidiary of 14F
Payliance, Inc. (“Payliance”) and was created to acquire SPS. 16 15F
B. RELEVANT NON-PARTIES
Payliance is a “payment processing company offering payment, verification, and
recovery services.” 17 Payliance is the parent company of CAC. 18 SPS is a company that 16F 17F
provided “payment processing and information services” to customers. 19 18F
10 Verified Compl. (“Compl.”) (D.I. No. 1) ¶ 12. 11 Id. ¶ 17. 12 Id. ¶ 19. 13 See id. ¶ 12. 14 Id. ¶ 13. 15 Id. 16 Id. ¶ 21. 17 Id. ¶ 20. 18 See id. ¶ 21. 19 Id. ¶ 11.
3 C. NATURE OF THE DISPUTE
1. Negotiations to Acquire SPS
In 2020, Payliance began negotiating with SPS to acquire SPS. 20 On June 30, 2021, SPS 19F
and Payliance executed an initial letter of intent (the “Original LOI”) regarding Payliance’s
proposed acquisition of SPS. 21 The Original LOI specified a proposed total enterprise value of 20F
[REDACTED]. 22 CAC would retain the holdback which would accrue interest at a rate of three 21F
percent per annum. 23 22F
On August 10, 2021, SPS shut down two of its largest cloud storage clients due to the
clients’ unresponsive nature. 24 On August 20, 2021, SPS received notice that the Department of 23F
Justice (“DOJ”) “obtained a temporary restraining order in the matter of USA v. Internet
Transaction Services, Inc., et al., No. 2:21-cv-6582-JFW(KSx) (C.D. Cal.) (the “Civil
Action”).” 25 The Civil Action is a civil enforcement action brought 24F
against numerous individuals and entities, including some of SPS’s merchant clients, alleging they had ‘stolen millions of dollars’ in a multi-year and ‘ongoing bank and wire fraud scheme’ where, among other actions, the defendants used ‘shell entities to charge unauthorized debts against victims’ bank accounts.’ 26 25F
The temporary restraining order resulted in the freezing of assets of certain SPS clients. 27 Mr. 26F
Fellerman informed CAC of the development, but “portrayed SPS as an unknowing victim…and
denied any culpability, including any participation on his part or SPS’s part.” 28 27F
20 Id. ¶ 23. 21 See id. ¶ 23; see also Compl., Ex. B. 22 Id. ¶ 24. 23 Id. 24 See id. ¶ 25. 25 Id. ¶ 1. 26 Defendant Collections Acquisition Company, Inc.’s Answer, Affirmative Defenses, And Counterclaims (“Answer”) (D.I. No. 23) at 51. 27 Compl. ¶ 1. 28 Answer at 51-52.
4 After issuance of the temporary restraining order, SPS and Payliance executed a revised
letter of intent (the “Revised LOI”) on November 12, 2021. 29 The Revised LOI specified a total 28F
enterprise value of [REDACTED]. 30 The holdback was to be held by CAC and accrue at an 29F
interest rate of three percent per annum. 31 On January 3, 2022, SPS and CAC entered into the 30F
PSA based upon the terms contained in the Revised LOI. 32 SPS and CAC closed the transaction 31F
on January 13, 2022. 33 32F
2. The PSA
Under the PSA, the Stockholders agreed to sell the entirety of their interest to CAC for a
total of [REDACTED] (the “Purchase Amount”). 34 The PSA also included a provision that 33F
CAC would retain [REDACTED] of the Purchase Amount as the Holdback Amount for two
years to secure Mr. Fellerman’s and the Stockholders’ indemnification obligations. 353 F
i. Indemnification Obligations
PSA Section 7(b)(ii) sets forth the Stockholders’ indemnification obligations. 36 In 35F
relevant part, Section 7(b)(ii) states that the Stockholders are required to indemnify CAC against
any Loss resulting from:
(A) the breach or alleged breach of any representation or warranty set forth in Section 5, [and] (B) the breach or alleged breach by such Stockholder of any covenant or agreement made by such Stockholder contained in this Agreement or any document delivered by or on behalf of such Stockholder at or prior to closing… 37 36F
29 Compl. ¶ 27. 30 Id. ¶ 28. 31 Id. 32 See id. ¶¶ 31-32. 33 See id. ¶ 51. 34 See id. ¶ 34; see also Compl. Ex. A, § 1(a). 35 Id. ¶ 35; see also Compl. Ex. A, § 7, App. A. 36 See id. ¶ 37. 37 Id.; see also Compl. Ex. A, § 7(b)(ii).
5 PSA Section 7(b)(i) enumerates Mr. Fellerman’s indemnification obligations. Section
7(b)(i) states that Mr. Fellerman is obligated to indemnify CAC against any ‘Losses’ CAC may
suffer resulting from:
(A) the breach or alleged breach of any representation or warranty set forth in Section 4, or (B) the breach or alleged breach by [Mr. Fellerman] of any covenant or agreement made by [Mr. Fellerman] contained in this Agreement or in any agreement, document, instrument, or certificate contemplated by this Agreement… 38 37F
PSA Section 7(b)(iii) describes CAC’s indemnification obligations. Section 7(b)(iii)
provides:
[CAC] shall indemnify and hold harmless each Stockholder against any Losses which it may suffer, sustain or become subject to as the result of (A) the breach or alleged breach by [CAC] of any representation or warranty set forth in Section 6, or (B) the breach or alleged breach by [CAC] of any covenant or agreement contained in this Agreement or any document delivered by or on behalf of [CAC] at or prior to the Closing (provided that this clause (iii) shall not derogate from [CAC’s] rights or recoveries pursuant to Sections 7(b)(i) or 7(b)(ii)). 39 3 F
The term “Loss” is defined in the PSA as:
any claim, loss, Liability, deficiency, damage (whether direct, indirect, incidental, special or consequential and including lost profits, business interruptions and diminution in value based on a multiple of earnings or similar financial measure), Tax or expense, including reasonable legal expenses and costs associated therewith (other than punitive or exemplary damages, unless, in each such case, such damages are incurred as a result of a third party claim). 40 39F
The term “Liability” is defined separately in the PSA as:
any obligation, deficiency or liability of any kind or nature whatsoever, whether asserted or unasserted, absolute or contingent, known or unknown, accrued or unaccrued, liquidated or unliquidated, and whether due or to become due and regardless of when asserted. 41 40F
38 Id. ¶ 39; see also Compl. Ex. A, § 7(b)(i). 39 Compl. Ex. A., § 7(b)(iii). 40 Id. ¶ 40; see also Compl. Ex. A, § 7(b)(i). 41 Id. ¶ 41; see also Compl. Ex. A, App. A.
6 ii. Representations and Warranties
The PSA also includes certain Representations and Warranties. 42 Under PSA Section 41F
4(h), SPS represented and warranted that “[SPS] has complied within the past three (3) years,
and is in compliance with, in each case, in all material respects, all applicable Laws applicable to
[SPS] … and is not aware of any allegation of non-compliance with any such law.” 43 42F
Additionally, under PSA Section 4 (v)(i), SPS represented and warranted that:
[d]uring the past five (5) years, none of [SPS] nor any of its equityholders (in connection with or relating to the business of [SPS]), its officers, directors or employees has, and to the Knowledge of [SPS], no agents or other Persons, while acting for or on behalf of [SPS] have, directly or indirectly, violated any provision of the U.S. Foreign Corrupt Practices Act of 1977 (as amended) or any other anti- corruption, anti-money laundering or anti bribery Law (collectively, the “Anti- Corruption Laws”). [SPS] does not have, and has not had, any direct or indirect business or dealings in or with any Sanctioned Country, or with or for the benefit of any Sanctioned Person. 44 43F
The PSA provided that “[Mr.] Fellerman is obligated to indemnify CAC against any Loss
incurred by CAC if [the representation and warranty contained in Section 4 (v)(i)] is violated.” 45 44F
iii. Notice Requirements
The PSA additionally describes the manner in which a party seeking indemnification
must notify the indemnifying party of a claim. 46 PSA Section 7(b)(vi) states that a party making 45F
an indemnification claim under Section 7(b):
[m]ust give the indemnifying Party (the “Indemnifying Party”) written notice of such claim describing such claim and the nature and amount of the Loss, to the extent that the nature and amount thereof are determinable at such time (a “Claim Notice”) within forty five (45) days after the Indemnified Party receives notice from a third party with respect to any matter which may give rise to a claim for indemnification against the Indemnifying Party (a “Third Party Claim”) or otherwise discovers the Liability, obligation or facts giving rise to such claim for
42 See id. ¶ 44. 43 Compl. Ex. A, § 4(h). 44 Compl. ¶ 44; see also Compl. Ex. A, § 4(v)(i). 45 Id. ¶ 45. 46 See id. ¶ 46.
7 indemnification…. The Indemnified Party shall cooperate with the Indemnifying Party in all matters arising under this Section 7(b). 47 46F
However, the PSA does not provide for indefinite indemnification. 48 PSA Section 7(a) 47F
states that:
[n]o Party shall be entitled to recover for any Loss arising from or relating to a breach or alleged breach of representations and warranties set forth in Sections 4, 5, or 6, unless written notice thereof is delivered to the other Parties on or prior to the Applicable Limitation Date. For purposes of this Agreement, the term “Applicable Limitation Date” shall be the date that is twenty-four (24) months after the Closing Date…. 49 48F
Notwithstanding Section 7(a), the “Applicable Limitation Date 50” is subject to certain 49F
exceptions. 51 Section 7(a) further provides that: 50F
[i]n the event that (A) any breach or alleged breach of any representation or warranty by [SPS] or a Stockholder results from any action or inaction of the [SPS] or the Stockholders that constitutes fraud, intentional misrepresentation or willful misconduct or (B) any breach or alleged breach of any representation or warranty by [CAC] results from any action or inaction of [CAC] that constitutes fraud, intentional misrepresentation or willful misconduct, such representation or warranty shall survive the Closing and the consummation of the transactions contemplated hereby (regardless of any investigation by or on behalf of the damaged Party or the knowledge of any Party) and shall continue in full force and effect without any time limitation with respect to such breach or alleged breach. 52 51F
iv. The Holdback Amount and Release Dates
The PSA requires the Holdback Amount to be paid in two tranches on the First Release
Date and the Second Release Date. 53 PSA Section 7(b)(xii) states: 52F
[o]n the date that is twelve (12) months following the Closing Date (the “First Release Date”), or if such date is not a business day, the following business day, [CAC] shall pay to each Stockholder such Stockholder’s Purchase Price Percentage of [REDACTED] of the Holdback Amount that exceeds the sum of (I) all amounts
47 Id.; see also Compl. Ex. A, § 7(b)(vi). 48 See Compl. Ex. A, § 7(a). 49 Compl. ¶¶ 48-49; see also Compl. Ex. A, § 7(a). 50 The “Applicable Limitation Date” fell on January 16, 2024. January 13, 2024 (the twenty-four-month anniversary of the Closing Date) was a Saturday. Monday, January 15, 2024, was a federal holiday. 51 Compl. ¶ 50. 52 Compl. Ex. A, § 7(a). 53 Compl. ¶ 52.
8 theretofore distributed or disbursed to the Buyer Group pursuant to this Section 7 and (II) the aggregate amount of Losses specified in any then unresolved good faith indemnification claims made by the Buyer Group pursuant to this Section 7. On the date that is twenty-four (24) months following the Closing Date (the “Second Release Date”), or if such date is not a business day, the following business day, [CAC] shall pay to each Stockholder such Stockholder’s Purchase Price Percentage of the Holdback Amount that exceeds the sum of (I) all amounts theretofore distributed or disbursed to Stockholders pursuant to the foregoing sentence, (II) all amounts theretofore distributed or disbursed to the Buyer Group pursuant to this Section 7 and (III) the aggregate amount of Losses specified in any then unresolved good faith indemnification claims made by the Buyer Group pursuant to this Section 7. To the extent that any amount has been reserved and withheld from distribution from the Holdback Amount on the Second Release Date on account of an unresolved claim for indemnification and, subsequent to the Second Release Date, such claim is resolved, [CAC] shall immediately release (x) to the Buyer Group the amount of Losses, if any, due in respect of such claim as finally determined and (y) to each Stockholder such Stockholder’s Purchase Price Percentage of an amount equal to the excess, if any, of the amount theretofore reserved and withheld from distribution in respect to such claim over the payment, if any, made pursuant to the foregoing clause (x). Notwithstanding anything to the contrary contained in this Agreement, interest shall accrue at an annual rate of 3% per year and shall become part of and be included in the Holdback Amount on the portion that is unpaid until it is paid. 54 55 53F 54F
3. Post-Closing Developments
On February 22, 2022, the court-appointed Receiver in the Civil Action threatened
litigation against Mr. Fellerman and SPS for [REDACTED]. 56 The Receiver presented, in 55F
relevant part, evidence that [REDACTED]. 57 [REDACTED]. 58 56F 57F
In April 2022, without any admission of liability, Mr. Fellerman “personally executed a
settlement agreement with the Receiver settling claims against Mr. Fellerman and SPS for
$4,200,000.” 59 CAC paid $600,000 as part of the settlement agreement. 60 58F 59F
54 Compl. Ex. A, § 7(b)(xii). 55 The “Second Release Date” fell on January 16, 2024. January 13, 2024 (the twenty-four-month anniversary of the Closing Date) was a Saturday. Monday, January 15, 2024, was a federal holiday. 56 Answer at 53; see also Answer, Ex. 1. 57 See id. 58 See id. 59 See id. at 54. 60 See id.
9 However, on April 27, 2023, Mr. Fellerman and SPS’s former merchant clients were
criminally indicted on multiple federal charges of fraud and racketeering in a case captioned
United States v. Linden J. Fellerman, et al., No. 2:23-cr-200 (C.D. Cal) (the “Criminal
Action”). 61 In the Criminal Action, a federal grand jury found that Mr. Fellerman and his co- 60F
conspirators were “members and associates of a criminal” enterprise that had, for nearly seven
years, “engaged in, among other things, mail, wire, and bank fraud; identity theft; access device
fraud; and money laundering.” 62 Mr. Fellerman is currently awaiting trial in the Criminal 61F
Action. 63 62F
On May 3, 2022, Payliance terminated Mr. Fellerman’s employment with SPS. 64 63F
4. Indemnification Claims and CAC’s Subsequent Withholding of the Holdback Amount
Due to CAC’s [REDACTED] settlement payment in the Civil Action, CAC asserted an
indemnification claim (the “First Claim”) against Mr. Fellerman pursuant to PSA Section 7(b)(i)
in April 2022. 65 Mr. Fellerman agreed he was liable and paid the First Claim. 66 The First Claim 64F 65F
is not in dispute in the instant action. 67 As a result of CAC’s settlement payment, the remaining 66F
Holdback Amount was reduced to [REDACTED] (the “Remaining Amount”). 68 Further, CAC 67F
did not release any of the Holdback Amount on the First Release Date because the
[REDACTED] exceeded the maximum amount then payable from the Holdback Amount. 69 6 F
61 Id. 62 Id.; see also Answer Ex. 2 ¶¶ 1, 8. 63 Id. at 57. 64 Compl. ¶ 19. 65 See Answer at 56. 66 Id. 67 Id. 68 Compl. ¶ 77. 69 See id. at ¶ 88.
10 Subsequent to the issuance of the indictment in the Criminal Action, CAC asserted a
second indemnification claim (the “Second Claim”) against Mr. Fellerman for [REDACTED]
pursuant to PSA Section 7(b)(i) on July 20, 2023. 70 The Second Claim sought indemnity for 69F
“Losses related to review and analysis of the DOJ’s subpoena, indi[ct]ment and other related
inquiries.” 71 “CAC also reserved ‘all rights including but not limited to its right to identify 70F
additional Losses relating to the claims identified above [resulting from the criminal action] and
to seek full satisfaction of the remaining amount of the Losses identified in this Claim
Notice.’” 72 Mr. Fellerman responded to the Second Claim and contended that claim did not 71F
provide sufficient information to make a determination as to whether a Loss had occurred under
the PSA. 73 72F
On January 16, 2024, the Remaining Amount became due pursuant to the Second Release
Date. 74 However, CAC did not release the Remaining Amount. 75 73F 74F
On February 12, 2024, CAC asserted a third indemnification claim (the “Third Claim”)
against Mr. Fellerman for [REDACTED] (the “Undisputed Amount”) 76. 77 In the Third Claim, 75F 76F
CAC stated that:
[It] has suffered Losses related to, among other things: (a) your criminal prosecution in United States v. Linden J. Fellerman . . . and the related proceedings (collectively, “the Prosecution”); and (b) other damages attributable to your conduct underlying the Prosecution, including Losses, direct, indirect, incidental, special or consequential and including lost profits, business interruptions and diminution in value based on a multiple of earnings or similar financial measure, including reasonable legal expenses and costs associated therewith the losses.
70 See Answer at 56. 71 Id. 72 Id. 73 Compl. ¶ 91. 74 Supra, n. 45. 75 Compl. ¶ 95. 76 Mr. Fellerman refers to this amount as the “Undisputed Amount” throughout his briefs. For clarity purposes, the same language is used throughout this opinion. The “Undisputed Amount” constitutes the Remaining Amount [REDACTED]. 77 See Answer at 56.
11 [CAC] understand[s] that the Prosecution is ongoing, that no trial date has been set, and that the Prosecution involves your actions while employed at [SPS]. Because of the ongoing nature of these matters and because they continue to cause Losses to [CAC], [it is] unable to ascertain the full extent of the Losses at this time. . . . [and will therefore] retain the Holdback Amount in its entirety until it is able to ascertain the full amount of the Losses[.] 78 77F
To date, Mr. Fellerman has not paid CAC for the Second and Third Claims and CAC has not
released the Remaining Amount. 79 78F
D. PROCEDURAL POSTURE
On April 4, 2024, Mr. Fellerman commenced the present action asserting claims of
breach of contract pursuant to PSA Section 7(b)(xii) and for indemnification under PSA Section
7(b)(iii). 80 On the breach of contract claim, Mr. Fellerman asserts that CAC’s failure to release 79F
the Remaining Amount as of the Second Release Date constitutes a breach of CAC’s obligations
under the PSA. 81 For the indemnification claim, Mr. Fellerman maintains that CAC’s purported 80F
breach of the PSA “triggers CAC’s indemnity obligation to [Mr. Fellerman] under Section
7(b)(iii).” 82 81F
On December 23, 2024, CAC filed the Answer and denied the claims asserted in the
Complaint. 83 Moreover, CAC asserted counterclaims for fraud and indemnification. 84 CAC 2F 83F
alleges that Mr. Fellerman committed fraud in relation to the negotiation and subsequent
execution of the PSA. 85 CAC argues that Mr. Fellerman’s false statements, as those statements 84F
relate to the representation and warranties section of the PSA, triggered Mr. Fellerman’s
78 Id. at 56-57. 79 See Compl. ¶ 95; See also Answer at 25. 80 See Compl. ¶¶ 32-37. 81 See id. ¶ 142. 82 Id. ¶ 151. 83 See Answer at 46-48. 84 See id. at 57-60. 85 See id. at 57.
12 indemnification obligation under PSA Section 7(b)(i). 86 CAC contends that that Mr. 85F
Fellerman’s refusal to pay CAC for the Second Claim and Third Claim constitutes a breach of
Mr. Fellerman’s indemnification obligation under the PSA. 87 6F
On April 30, 2025, Mr. Fellerman filed the Motion. On June 18, 2025, CAC filed its
response to the Motion. On July 15, 2025, Mr. Fellerman filed his reply in further support of the
Motion. The Court heard oral arguments on the Motion on October 13, 2025, at which time the
matter was taken under advisement.
III. PARTIES’ CONTENTIONS
A. MR. FELLERMAN
First, Mr. Fellerman argues that CAC has not made a claim on the Undisputed Amount,
which must be released immediately. 88 Mr. Fellerman asserts that the mandatory language 87F
contained in PSA Section 7(b)(xii) requires the release of the Remaining Amount. 89 In support,88F
Mr. Fellerman maintains that (i) the Third Claim is untimely; 90 (ii) the Third Claim fails to 89F
provide reasonable notice of what CAC is seeking indemnification for; 91 and (iii) the Third 90F
Claim is “forward-looking” and thus, not contemplated by the PSA or permissible under
Delaware law. 92 91F
Mr. Fellerman’s second argument is related to the first argument. Mr. Fellerman alleges
that the Second Claim is insufficient under the terms of the PSA and, as such, CAC is not
entitled to retain the amount asserted in the Second Claim. 93 Specifically, Mr. Fellerman 92F
86 See id. at 59. 87 See id. at 59-60. 88 Plaintiff's Motion for Judgment on the Pleadings (“Pl. Mot.”) (D.I. No. 36) at 12. 89 See id. 90 Id. at 13. 91 Id. at 16. 92 Id. at 17. 93 Id. at 21.
13 maintains that the Second Claim “is not a proper claim because it fails to give reasonable notice
of the Losses for which CAC seeks indemnification.” 94 93F
Third, Mr. Fellerman contends that CAC has not stated a claim for fraud. 95 In support, 94F
Mr. Fellerman maintains that (i) the fraud claim is a “clear example of bootstrapping;” 96 and (ii) 95F
the damages pled could not have been caused by the allegedly fraudulent statement. 97 96F
Fourth, Mr. Fellerman argues that CAC has not stated a claim for indemnification and
that any such claim is unripe. 98 97F
Fifth, Mr. Fellerman claims that he is entitled to attorney’s fees and expenses under the
PSA as the prevailing party in this action. 99 98F
B. CAC
CAC argues that CAC has valid indemnifiable claims because of Mr. Fellerman’s
fraudulent conduct. 100 Specifically, CAC maintains that it has complied with all requirements 99F
for making indemnification claims under the PSA. 101 100F
Next, CAC asserts that Mr. Fellerman is liable to CAC for his fraudulent conduct. 102 101F
CAC contends that it has alleged sufficient facts demonstrating that Mr. Fellerman engaged in
fraud in relation to the negotiations and execution of the PSA. 103 102F
94 Id. 95 Id. at 22. 96 Id. 97 Id. at 24. 98 Id. at 25. 99 Id. at 27. 100 See Defendant’s Answering Brief in Response to Plaintiff’s Motion for Judgment on the Pleadings (“Def. Opp’n”) (D.I. No. 41) at 12-13. 101 See id. at 18. 102 Id. 103 See id. at 22.
14 CAC then explains that Fellerman is not entitled to the Holdback Amount given CAC’s
indemnification and fraud claims. 104 CAC maintains that its timely and adequately pled claims 103F
for indemnification and fraud establish that CAC has not breached the PSA by failing to release
the Remaining Amount. 105 10 F
IV. STANDARD OF REVIEW
Under Chancery Rule 12(c), “[a]fter the pleadings are closed—but early enough not to
delay trial—a party may move for judgment on the pleadings.” 106 The Court will grant a motion 105F
for judgment on the pleadings “only when no material issue of fact exists and the movant is
entitled to judgment as a matter of law.” 107 “[I]n making this assessment, the Court ‘is required 106F
to view the facts pleaded and the inferences to be drawn from such facts in [the] light most
favorable to the non-moving party[;]’ and must consider ‘not only the complaint or
counterclaims, but also the answer, affirmative defenses, and any documents integral
thereto[.]’” 108 107F
V. DISCUSSION
A. MR. FELLERMAN’S CLAIMS
Under Delaware law, to establish a breach of contract claim, a party must prove (i) the
existence of a contract; (ii) the breach of an obligation imposed by the contract; and (iii) damages
that the plaintiff suffered as a result of the breach. 109 Delaware courts follow the objective 108F
theory of contracts, giving words “their plain meaning unless it appears that the parties intended
104 Id. 105 See id. 106 Ct. Ch. R. 12(c). 107 Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199, 1205 (Del. 1993) (citing Warner Communications v.Chris-Craft Industries, Inc., 583 A.2d 962, 965 (Del. Ch. Sept. 7, 1989)) 108 Matter of JCM 2001 Trust for Grandchildren FBO Robert C. Beyer, 2025 WL 750229 at *2 (Del. Ch. Mar. 7, 2025) (citation omitted). 109 Neurvana Medical, LLC v. Balt USA, LLC, 2020 WL 949917, at *15 (Del. Ch. Feb. 27, 2020) (citation omitted).
15 a special meaning.” 110 Additionally, when a plaintiff is seeking specific performance, the 109F
plaintiff is required to “demonstrate its entitlement to specific performance by clear and
convincing evidence.” 111 110F
Mr. Fellerman argues that CAC’s failure to release the Remaining Amount on January
16, 2024, constitutes a breach of the PSA. 112 Simply put, Mr. Fellerman’s position appears to be 111F
that, because both the Second Claim and Third Claim purportedly fail, CAC was not justified in
failing to release the Remaining Amount.
Conversely, CAC asserts that Second and Third Claims were adequate under the PSA. 113 112F
Thus, CAC maintains that it was entitled to retain the Remaining Amount and that its failure to
release the Remaining Amount does not constitute a breach of the PSA. 114 115 113F 114F
1. A material issue of fact exists as to whether CAC breached the PSA by failing to release the amount asserted in the Second Claim.
i. Sufficiency of the Second Claim
Mr. Fellerman alleges that the Second Claim is insufficient under the terms of the PSA
and, as such, CAC is not entitled to retain the amount asserted in the Second Claim. 116 115F
Specifically, Mr. Fellerman maintains that the Second Claim “is not a proper claim because it
fails to give reasonable notice of the Losses for which CAC seeks indemnification.” 117 Thus, 116F
Mr. Fellerman claims that, because the Second Claim is insufficient, the [REDACTED] claimed
should have been released as part of the Remainder Amount. 118 117F
110 Id. 111 In re IBP S’Holders Litig., 789 A.2d 14, 52 (Del. Ch. June 18, 2001). 112 See Pl. Mot. at 1. 113 See Def. Opp’n at 22. 114 See id. 115 The Second Claim and the Third Claim will be analyzed separately. 116 See Pl. Mot. at 21. 117 Id. 118 See id. at 22.
16 CAC asserts that the Second Claim is sufficient under the terms of the PSA and, thus,
CAC is entitled to retain the amount asserted in the Second Claim. 119 CAC’s position is that it 118F
has “provided sufficient detail to support its claims” pursuant to PSA Section 7(b)(vi). 120 In the 119F
Second Claim, CAC states that it had incurred [REDACTED] in costs for “[l]osses related to
review and analysis of the DOJ’s subpoena, indi[ct]ment and other related inquires” in the
Criminal Action. 121120F
In response, Mr. Fellerman maintains that “CAC’s barebones recitation does not provide
reasonable notice.” 122 Although admitting that the PSA “does not spell out a specific level of 121F
detail necessary,” Mr. Fellerman asserts that “the detail must still be reasonable.” 123 In support 122F
of this argument, Mr. Fellerman relies upon a proposition set forth in Liberty Property Ltd.
Partnership v. 25 Massachusetts Ave. Property LLC. 124 Mr. Fellerman asserts that the implied 123F
covenant of good faith and fair dealing “dictates that issues not specifically addressed in a
contract will be addressed in accordance with standards of ‘decency, fairness or
reasonableness.’” 125 124F
Here, PSA Section 7(b)(vi) provides how a party seeking indemnification must notify the
indemnifying party of a claim. Section 7(b)(vi), in relevant part, states that a party seeking
indemnification “must give the indemnifying Party (the “Indemnifying Party”) written notice of
such claim describing such claim and the nature and amount of the Loss, to the extent that the
nature and amount thereof are determinable at such time….” 126 125F
119 See Def. Opp’n at 14-18. 120 Id. at 15. 121 Id. at 9. 122 Pl. Mot. at 21; see also Plaintiff’s Reply Brief in Further Support of Plaintiff's Motion for Judgment on the Pleadings (“Pl. Reply”) (D.I. No. 45) at 22. 123 Id. 124 See id. 125 Id. 126 Compl. Ex. A, § 7(b)(vi).
17 As a preliminary matter, Mr. Fellerman is correct in his admission that Section 7(b)(vi)
does not describe the level of detail necessary to provide notice for an indemnification claim
under the PSA. Thus, Mr. Fellerman’s argument that the implied covenant of good faith and fair
dealing requires reasonable notice to be provided is applicable.
Notwithstanding, a material issue of fact exists as to whether the Second Claim provided
reasonable detail. The Second Claim, on its face, appears to have complied with Section
7(b)(vi)’s notice requirement. CAC’s assertion that it has incurred [REDACTED] in costs
provides Mr. Fellerman with notice of the amount of the Loss. Likewise, CAC’s allegation that
the Loss arises from the “review and analysis” of documents related to the Criminal Action
provides Mr. Fellerman with notice of the nature of the loss.
However, although the Second Claim seemingly complies with Section 7(b)(vi)’s notice
requirement, the Second Claim appears somewhat vague. In the Second Claim, CAC did not
provide a computation as to how CAC arrived at the [REDACTED] amount. Similarly, CAC
failed to provide any details concerning the review and analysis of documents related to the
Criminal Action.
Taking CAC’s apparent compliance with Section 7(b)(vi) in conjunction with the vague
nature of the Second Claim, a material issue of fact exists as to whether CAC provided
reasonable notice regarding the Second Claim. Reasonableness “is a question of fact” that is
ordinarily “determined by the finder of fact.” 127 Because the Second Claim seemingly complies 126F
with Section 7(b)(vi), the Court is unable to conclude that the Second Claim failed to provide
Mr. Fellerman with “reasonable” notice as a matter of law.
127 Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199, 1206 (Del. 1993) (citation omitted).
18 ii. CAC’s Failure to Release the Amount Claimed in the Second Claim on the Second Release Date
Mr. Fellerman asserts that CAC “should have released the [amount claimed in the Second
Claim] on the Second Release Date.” 128 Mr. Fellerman relies upon PSA Section 7(b)(xii). As 127F
relevant here, Section 7(b)(xii) states:
[o]n the date that is twenty-four (24) months following the Closing Date (the “Second Release Date”), or if such date is not a business day, the following business day, [CAC] shall pay to each Stockholder such Stockholder’s Purchase Price Percentage of the Holdback Amount that exceeds the sum of (I) all amounts theretofore distributed or disbursed to Stockholders pursuant to the foregoing sentence, (II) all amounts theretofore distributed or disbursed to the Buyer Group pursuant to this Section 7 and (III) the aggregate amount of Losses specified in any then unresolved good faith indemnification claims made by the Buyer Group pursuant to this Section 7. 129128F
CAC claims that, because the Second Claim is valid and timely asserted, it is “entitled to
retain” the amount claimed in the Second Claim. 130 129F
A plain reading of the contractual language advanced by Mr. Fellerman would seem to
indicate that, even if the Second Claim is valid and timely, CAC was not entitled to retain the
amount asserted in the Second Claim past the Second Release Date. Specifically, Section
7(b)(xii) states that, on the Second Release Date, CAC “shall pay to [Mr. Fellerman] … the
aggregate amount of Losses specified in any then unresolved good faith indemnification claims
made by [CAC] pursuant to” Section 7. 131 130F
However, Section 7(b)(xii) does not end there. Section 7(b)(xii) further states that:
[t]o the extent that any amount has been reserved and withheld from distribution from the Holdback Amount on the Second Release Date on account of an unresolved claim for indemnification and, subsequent to the Second Release Date, such claim is resolved, Buyer shall immediately release (x) to the Buyer Group the amount of Losses, if any, due in respect
128 Pl. Mot. at 7. 129 Compl. Ex. A, § 7(b)(xii) (emphasis added). 130 Def. Opp’n at 22. 131 Compl. Ex. A, § 7(b)(xii).
19 of such claim as finally determined and (y) to each Stockholder such Stockholder’s Purchase Price Percentage of an amount equal to the excess, if any, of the amount theretofore reserved and withheld from distribution in respect to such claim over the payment, if any, made pursuant to the foregoing clause (x). 132 131F
Section 7(b)(xii) establishes that the parties contemplated a situation where, as here, an
unresolved indemnification claim survived the Second Release Date. Section 7(b)(xii) allows
CAC to reserve and withhold the amount asserted in the Second Claim past the Second Release
Date until such claim is resolved. So long as the Second Claim is valid, CAC was entitled to
retain the amount stated in the Second Claim past the Second Release Date.
There is a material issue of fact as to the validity of the Second Claim. Accordingly, the
Court finds that a material issue of fact also exists as to whether CAC breached the PSA by
failing to release the amount asserted in the Second Claim.
Accordingly, the Motion is DENIED with respect to the Second Claim.
2. A material issue of fact exists as to whether CAC breached the PSA by failing to release the amount asserted in the Third Claim.
Mr. Fellerman asserts that the Third Claim fails as CAC has not made a claim on the
Undisputed Amount. 133 In support, Mr. Fellerman argues that (i) the Third Claim is untimely; 13 F
(ii) the Third Claim fails to provide reasonable notice of what CAC is seeking indemnification
for; and (iii) the Third Claim is “forward-looking,” and thus, not contemplated by the PSA or
permissible under Delaware law. 134 Mr. Fellerman emphasizes that CAC is in “plain violation” 133F
of the PSA by failing to release the amount asserted in the Third Claim. 135 134F
132 Id. 133 Pl. Mot. at 12. 134 See id. at 13-21. 135 Id. at 2.
20 CAC states that the Third Claim is valid. 136 CAC maintains that (i) the Third Claim is 135F
timely and (ii) it has provided sufficient detail to support the Third Claim. 137 CAC also posits 136F
that it was entitled to retain the Undisputed Amount as its contractual duties were discharged
when Mr. Fellerman materially breached the PSA. 138 Additionally, CAC asserts that the 137F
doctrine of unclean hands bars Mr. Fellerman’s breach of contract claim. 139 138F
Mr. Fellerman responds that CAC’s argument regarding his alleged breach fails for two
reasons. First, Mr. Fellerman contends that he did not commit a material breach that excused
CAC’s performance under the PSA. 140 Second, Mr. Fellerman asserts that, even if he did 139F
materially breach the PSA, CAC’s options did not include “self-help.” 141 Thus, it is Mr. 140F
Fellerman’s position that, even “if CAC believed [Mr.] Fellerman had committed a total breach
such that would excuse [its] future performance,” CAC should have released the Undisputed
Amount and sued for breach of contract. 142 Mr. Fellerman did not respond to CAC’s unclean 141F
hands argument.
i. Timeliness of the Third Claim
The first of Mr. Fellerman’s arguments is that the Third Claim is untimely. 143 Mr. 142F
Fellerman provides that the Third Claim is not valid because the Third Claim was not made until
after the Second Release Date and corresponding Applicable Limitations Date. 144 Specifically, 143F
Mr. Fellerman alleges that a finding that the Third Claim was timely made would “retroactively
136 Def. Opp’n at 13. 137 See id. at 15-18. 138 See id. at 24-25. 139 See id. at 22-23. 140 Pl. Reply at 17. 141 Id. at 14. 142 Id. at 16. 143 Pl. Mot. at 13. 144 See id.
21 excuse [CAC’s] breach” and “would render the Second Release Date … meaningless.” 145 In 144F
support, Mr. Fellerman relies upon PSA Section 7(b)(xii). Section 7(b)(xii), in relevant part,
states:
[o]n the date that is twenty-four (24) months following the Closing Date (the “Second Release Date”), or if such date is not a business day, the following business day, [CAC] shall pay to each Stockholder such Stockholder’s Purchase Price Percentage of the Holdback Amount that exceeds the sum of (I) all amounts theretofore distributed or disbursed to Stockholders pursuant to the foregoing sentence, (II) all amounts theretofore distributed or disbursed to the Buyer Group pursuant to this Section 7 and (III) the aggregate amount of Losses specified in any then unresolved good faith indemnification claims made by the Buyer Group pursuant to this Section 7. 146 145F
CAC stresses that the Third Claim was timely asserted. 147 CAC maintains that the 146F
language contained in Section 7(a) supports a conclusion that the Third Claim was timely
asserted, even though the Third Claim was asserted after the Second Release Date. 148 Section 147F
7(a) states:
[i]n the event that (A) any breach or alleged breach of any representation or warranty by [SPS] or a Stockholder results from any action or inaction of the [SPS] or the Stockholders that constitutes fraud, intentional misrepresentation or willful misconduct or (B) any breach or alleged breach of any representation or warranty by [CAC] results from any action or inaction of [CAC] that constitutes fraud, intentional misrepresentation or willful misconduct, such representation or warranty shall survive the Closing and the consummation of the transactions contemplated hereby (regardless of any investigation by or on behalf of the damaged Party or the knowledge of any Party) and shall continue in full force and effect without any time limitation with respect to such breach or alleged breach. 149148F
Delaware courts must “read a contract as a whole and … give each provision and term
effect, so as not to render any part of the contract mere surplusage.” 150 Mr. Fellerman asks the 149F
145 Id. 146 Compl. Ex. A, § 7(b)(xii). 147 Def. Opp’n at 15. 148 See id. 149 Compl. Ex. A, § 7(a). 150 Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010).
22 Court to find in his favor on the issue of timeliness based upon the language contained in Section
7(b)(xii) while seemingly ignoring Section 7(a).
While Mr. Fellerman is correct that the Third Claim is untimely under Section 7(b)(xii),
Section 7(a) carves out exceptions to the Applicable Limitations Date contained in Section
7(b)(xii). Section 7(a) provides that indemnification claims arising from “any breach or alleged
breach of any representation or warranty by … SPS or [Mr. Fellerman] that constitutes fraud,
intentional misrepresentation or willful misconduct … shall continue in full force and effect
without any time limitation with respect to such breach or alleged breach.” 151 Because the Third 150F
Claim is an indemnification claim based upon an alleged breach of the representations and
warranties resulting from Mr. Fellerman’s purported fraudulent conduct, the fraud exception
contained in Section 7(a) appears to apply. As such, the time limitation contained in Section
7(b)(xii) is inapplicable and the Third Claim continues “in full force and effect without any time
limitation.”
Therefore, at this stage of the proceedings, the Court finds that the Third Claim was
timely asserted.
ii. Sufficiency of the Third Claim
The second of Mr. Fellerman’s arguments is that the Third Claim fails to provide
reasonable notice. 152 Mr. Fellerman advances essentially the same arguments that were made 151F
regarding the reasonableness of the notice in the Second Claim. The difference, as argued by
Mr. Fellerman, is that the Third Claim is even more vague than the Second Claim. Mr.
Fellerman asserts that there are “not even barebones details” of the losses CAC may have
151 Compl. Ex. A, § 7(a). 152 Pl. Mot. at 16.
23 incurred. 153 Conversely, Mr. Fellerman claims that there “is just the vague, catch-all statement 152F
that there may be Losses ‘related to, among other things’ the Indictment ‘and the related
proceedings,’ and other damages attributable to [Mr. Fellerman’s] conduct underlying [the
Indictment and the related proceedings].” 154 153F
As it does with the Second Claim, CAC states that it has provided sufficient detail to
support the Third Claim. 155 CAC maintains that it adequately described both the amount and 15 F
nature of the loss. 156 155F
As stated above, PSA Section 7(b)(vi) describes the manner in which a party seeking
indemnification must notify the indemnifying party of a claim. Section 7(b)(vi), in relevant part,
states that a party seeking indemnification “must give the indemnifying Party (the “Indemnifying
Party”) written notice of such claim describing such claim and the nature and amount of the
Loss, to the extent that the nature and amount thereof are determinable at such time….” 157 156F
Here, the fact that the Third Claim is purportedly even more vague than the Second
Claim does not change the analysis as to Mr. Fellerman’s reasonableness argument. In the Third
Claim, CAC stated that:
[It] has suffered Losses related to, among other things: (a) your criminal prosecution in United States v. Linden J. Fellerman . . . and the related proceedings (collectively, “the Prosecution”); and (b) other damages attributable to your conduct underlying the Prosecution, including Losses, direct, indirect, incidental, special or consequential and including lost profits, business interruptions and diminution in value based on a multiple of earnings or similar financial measure, including reasonable legal expenses and costs associated therewith the losses. [CAC] understand[s] that the Prosecution is ongoing, that no trial date has been set, and that the Prosecution involves your actions while employed at [SPS]. Because of the ongoing nature of these matters and because they continue to cause Losses to [CAC], [it is] unable to ascertain the full extent of the Losses at this time. . . .
153 Id. 154 Id. at 17. 155 Def. Opp’n at 15-16. 156 See id. at 17. 157 Compl. Ex. A, § 7(b)(vi).
24 [and will therefore] retain the Holdback Amount in its entirety until it is able to ascertain the full amount of the Losses[.] 158 157F
Like the Second Claim, the Third Claim appears to have complied with Section 7(b)(vi)’s notice
requirement. CAC’s allegation that it suffered lost profits, business interruptions, and
diminution in value because of Mr. Fellerman’s alleged criminal conduct provided Mr.
Fellerman with notice of the nature of the loss.
Further, although CAC did not quantify the exact amount of the loss, CAC’s statement
that it will “retain the Holdback Amount in its entirety until it is able to ascertain the full amount
of the Losses” seemingly complies with Section 7(b)(vi)’s “amount requirement.” Section
7(b)(vi) contemplates a situation where the amount of the loss is not readily ascertainable at the
time an indemnification claim is made. Specifically, Section 7(b)(vi) states that the nature and
amount of the Loss should be described “to the extent that the nature and amount thereof are
determinable at such time….” It follows that, although vague, CAC’s Third Claim arguably
complies with Section 7(b)(vi)’s notice requirement.
Therefore, at this stage, the Court finds that a material issue of fact exists as to whether
CAC provided reasonable notice regarding the Third Claim. Like the Second Claim, the Court is
unable to conclude that the Third Claim failed to provide Mr. Fellerman with “reasonable” notice
as a matter of law because the Third Claim seemingly complies with Section 7(b)(vi).
iii. Permissibility of the Third Claim
Mr. Fellerman’s third argument is that the Third Claim is “forward-looking,” and thus,
not contemplated by the PSA or permissible under Delaware law. 159 Mr. Fellerman asserts that 158F
PSA Section 7(a) provides that “no party is entitled to recover for any Losses unless notice is
158 Answer at 56-57. 159 Pl. Mot. at 17.
25 delivered on or prior to the Applicable Limitation Date.” 160 Mr. Fellerman claims that “if notice 159F
must be delivered by the Applicable Limitation Date,” it follows that “the Loss must occur on or
prior to the Applicable Limitation Date.” 161 Thus, it is Mr. Fellerman’s position that the PSA 160F
does not contemplate the Third Claim for “ongoing losses.” 162 161F
Mr. Fellerman cites two Delaware cases that purportedly stand for the proposition that
Delaware courts have previously rejected “placeholder or relation back” theories in the context
of indemnification notices.
In LPPAS Representative, LLC v. ATH Holding Company, LLC, Highland Acquisition
Holdings, LLC (“Highland”), acquired Pasteur Entities and HealthSun Entities. 163 Highland was162F
subsequently acquired by Anthem. 164 The sellers agreed to place $100,000,000 in escrow as 163F
security for the buyer’s indemnification claims, with the funds to be released over the next four
years. 165 The purchase agreement allowed for indemnification for material misrepresentations 164F
or inaccuracies in representations and warranties. 166 Following the execution of the purchase 165F
agreement, Anthem made two indemnification claims, which were undisputed. 167 Anthem then 166F
made a third claim based upon a Department of Justice investigation for false reporting of
insurance coding errors. 168 The Department of Justice then filed a complaint without naming as 167F
parties the entities acquired from the sellers, which eliminated the basis for indemnification. 169 168F
Anthem then conducted its own investigation that led to the conclusion that the sellers had
160 Id. 161 Id. 162 See id. 163 LPPAS Representative, LLC v. ATH Holding Company, LLC, 2020 WL 7706937, at *2 (Del. Ch. Dec. 29, 2020). 164 See id. 165 Id. at *1. 166 Id. 167 See id. 168 See id. 169 See id. at *4.
26 engaged in fraudulent and improper coding practices. 170 Subsequent to the running of the 169F
applicable release date, Anthem a made fourth, untimely indemnification claim and refused to
release the remaining escrow funds. 171 In the lawsuit that followed, Anthem, acknowledging 170F
that the fourth claim was untimely, argued that the fourth claim “relat[ed] back” to before the
running of the applicable release date. 172 The court found that the relation-back argument ran 171F
contrary to the contract. 173 Additionally, the court found that the relation-back argument ran 172F
contrary to Delaware law in which courts have held that indemnitees may not assert “placeholder
claims against escrow funds for which details are provided only after the due date for those
claims have expired.” 174173F
In Winshall v. Viacom International, Inc., a buyer made three timely but unsuccessful
indemnification claims. 175 Following the passage of the applicable notice deadline, the buyer 174F
made a fourth, untimely indemnification claim. 176 The buyer claimed that its earlier notices had 175F
“‘reserved its rights to seek indemnification for any other claims or matters.’” 177 The court 176F
disagreed, holding that allowing the purchaser to ignore the contractual deadline and make late
claims would “constitute a unilateral rewriting of the contract and is impermissible.” 178 177F
Both cases are nearly indistinguishable to the instant facts. However, both cases have
one crucial distinguishable characteristic – the indemnification claims at issue in LPPAS and
Winshall were untimely. Here, the Third Claim is timely for the reasons discussed above.
Moreover, because the Third Claim is timely, CAC need not and does not argue that the Third
170 See id. at *5. 171 See id. 172 See id. at *5. 173 See id. at *8. 174 Id. 175 See Winshall v. Viacom Intern. Inc., 2012 WL 6200271, at *8 (Del. Ch. Dec. 12, 2012). 176 See id. 177 Id. at *3. 178 Id. at *8.
27 Claim relates back to the Second Release Date. As such, Mr. Fellerman’s argument that the
Third Claim is an impermissible “placeholder” claim fails.
Therefore, the Court finds that the Third Claim is permissible under Delaware law.
iv. CAC’s Failure to Release the Amount Claimed in the Third Claim on the Second Release Date
Mr. Fellerman asserts that CAC “should have released the [amount claimed in the Third
Claim] on the Second Release Date.” 179 In support, Mr. Fellerman relies upon the same 178F
argument made in Section (V)(A)(1)(ii) of this opinion.
CAC claims that, because the Third Claim is valid and timely asserted, it is “entitled to
retain” the amount claimed in the Third Claim.
As discussed above, because there is a material issue of fact as to the validity of the Third
Claim, the Court finds that a material issue of fact also exists as to whether CAC breached the
PSA by failing to release the amount asserted in the Third Claim.
Accordingly, the Motion is DENIED with respect to the Third Claim.
B. CAC’S COUNTERCLAIMS
1. CAC has stated a claim for fraud.
Under Delaware law, to state a claim for fraud the pleading party must allege: (i) a false
representation, usually one of fact; (ii) the defendant's knowledge or belief that the representation
was false, or was made with reckless indifference to the truth; (iii) an intent to induce the
plaintiff to act or to refrain from acting; (iv) the plaintiff's action or inaction taken in justifiable
reliance upon the representation; and (v) damage to the plaintiff as a result of such reliance. 180 179F
179 Pl. Mot. at 7. 180 Hauspie v. Stonington Partners, Inc., 945 A.2d 584, 586 (Del. 2008).
28 Chancery Rule 9(b) provides that, when pleading fraud, “the circumstances constituting
fraud must be pled with particularity.” 181 This requirement includes the “time, place, contents 180F
[,] and speaker.” 182 However, “[m]alice, intent, knowledge and other condition of mind of a 181F
person may be averred to generally.” 183 182F
i. CAC’s fraud counterclaim is not impermissibly bootstrapped.
Mr. Fellerman asserts that CAC’s fraud claim is a “clear example of bootstrapping
because the obligation allegedly breached arises solely under the contract.” 184 Specifically, Mr. 183F
Fellerman claims that because CAC’s fraud claim arises out of false statements made in
connection with the representations and warranties provision, such a claim is impermissible
under Delaware law. 185 184F
Mr. Fellerman relies upon Transdev On Demand, Inc. v. Blackstreet Investment Holdings,
LLC and MicroStrategy Inc. v. Acacia Research Corp. In Transdev, a buyer alleged that the
seller fraudulently induced it to enter into a sale based upon false statements made in connection
with certain financial disclosures. 186 On that basis, the buyer brought claims for breach of 185F
contract, specific performance, and fraud. 187 The court dismissed the buyer’s fraud claim 1 6F
finding that the claim arose “solely by contract.” 188 187F
181 Id. at 587-88 (citing Ct. Ch. R. 9(b)). 182 Pinnacle IV, L.P. v. CyberLabs AI Holdings Ltd.I, 2024 WL 3252672, at *4 (Del. Super. July 1, 2024). 183 Hauspie, 945 A.2d at 588. 184 Pl. Mot. at 22. 185 See id. at 23. 186 Transdev On Demand, Inc. v. Blackstreet Investment Holdings, LLC, 2020 WL 7027538, at *1 (Del. Ch. Nov. 30, 2020). 187 Id. 188 Id. at *6.
29 In MicroStrategy, the court found that false representations and warranties under a
contract could not be the basis of a fraud claim. 189 The court reasoned that fraud requires a 188F
misrepresentation beyond the representations made under the contract. 190 189F
In response, CAC argues that “the anti-bootstrapping rule does not apply to CAC’s fraud
claim.” 191 CAC relies upon Levy Family Investors, LLC v. Oars + Alps LLC. 192 190F 191F
In Levy, the court found that the bootstrapping rule “does not prevent a fraud claim
against defendants who knew [contractual obligations] were false and yet made them
anyway.” 193 Additionally, the Levy court found that the bootstrapping rule does not prevent a 192F
party from bringing a fraud claim if “the conduct occurs prior to the execution of the contract
and thus with the goal of inducing plaintiff’s signature and willingness to close the
transaction[.]” 194 193F
At this stage, Mr. Fellerman’s bootstrapping argument fails. In its Counterclaim for
fraud, CAC stated that Mr. Fellerman made false representations and warranties under PSA
Section 4(h) and PSA Section 4(v). CAC asserted that “[Mr.] Fellerman represented and
warranted that … ‘[SPS] has complied within the past three (3) years, and is in compliance with
… in all material respects, all applicable laws applicable to SPS.” Additionally, CAC alleged
that “[d]uring the past five (5) years, none of … [SPS’s] equity holders … its officers, directors
or employees … while acting for or on behalf of [SPS] have, directly or indirectly, violated any
… anti-corruption, anti-money laundering or anti-bribery Law[.]”
189 See id. at 17. 190 See id. 191 Def. Opp’n at 19. 192 2022 WL 245543 (Del. Ch. Jan. 27, 2022). 193 Id., at *8. 194 Id.
30 While Mr. Fellerman is correct that the aforementioned allegation arises from a false
statement made in connection with the representations and warranties provision, CAC also
alleged false representations made prior to the execution of the PSA. CAC pled that Mr.
Fellerman “lied repeatedly to CAC about his and SPS’s involvement in the criminal scheme
before CAC executed the PSA to purchase SPS.” 195 To support this allegation, CAC pled a 194F
myriad of facts showing that Mr. Fellerman made false statements throughout the negotiation
process. For example, CAC pled that when the Department of Justice initiated the Civil Action,
Mr. Fellerman only disclosed to CAC that some of SPS’s clients were subject to the Civil Action
and that SPS was an unknowing victim. 196195F
Therefore, because CAC also pled that false representations were made prior to the
execution of the PSA, the Court finds that CAC’s fraud Counterclaim is not impermissibly
bootstrapped to its breach of contract claim.
ii. CAC has sufficiently pled fraud.
Mr. Fellerman further claims that even if the bootstrapping argument is rejected, “the
damages that CAC has pled could not have been caused by the allegedly fraudulent
statement.” 197 Mr. Fellerman asserts that, because the alleged false statements arise from the 196F
representations and warranties (and thus, could not have been made until the time of Closing),
such false statements could not have induced CAC to enter into the contract. 198 197F
CAC asserts that “the representations in the [PSA] are not the only lies Mr. Fellerman
told CAC to induce CAC into purchasing his company.” 199 CAC claims that “when the Civil 198F
195 Answer at 58. 196 Id. at 51-52. 197 Pl. Mot. at 24. 198 See id. 199 Def. Opp’n at 21.
31 Action initially arose during their negotiations, Mr. Fellerman misled CAC into believing SPS
was an unknowing victim of the fraudulent scheme to ensure negotiations with CAC continued
uninterrupted, which they did to CAC’s detriment.” 200 199F
CAC does not solely rely upon the false statements made in connection with the
representation and warranties provision. As noted above, CAC’s allegations also rely upon false
statements that were made throughout the negotiation process. As such, CAC has pled facts
sufficient to support a finding that Mr. Fellerman’s alleged false statements made throughout the
negotiation process were intended to, and in fact, did induce CAC into executing the PSA.
Therefore, the Court finds that CAC has sufficiently pled fraud.
Accordingly, the Motion is DENIED with respect to CAC’s fraud claim.
2. CAC has stated ripe claims for indemnification.
Under Delaware law, “[w]henever it appears by suggestion of the parties or otherwise
that the Court lacks subject matter jurisdiction over a claim, the Court must dismiss that
claim.” 201 Ripeness is a jurisdictional question and Delaware courts lack subject matter 200F
jurisdiction when a claim is unripe. 202 “A case is ripe for judicial review when the dispute has 201F
matured to the point where the plaintiff has suffered or will imminently suffer an injury.” 203 202F
Mr. Fellerman argues that the Second and Third Claims fail for the reasons set forth in
Section A of this opinion. 204 Additionally, Mr. Fellerman asserts that even if the Third Claim 203F
for indemnification is valid, the Third Claim fails as it is unripe. 205 206 Mr. Fellerman maintains 20 F 205F
200 Id. at 21-22. 201 Lima USA, Inc. v. Mahfouz, 2021 WL 5774394, at *6 (Del. Super. Aug. 31, 2021). 202 See id. at *2. 203 Town of Cheswold v. Central Delaware Business Park, 188 A.3d 810, 816 (Del. 2018) (citation omitted). 204 Pl. Mot. at 25. 205 Id. 206 As explained above, Mr. Fellerman’s arguments as to the Second and Third Claims fail. Thus, the analysis of this issue will only address Mr. Fellerman’s ripeness argument as to the Third Claim.
32 that the Third Claim does not “assert alleged Losses that had happened” by the time the Third
Claim was made. 207 Conversely, Mr. Fellerman posits that the Third Claim “describes losses as 206F
‘ongoing’ and not yet ascertained.” 208 207F
Mr. Fellerman relies upon Horton v. Organogenesis Inc., in which the court dismissed an
indemnification claim as unripe where the indemnitee had not yet incurred costs. 209 208F
CAC does not address Mr. Fellerman’s ripeness argument in its reply brief.
The language in the Third Claim is dipositive. However, the ripeness argument does not
address language contained in the Third Claim. Specifically, the Third Claim states that CAC
had already incurred losses. The Third Claim states:
[CAC] has suffered Losses related to, among other things: (a) your criminal prosecution in United States v. Linden J. Fellerman . . . and the related proceedings (collectively, “the Prosecution”); and (b) other damages attributable to your conduct underlying the Prosecution, including Losses, direct, indirect, incidental, special or consequential and including lost profits, business interruptions and diminution in value based on a multiple of earnings or similar financial measure, including reasonable legal expenses and costs associated therewith the losses. [CAC] understand[s] that the Prosecution is ongoing, that no trial date has been set, and that the Prosecution involves your actions while employed at [SPS]. Because of the ongoing nature of these matters and because they continue to cause Losses to [CAC], [it is] unable to ascertain the full extent of the Losses at this time. . . . [and will therefore] retain the Holdback Amount in its entirety until it is able to ascertain the full amount of the Losses[.] 210 209F
The mere fact that CAC is currently unable to quantify the losses does not mean that the Third
Claim is unripe merely because it is unliquidated. The Third Claim makes clear that CAC has
already suffered losses related to the Criminal Action, even though the full extent of those losses
is undeterminable at the present time. The Third Claim states that CAC “has suffered Losses”
and will “continue” to incur Losses.
207 Pl. Reply at 30. 208 Id. at 30-31. 209 See Horton v. Organogenesis Inc., 2019 WL 3284737, at *4-5 (Del. Ch. July 22, 2019). 210 Answer at 56-57.
33 Therefore, because CAC has alleged that it has already suffered Losses related to the
Criminal Action, the Court finds that CAC’s indemnification claim concerning the Third Claim
is ripe for judicial adjudication.
Accordingly, the Motion is DENIED with respect to CAC’s indemnification claims.
C. MR. FELLERMAN IS NOT ENTITLED TO ATTORNEY’S FEES AND EXPENSES IN CONNECTION WITH THE MOTION.
Delaware law dictates that the default rule for fee-shifting is the American Rule. 211 210F
Under the American Rule, “litigants are generally responsible for paying their own litigation
costs.” 212 However, Delaware courts have found that “a fee-shifting provision in an enforceable 211F
contract provides a clear exception to the default American Rule.” 213 212F
Mr. Fellerman argues that he is entitled to attorney’s fees and expenses under the PSA if
he prevails in this action. 214 Mr. Fellerman cites to PSA Section 9(1). Section 9(1) provides that 213F
“[i]f any Party brings an action to enforce its rights under [the PSA], the prevailing party shall be
entitled to recover its costs and expenses, including reasonable legal fees, incurred in connection
with such action, including any appeal of such action.” 215 214F
CAC does not dispute that Mr. Fellerman is entitled to attorney’s fees and expenses under
the PSA if Mr. Fellerman prevails in this action. 216 215F
Mr. Fellerman is correct that Section 9(1) provides an exception to the default American
Rule and entitles him to reasonable attorney’s fees and expenses if he prevails in the instant
211 See Avgiris Brothers, LLC v. Bouikidis, 2023 WL 7137104, at *2 (Del. Ch. Oct. 31, 2023) (citation omitted). 212 DeMatteis v. RiseDelaware, Inc., 315 A.3d 499, 508 (Del. 2024) (citing Mahani v. Edix Media Group, Inc., 935 A.2d 242, 245 (Del. 2007)). 213 Manti Holdings, LLC v. Authentix Acquisition Company, Inc., 2020 WL 4596838, at *4 (Del. Ch. Aug. 11, 2020). 214 Pl. Mot. at 27. 215 Compl. Ex. A, § 9(1). 216 Def. Opp’n at 25.
34 action. However, Mr. Fellerman has not prevailed on the Motion. Therefore, the Court finds
that Mr. Fellerman is not entitled to attorney’s fees and expenses in connection with the Motion.
Accordingly, the Motion is DENIED with respect to Mr. Fellerman’s entitlement to
attorney’s fees and expenses.
VI. CONCLUSION
For the reasons set forth above, the Court DENIES the Motion.
IT IS SO ORDERED.
December 16, 2025 Wilmington, Delaware
/s/ Eric M. Davis Eric M. Davis, President Judge
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Cite This Page — Counsel Stack
Linden J. Fellerman v. Collections Acquisition Company, Inc., Counsel Stack Legal Research, https://law.counselstack.com/opinion/linden-j-fellerman-v-collections-acquisition-company-inc-delch-2026.