Shareholder Representative Services v. Albertsons Companies

• Court: Court of Chancery of Delaware
• Decided: June 7, 2021
• Docket: C.A. No. 2020-0710-MTZ
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

SHAREHOLDER REPRESENTATIVE ) SERVICES LLC, solely in its capacity ) as Stockholders’ Agent for the former ) shareholders and rightsholders of ) DineInFresh, Inc., ) ) Plaintiff, ) ) v. ) C.A. No. 2020-0710-JRS ) ALBERTSONS COMPANIES, INC., ) ) Defendant. )

MEMORANDUM OPINION

Date Submitted: March 2, 2021 Date Decided: June 7, 2021

John P. DiTomo, Esquire and Miranda N. Gilbert, Esquire of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware and John T. Ruskusky, Esquire and Lisa C. Sullivan, Esquire of Nixon Peabody, LLP, Chicago, Illinois, Attorneys for Plaintiff.

Thomas E. Hanson, Jr., Esquire of Barnes & Thornburg LLP, Wilmington, Delaware; Michael E. Swartz, Esquire and Taleah E. Jennings, Esquire of Schulte Roth & Zabel LLP, New York, New York; and Thomas P. DeFranco, Esquire of Schulte Roth & Zabel LLP, Washington, DC, Attorneys for Defendant.

SLIGHTS, Vice Chancellor Aggrieved former shareholders of DineInFresh, Inc. d/b/a Plated (“Plated”)

seek recovery of earnout consideration from Plated’s acquirer, Defendant,

Albertsons Companies, Inc., following a merger memorialized in an Agreement and

Plan of Merger dated as of September 19, 2017 (the “Merger Agreement”). As is

typical, the earnout consideration was contingent upon Plated reaching certain

milestones post-closing. As is also typical, Albertsons bargained for the right to

operate Plated post-closing in its discretion limited only by its express commitment

not to operate Plated in a manner intended to avoid the obligation to pay the earnout.

This was the parties’ bargained-for allocation of risk with respect to Plated’s future

performance and the amount Albertsons would ultimately pay for the business.1

Plated has failed to reach any of the earnout milestones set forth in the Merger

Agreement and Albertsons, therefore, has refused to make any earnout payments.

The loss in merger consideration to Plated’s former stockholders amounts to $125

million. Shareholder Representative Services (“SRS”) brought this action on behalf

of those shareholders to recover the earnout consideration on the ground that

Albertsons operated Plated post-closing in a manner intended to miss the specified

earnout milestones.

1 Brian JM Quinn, Putting Your Money Where Your Mouth Is: The Performance of Earnouts in Corporate Acquisitions, 81 U. Cin. L. Rev. 127, 140–41 (2012) (“The earnout permits buyers to reduce the likelihood that they will overpay for a seller in the event the future turns out not to be as rosy as sellers predicted. Sellers bear the potential cost of their optimism.”).

1 According to Plaintiff, throughout the course of negotiating the merger,

Albertsons made numerous representations regarding plans for the operation of

Plated’s business post-closing, perhaps most importantly that Albertsons would

continue to focus and grow Plated’s proven e-commerce business, rather than

pivoting Plated’s operations to suit Albertsons’ traditional grocery retail business.

The parties eventually signed the Merger Agreement, which laid out the parameters

of the earnout but, as noted, provided Albertsons sole and complete discretion over

the operation of Plated post-closing. But, as noted, the Merger Agreement did

prohibit Albertsons from taking any action with the intent of decreasing or avoiding

the earnout. Post-closing, knowing that doing so would stall if not impair Plated’s

growth, Albertsons allegedly caused Plated to reduce its e-commerce operations and

focus, instead, on establishing a presence within Albertsons’ existing brick-and-

mortar business, in direct contravention of what both parties understood would be

necessary to meet the earnout milestones. According to Plaintiff, this misdirection

was the cause of Plated’s milestone misses.

Count I alleges that when Albertsons changed Plated’s business model post-

closing it breached the Merger Agreement by acting with an intent to avoid the

earnout. Count I also alleges a breach of contract by Albertsons’ failure to provide

the required earnout statement for 2019. Relatedly, Count VI seeks specific

performance of the contractual obligation to provide the earnout statement. Count

2 II alleges that Albertsons’ pre- and post-closing conduct also breached the implied

covenant of good faith and fair dealing. Count III alleges fraudulent inducement in

that a number of Albertsons’ oral representations pre-closing regarding the operation

of Plated post-closing were false and, but for those representations, Plated would not

have agreed to the earnout as structured.

Albertsons has moved to dismiss all counts under Court of Chancery Rule

12(b)(6). After carefully considering the Verified Complaint, I find it reasonably

conceivable that Albertsons’ decision to focus almost exclusively on Plated’s brick-

and-mortar business, despite having knowledge that such a decision would almost

certainly cause the company to miss the earnout milestones, was the product of an

intent to avoid the earnout in violation of Section 2.9(h)(vii) of the Merger

Agreement. Counts II and III, however, must be dismissed. The implied covenant

has no room to operate where a contract grants discretion to one party and then limits

that discretion with an “intent” qualifier. That bargained-for contractual dynamic

removes the need for the implied covenant. Plaintiff’s fraudulent inducement claim

fails for lack of justifiable reliance; the clear and unambiguous language of the

Merger Agreement conflicts with each of the purported oral misrepresentations that

Albertsons is alleged to have made pre-closing. Finally, to the extent Counts I and

3 VI seek to remedy Albertsons’ failure to provide the earnout statement for 2019, this

claim is dismissed as moot.2

I. BACKGROUND

I have drawn the facts from well-pled allegations in the Verified Complaint

(the “Complaint”) and documents incorporated by reference or integral to that

pleading.3 For purposes of the motion, I accept as true the Complaint’s well-pled

factual allegations and draw all reasonable inferences in Plaintiff’s favor.4

A. Parties

Plaintiff, SRS, is a Colorado LLC.5 Under the Merger Agreement, SRS is

designated as the agent for former Plated stockholders and rightsholders to bring

post-merger claims on behalf of those parties.6

2 Plaintiff alleges, through Count I, that Albertsons breached Section 2.9(h)(ii) of the Merger Agreement by failing to provide the earnout statement for 2019. Count IV seeks a remedy of specific performance, requiring Albertsons to provide the statement. Albertsons has represented and Plaintiff does not dispute that the statement has since been provided. Accordingly, any demand that the earnout statement be produced must be dismissed because the claim is “no longer amenable to judicial resolution.” Gen. Motors Corp. v. New Castle Cty., 701 A.2d 819, 823 (Del. 1997). 3 Verified Compl. (“Compl.”) (D.I. 1); Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (noting that on a motion to dismiss, the Court may consider documents that are “incorporated by reference” or “integral” to the complaint). 4 Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002). 5 Compl. ¶ 13. 6 Id.

4 Defendant, Albertsons, is a Delaware corporation that operates the second-

largest supermarket enterprise in the United States, owning and operating several

chains including Albertsons, Safeway, Cons and Jewel-Osco.7 Albertsons acquired

Plated by merger in September 2017.8

B. The History of Plated

Plated was “an e-commerce subscription meal kit delivery company” founded

in 2012 by Joshua Hix, Elana Karp and Nick Taranto.9 The business model,

relatively novel for its time, involved consumers subscribing to Plated’s services

online in exchange for the receipt of packages delivered directly to their homes

containing ingredients and recipes for home-cooked meals.10 Plated enjoyed steady

success over the course of its early operations. By July 2013, the company had

delivered more than 100,000 meals to consumers through its online subscription

service.11 By the first quarter of 2017, Plated had delivered 450,000 meals in that

7 Compl. ¶ 15. 8 Compl. ¶ 6. 9 Compl. ¶ 20. 10 Id. 11 Compl. ¶ 21.

5 quarter alone.12 This equated to a year-over-year first quarter revenue increase from

$18.6 million in Q1 2016 to $31.6 million in Q1 2017.13

Along with impressive revenue numbers, Plated developed a sophisticated

supply chain system with a focus on meal kit needs, data analytics, valuable

technology and software.14 The technology, coupled with the technical expertise

among its employees, made Plated an attractive target for potential acquirers.15

While its founders were in the midst of deciding whether the company’s impressive

growth justified taking the company public, Albertsons contacted Plated in the

spring of 2017 regarding a potential acquisition.16 Albertsons signed a letter of intent

on July 21, 2017.17

C. Pre-Closing Discussions Between Albertsons and Plated

As the parties negotiated a potential acquisition, Albertsons’ executives made

several comments regarding the future of Plated’s e-commerce business and its plans

for Plated upon acquisition. One theme throughout the discussions was Albertsons’

12 Id. 13 Compl. ¶ 22. 14 Compl. ¶ 23. 15 Id. 16 Compl. ¶¶ 24–25. 17 Compl. ¶ 25.

6 professed belief that “e-commerce is the future.”18 Albertsons told Plated that its

management team recognized “that in order to compete, Albertsons needed to put

data science at the core of its business, and Plated would enable it to do so.”19

Albertsons compared the future success of Plated with the “transformative

acquisition” of jet.com by Wal-Mart, and represented to Messrs. Hix and Taranto,

Plated’s chief negotiators, that “together the companies would use digital to build a

tighter relationship with their customers.”20 With these synergies at the fore of the

business plan, Albertsons’ management team expressed its confidence to Plated that,

post-acquisition, “Plated could easily achieve its projections for the next three

years.”21

Throughout August and September 2017, Albertsons repeatedly represented

to Plated executives that it was “committed to growing Plated’s business,” looking

forward to “gain[ing] market share in the meal kit market.”22 These statements

served as confirmation that Albertsons was prepared to commit substantial time,

capital and other resources to grow Plated’s existing e-commerce business

18 Compl. ¶ 26. 19 Id. 20 Compl. ¶¶ 27–28. 21 Compl. ¶ 29. 22 Compl. ¶ 31.

7 platform.23 In this regard, Albertsons assured Plated that its founders would be

permitted to operate the e-commerce business as usual and in a decentralized

fashion, while also pushing, in a phased process, in-store initiatives to grow Plated’s

business in the brick-and-mortar space.24

The arrangement was presented by Albertsons as a post-closing partnership

between buyer and seller, with Plated running its business independently post-

acquisition.25 Part of this independence included Albertsons providing equity to key

employees and allowing Plated’s management to set compensation for employees in

an effort to enhance key employee retention.26 Albertsons made these statements

out of an expressed recognition that “the company’s management team and

employees are critical to the success of the Transaction.”27 Moreover, Albertsons’

negotiators touted the realities of economies of scale and lower transportation costs

to help facilitate a smooth transition and increased revenue.28

23 Id. 24 Compl. ¶ 33. 25 Compl. ¶ 35. 26 Compl. ¶¶ 35–36. 27 Compl. ¶ 36. 28 Compl. ¶ 76.

8 Notwithstanding its sanguine tone during negotiations, Albertsons concealed

from Plated that several members of Albertsons’ senior management team were

actually hostile to Plated’s online subscription business.29 Indeed, Albertsons’ plan

from the start was swiftly to build an in-store product line at the potential expense

of the e-commerce business.30

D. The Merger Agreement

Albertsons and Plated executed the Merger Agreement on September 19,

2017, whereby Plated was merged into a wholly owned subsidiary of Albertsons.31

The Merger Agreement contemplated an upfront cash payment of $175 million,32 to

be followed by up to $125 million in earnout consideration payable over the next

three years if certain earnout targets were met (the “Earnout”).33 Those targets were

formulated based on Plated’s past performance and forecasted growth.34 According

to Plaintiff, both parties understood that, if Plated continued on its then-current

29 Compl. ¶ 40. 30 Compl. ¶ 41. 31 Compl. ¶¶ 6, 48; Def.’s Opening Br. in Supp. of Mot. to Dismiss Verified Compl. (D.I. 11) (“OB”) Ex. A (“Merger Agreement”). 32 Merger Agreement § 2.9(a)–(g). 33 Compl. ¶ 7; Merger Agreement § 2.9(h)(iii)–(v). 34 Compl. ¶ 50.

9 trajectory, the Earnout targets would easily be satisfied.35 While the Earnout amount

was to vary year-to-year, each year’s Earnout thresholds were based on that year’s

“Net Revenue.”36 And, “Net Revenue” is defined as “the consolidated gross

revenue” of Plated “attributable to:”

(i) the sale of meal kits and all other products developed or prepared, in whole or in part, by the Company, whether in-store or via e- commerce, (ii) the sale of products on a platform developed by the Company, (iii) the sale of Products by the Purchaser Group using the “Plated” brand name or any other trademark of the Company, whether in-store of via e-commerce, or (iv) advertising commissions, revenue sharing or slotting fees generated for in-box product placement or partnerships with the Company or a product or platform of the types described in clauses (i), (ii) or (iii), minus (b) all product returns, allowances, discounts, and sales, use, value-added and other direct Taxes to the extent billed and paid by the Purchaser Group, as determined in accordance with the Accounting Principles [and excluding revenue from inter-company transactions and equity investments].37

Importantly, the Merger Agreement also provides guidance on the role that

Albertsons was to play in operating Plated post-acquisition. Section 2.9(h)(vii)

provides:

Except as otherwise set forth in this clause (vii), [Albertsons] will have the exclusive right to make all business and operational decisions regarding [Albertsons] and its Subsidiaries (including [Plated]) in its

35 Id. 36 Merger Agreement § 2.9(h)(iii)–(v). 37 Compl. ¶ 51; Merger Agreement, Ex. B.

10 sole and absolute discretion without regard to any other interest and will have no obligation to operate [Plated] in a manner to maximize achievement of the Earnout Issuance; provided, however, that [Albertsons] will not, and will cause its Affiliates not to, take any action (or omit to take any actions) with the intent of decreasing or avoiding any Earnout Issuance.38

Section 2.9 provides that Albertsons would provide an “Earnout Statement” to SRS

for each year the Earnout was in play following execution of the Merger

Agreement.39

E. Albertsons’ Post-Closing Actions and Plated’s Failure to Reach Earnout Targets

Albertsons admitted, as demonstrated in internal documents from 2018, that

Plated’s success depended on “investment in the customer.”40 Albertsons further

acknowledged that if Albertsons were to provide support, as it promised to do, Plated

would easily achieve its Earnout targets.41

Notwithstanding these pre-closing profundities, shortly after closing, Shane

Sampson, then the Chief Marketing Officer of Albertsons, informed Hix that

Albertsons’ management “never really cared about Plated’s e-commerce

38 Merger Agreement § 2.9(h)(vii). 39 Compl. ¶ 53; Merger Agreement § 2.9(h)(ii). 40 Compl. ¶ 70. 41 Id.

11 business.”42 Sampson advised Hix that he had been protecting Plated from the

“sharks” at Albertsons who only cared about Plated’s data science and the ways the

acquisition could benefit Albertsons’ already existing brick-and-mortar stores.43

This revelation did not stand alone. Albertsons’ GVP of Merchandising Strategy

Initiatives, Pat Brown, admitted to Hix that Albertsons’ management team did not

think much of e-commerce generally, much less Plated’s subscription business

specifically.44 Brown demonstrated his own aversion to the subscription business

by failing to show up at meetings where Taranto was to present his proposals for

Plated’s future development of the e-commerce platform.45 The negative take on e-

commerce ultimately was expressed from the top when, during a July 2018 meeting,

Albertsons’ CEO, Jim Donald, advised Plated employees that Albertsons had low

expectations for e-commerce and it had no intention of competing with the top two

players in the in-home grocery market.46

The day after closing, Albertsons immediately began to reallocate Plated’s

resources to get its product in approximately 1,000 of its stores within the span of

42 Compl. ¶ 56. 43 Id. 44 Compl. ¶ 58. 45 Compl. ¶ 60. 46 Compl. ¶ 57.

12 one week.47 This was in line with Albertsons’ hidden agenda to move Plated’s brand

away from the subscription service and “towards [an] omnichannel meal solution.”48

It is alleged that Albertsons initiated this dramatic strategic shift in Plated’s business

model in full recognition that the endeavor was infeasible given the complexity of

Plated’s supply chain.49

Plated altered its public messaging as well. Specifically, Albertsons directed

Plated’s marketing team to focus on retail rather than e-commerce, despite its full

understanding that shifting marketing and advertising from the subscription service

would cause an immediate and significant impairment of revenue and customer

growth.50 The shift immediately diverted substantial resources away from the e-

commerce business, causing sales to suffer greatly.51 Albertsons made clear, starting

nearly from day one post-acquisition, that in-store retail would become Plated’s top,

and at times only, priority.52

47 Compl. ¶ 63. 48 Compl. ¶ 71. 49 Compl. ¶ 63. 50 Compl. ¶¶ 72–73. 51 Compl. ¶ 64. 52 Compl. ¶ 75.

13 Beyond alleged misrepresentations regarding Albertsons’ future focus and

energy directed to growing Plated’s proven success as an e-commerce leader, the

Complaint alleges a host of other areas where Plated was purportedly misled.53 First,

Albertsons’ promise of decreased transportation costs was empty and misguided.

Despite Albertsons’ apparently significant buying power, Plated’s cost of goods sold

increased and supply costs were not significantly lowered.54 The transportation costs

themselves were higher due to Albertsons’ suppliers operating on the West Coast

while the vast majority of Plated’s customers were located on the East Coast.55

Beyond the increased costs, the logistical dilemma associated with such difficult

transportation issues led to a decrease in the quality of meal kits, an increase in

customer complaints and an increase in the level of customers cancelling their

subscriptions.56

Second, Plated was not provided “broad latitude” in running its business

independently, particularly with respect to the hiring and compensation of certain

employees. To start, Albertsons demanded that Hix hire Albertsons’ Pat Brown as

53 Compl. ¶¶ 76–89. 54 Compl. ¶ 76. 55 Id. 56 Compl. ¶ 77.

14 COO of Plated.57 Then, Albertsons interfered with efforts to provide equity to

certain employees, causing the resignation of key players, including Plated’s Chief

Data Science Officer, Haftan Eckholdt, and one of the company’s co-founders,

Taranto.58 Then, in January 2019, Hix flew to California to meet with Albertsons’

executives in an attempt to preserve the fleeting value of Plated, only to be told that

he should leave the company.59 After Hix was forced out, Albertsons chose to leave

the CEO seat vacant.60 Albertsons also chose not to create a board of directors or

even an advisory board for Plated.61

Finally, it is alleged that Albertsons badly mismanaged Plated, leading to a

wholesale failure to meet Earnout targets and ultimately to the demise of the

company. Albertsons failed to take advantage of preferred pricing Plated had

previously negotiated with vendors, refused to investigate potential methods to self-

finance that would allow Plated to grow, and eventually announced it was closing

the e-commerce subscription business altogether, despite significant revenue

57 Compl. ¶¶ 78–79. 58 Compl. ¶¶ 79–80. 59 Compl. ¶ 82. 60 Compl. ¶ 83. 61 Compl. ¶ 84.

15 continuing to be generated from those operations.62 According to the Complaint, all

of Albertsons’ business decisions and obstructions post-acquisition ultimately led to

a substantial decrease in Plated’s revenue; and but for Albertsons’ interference,

Plated would have succeeded and at least a portion of the Earnout would have been

paid. Instead, Plated was decimated by Albertsons’ deliberate sabotage and not a

single Earnout target was met.

II. ANALYSIS

The standard for deciding a Motion to Dismiss under Court of Chancery

Rule 12(b)(6) is well-settled:

(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 unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.63

A. Breach of Contract

In Count I, Plaintiff alleges Albertsons breached Section 2.9(h)(vii) of the

Merger Agreement by taking actions with the intent of decreasing or avoiding

payment of the Earnout.64 “To establish a breach of contract claim, a party must

62 Compl. ¶ 85. 63 Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (citation omitted). 64 Compl. ¶ 94.

16 prove: (1) the existence of a contract; (2) the breach of an obligation imposed by the

contract; and (3) damages that the plaintiff suffered as a result of the breach.”65

When construing contractual terms, “Delaware courts follow the objective theory of

contracts, giving words their plain meaning unless it appears that the parties intended

a special meaning.”66 In other words, “[u]nder Delaware law, which is more

contractarian than that of many other states, parties’ contractual choices are

respected . . . .”67

“Intent” is “a well-understood concept,” defined as “a design, resolve or

determination with which persons act. Intent in the legal sense is purpose to use

particular means to effect a certain result.”68 A defendant’s intent can be inferred

from well-pled allegations in a complaint, with the understanding that allegations of

intent “need only be averred generally.”69 To plead a buyer’s intent to avoid an

65 Osram Sylvania Inc. v. Townsend Ventures, LLC, 2013 WL 6199554, at *6 (Del. Ch. Nov. 19, 2013); Winston v. Mandor, 710 A.2d 835, 840 (Del. Ch. 1997). 66 Neurvana Med., LLC v. Balt USA, LLC, 2020 WL 949917, at *15 (Del. Ch. Feb. 27, 2020) (cleaned up). 67 GRT, Inc. v. Marathon GTF Tech., Ltd., 2011 WL 2682898, at *12 (Del. Ch. July 11, 2011). 68 Lazard Tech. P’rs, LLC v. Qinetiq N. Am. Operations LLC, 114 A.3d 193, 195 n.8 (Del. 2015); Coverdale v. State, 531 A.2d 1235 (Del. 1987) (Table) (same); see also BLACK’S LAW DICTIONARY (10th ed. 2014) (“[I]ntent is the mental resolution or determination to do [an act].”). 69 Lyons Ins. Agency, Inc. v. Kirtley, 2019 WL 1244605, at *4 (Del. Super. Ct. Mar. 18, 2019) (“Malice, intent, knowledge and other condition of mind need only be averred generally.”); Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 17 earnout, the goal of avoiding the earnout need not be “the buyer’s sole intent”; rather,

a plaintiff may well-plead that the buyer’s actions were “motivated at least in part

by that intention.”70 Albertsons argues the allegations in the Complaint are

conclusory and fall far short of well-pleading that Albertsons acted with the intent

to avoid the Earnout. I disagree.71

The Complaint alleges a scheme whereby, from the outset of negotiations

between Albertsons and Plated until the closing of the merger, Albertsons

deliberately hid from Plated’s negotiators that it had no interest in Plated’s e-

commerce business and no intent to support it, much less grow it.72 Indeed,

according to the Complaint, Albertsons’ management team was antagonistic toward

624 A.2d 1199, 1208 (Del. 1993) (“Intent and state of mind, on the other hand, may be averred generally because any attempt to require specificity in pleading a condition of mind would be unworkable and undesirable.” (cleaned up)). 70 Lazard, 114 A.3d at 195. 71 The two cases principally relied upon by Defendant are distinguishable for the simple reason that, in both cases, the complaint simply alleged that the buyers intended to avoid the earnout without pleading any facts to support that contention, circumstantially or otherwise. See Tendyne Hldgs., Inc. v. Abbott Vascular, Inc., 2019 WL 2717857, at *2 (D. Del. June 28, 2019) (“The complaint . . . contains only conclusory assertions that Abbott breached the Agreement by failing to use Commercially Reasonable Efforts.”); Neurvana, 2020 WL 949917, at *16 (“Plaintiff does not attempt to plead any such facts in even a conclusory fashion.”). 72 See, e.g., Compl. ¶ 41 (“Albertsons’ internal business plan from the start was based on immediately redirecting Plated’s work to quickly build an in store product line—which would benefit Albertsons’ brick and mortar operations but interfere with Plated’s e- commerce growth and ability to achieve the Earnout.”).

18 Plated’s subscription business, with one executive admitting to one of Plated’s

founders post-closing that Albertsons “never really cared about Plated’s e-commerce

business.”73 Rather than push e-commerce, Albertsons sought to “cherry-pick other

assets of Plated, including its data science expertise, for its own purposes” and

change the business model entirely to focus on Albertsons’ brick-and-mortar

operations.74 All of Albertsons’ plans for Plated’s business were wholly concealed

throughout the negotiations, with Plated’s representatives only finding out after the

fact about Albertsons’ true intentions.75

As Plaintiff readily acknowledged at oral argument, allegations that

Albertsons intended to prioritize brick-and-mortar initiatives over e-commerce

initiatives would not, alone, support a reasonable inference that Albertsons intended

to avoid the Earnout. Plaintiff was also obliged to well-plead that Albertsons knew

that pivoting from subscriptions to in-store sales would be unsuccessful in the short-

term such that Plated would miss the Earnout milestones.76 A review of the

Complaint reveals that Plaintiff has done just that.

73 Compl. ¶¶ 40, 56. 74 Compl. ¶¶ 9, 10, 63. 75 Compl. ¶¶ 39–40. 76 See S’holder Representative Servs. LLC v. Albertsons Co., Inc., C.A. 2020-0710-JRS, at 32 (Del. Ch. Mar. 3, 2021) (TRANSCRIPT) (D.I. 41).

19 Plaintiff alleges that the revenue targets triggering the Earnout “were based

on Plated’s past performance and forecasts, and, if Plated continued on its then-

current trajectory, Plated . . . had a reasonable expectation that the revenue targets

would be readily achieved.”77 Albertsons’ internal documents reveal that it knew

Plated’s success depended on investment in the customer; it acknowledged that if it

provided support to Plated’s e-commerce business, the business would achieve

+125% growth in 2018, well above the Earnout levels.78 Nevertheless, immediately

upon closing, Albertsons “directed that Plated drastically reallocate its resources to

get a retail product into 1,000 stores in the span of one week.”79 Albertsons knew

this endeavor was commercially unreasonable, creating a reasonable inference that

it knew its push for in-store sales at the expense of subscriptions would cause Plated

to fail to reach the Earnout targets.80

Albertsons also knew what was required to run a profitable e-commerce

business, including the need to conduct targeted marketing, and yet it directed

Plated’s marketing team immediately to shift their focus from e-commerce to in-

store retail, resulting in a decrease in subscriber count and corresponding decrease

77 Compl. ¶ 50. 78 Compl. ¶ 70. 79 Compl. ¶ 63. 80 Id.

20 in revenue.81 The reasonable inference allowed by these allegations is not that

Albertsons sabotaged a company it just paid $175 million for, but rather that

Albertsons intended to avoid short-term Earnout targets in favor of long term gains.

Even if Albertsons took these actions only in part with the purpose of causing Plated

to miss the Earnout milestones, this is enough at the pleading stage to support

Plaintiff’s breach of contract claim.82 That purpose is well-pled here.83

The Complaint’s allegations with respect to Albertsons’ intent track those

addressed in Windy City v. Teacher Insurance,84 where the court found the plaintiff’s

allegations allowed a reasonable inference that the defendant’s actions were taken

with an intent to reduce the earnout. There, the plaintiff alleged the defendant, with

81 Compl. ¶¶ 68, 71–72; see also Compl. ¶ 69 (“Plated had learned through experience that meal kit subscription revenue is connected to the expenditure of advertising dollars; in other words, Albertsons would have to spend advertising dollars to get new meal kit subscribers in the door. Plated shared this knowledge in the weeks leading up to the September 2017 Merger Agreement with Albertsons.”). 82 Lazard, 114 A.3d at 195. 83 In this regard, Defendant’s reliance on Sharma v. TriZetto Corp. is misplaced. 2016 WL 1238709, at *3 (D. Del. Mar. 29, 2016). There, the court determined that complaint did not state a claim that the buyer intended to avoid an earnout where the plaintiff alleged the defendant “(1) fail[ed] to market the business; (2) chang[ed] management teams; and (3) fail[ed] to invest resources in operating the business.” Id. While these factual components make up part of the allegations here, the complaint in Sharma did not allege facts to support an inference that the defendant knew that its actions would result in the company missing the earnout targets and yet deliberately concealed the plans for those actions from the seller. That is what Plaintiff has alleged here. 84 Windy City Invs. Hldgs., LLC v. Tchrs. Ins. & Annuity Ass’n of Am., 2019 WL 2339932, at *10 (Del. Ch. May 31, 2019).

21 the intent to avoid an earnout, improperly divested certain aspects of the target’s

business without adjusting the earnout in accordance with contractual terms.85 At or

around the time of the divestment, the defendant’s accountant “prepared a valuation

report anticipating a reduction in the Earn-Out targets.”86 The seller alleged the

buyer’s post-closing actions were taken, “at least in part, with the purpose and intent

of reducing the Earn-Out Amount.”87 Similarly, Plaintiff alleges that Albertsons

knew that changing Plated’s core business from e-commerce to brick-and-mortar

would cause Plated to miss the Earnout milestones and yet chose to proceed in that

direction regardless.88 As in Windy City, it is reasonably conceivable that

Albertsons’ post-closing business initiatives were formulated “at least in part, with

the purpose and intent of reducing the [Earnout].”89

Albertsons argues that Plaintiff’s allegations cannot sustain a breach of

contract claim when the conduct giving rise to the claim is expressly permitted under

that same contract.90 In doing so, Albertsons seizes upon its contractual allowance

85 Id. 86 Id. 87 Id. 88 Compl. ¶¶ 50, 63, 68, 70–72. 89 Windy City, 2019 WL 2339932, at *10. 90 Reply Br. in Supp. of Def. Albertsons Companies, Inc.’s Mot. to Dismiss the Verified Compl. (D.I. 17) at 5.

22 to operate Plated within its discretion while ignoring the contractual prohibition

against operational decisions intended to avoid or reduce the Earnout. Because

Plaintiff’s well-pled allegations make it at least reasonably conceivable that

Albertsons acted with the intent to avoid or reduce the Earnout, it cannot be said, as

a matter of law, that Albertsons’ conduct was expressly permitted.

Albertsons finally argues that it is “difficult to define in the abstract” what

“bad faith” looks like when a buyer is granted “sole discretion” to operate the

business in any way it sees fit post-closing.91 That is true enough. Albertsons

negotiated for a wide berth in its operation of Plated after closing. But it also

promised not to operate Plated in a manner intended to cause it to miss the Earnout

milestones. And yet the Complaint well-pleads that Albertsons told Plated it would

follow Plated’s e-commerce business plan when it had no intention of doing so,

knew that business plan was the only way to achieve the Earnout and then

deliberately ignored the plan from the outset knowing that decision would cause

Plated to miss the Earnout milestones.92 A reasonable inference from these

allegations is that Albertsons altered Plated’s business plan, at least in part, as a

means and with the intent to avoid paying the Earnout.

91 ev3, Inc. v. Lesh, 114 A.3d 527, 540 (Del. 2014). 92 Compl. ¶¶ 9–10, 26, 28–29, 31, 36, 42, 50, 56, 63, 68, 70–72.

23 B. The Implied Covenant of Good Faith and Fair Dealing

“Under Delaware law, the implied covenant of good faith and fair dealing

inheres in every contract.”93 To state a claim for breach of the implied covenant,

“a complaint ‘must allege a specific implied contractual obligation, a breach of that

obligation by the defendant, and resulting damage to the plaintiff.’”94 It has become

routine in Delaware to observe that application of the implied covenant involves “a

cautious enterprise” in recognition that “it is a limited and extraordinary legal

remedy and not an equitable remedy for rebalancing economic interests that could

have been anticipated.”95 In other words, the implied covenant will not serve as a

93 Amirsaleh v. Bd. of Trade of City of New York, Inc., 2009 WL 3756700, at *4 (Del. Ch. Nov. 9, 2009). 94 Sheehan v. AssuredPartners, Inc., 2020 WL 2838575, at *11 (Del. Ch. May 29, 2020) (quoting Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 888 (Del. Ch. 2009)). 95 Glaxo Gp. Ltd. v. DRIT LP, 248 A.3d 911, 920 (Del. 2021) (internal quotations omitted) (citing cases); see also Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010) (noting the implied covenant may be used only “to handle developments or contractual gaps that the asserting party pleads neither party anticipated”); Winshall v. Viacom Int’l, Inc., 55 A.3d 629, 636–37 (Del. Ch. 2011) (“[A] party may only invoke the protections of the covenant when it is clear from the underlying contract that the contracting parties would have agreed to proscribe the act later complained of . . . had they thought to negotiate with respect to that matter.” (internal quotations omitted)); Clean Harbors, Inc. v. Safety-Kleen, Inc., 2011 WL 6793718, at *9 (Del. Ch. Dec. 9, 2011) (“[T]he implied covenant only applies where a contract lacks specific language governing an issue and the obligation the court is asked to imply advances, and does not contradict, the purposes reflected in the express language of the contract.” (internal quotations omitted)).

24 means to provide contractual protections that parties “failed to secure for themselves

at the bargaining table.”96

Section 2.9(h)(vii) of the Merger Agreement elucidates an understanding from

both sides that the operation of the business, post-closing, would be under the

exclusive control of Albertsons and Albertsons alone.97 To the extent Plated’s

management wished to maintain specific levels of operational control, Plated could

and should have bargained for those rights.98 Instead, the only limitation Plated

bargained for was that Albertsons could not act “with the intent of decreasing or

avoiding any Earnout.”99 At bottom, when a contract provides the buyer sole

discretion over business decisions subject to very limited contractual exceptions, the

96 Aspen Advisors LLC v. United Artists Theatre Co., 861 A.2d 1251, 1260 (Del. 2004); see also Nemec, 991 A.2d at 1126 (“When conducting [an implied covenant] analysis, we must assess the parties’ reasonable expectations at the time of contracting and not rewrite the contract to appease a party who later wishes to rewrite a contract he now believes to have been a bad deal. Parties have a right to enter into good and bad contracts, the law enforces both.”). 97 Merger Agreement § 2.9(h)(vii) (“[Albertsons] will have the exclusive right to make all business and operational decisions . . . .”). 98 Aspen Advisors LLC, 861 A.2d at 1260; Sheth v. Harland Fin. Sols., Inc., 2014 WL 4783017, at *5 (Del. Super. Ct. Aug. 28, 2014) (“What is concerning to the Court is that Plaintiffs’ good faith and fair dealing claim appears to be an attempt to broaden the contractual language agreed to by these sophisticated parties and is asking the Court to imply additional duties and obligations beyond that contained in the 78-page, single-spaced agreement.”). 99 Merger Agreement § 2.9(h)(vii).

25 court will not override those bargained for provisions by giving the implied covenant

independent force to bolster earnout protections for the seller.100

Plaintiff argues that when the buyer is granted “absolute discretion,” the

“discretion-exercising party” must make all decisions in good faith.101 That is an

accurate statement of our law, as far as it goes.102 But where the parties themselves

bargain for limits on the buyer’s discretion, as here, there is no gap for the implied

covenant to fill.103 In Lazard v. Qinetiq, our Supreme Court addressed a nearly

100 Lazard, 114 A.3d at 196 (“Section 5.4 specifically addressed the requirements for an earn-out payment and left the buyer free to conduct its business post-closing in any way it chose so long as it did not act with the intent to reduce or limit the earn-out payment.”); see also Reardon v. Canarchy Holdco Corp., C.A. No. N12-12-016 AML CLLD, at ¶¶ 9– 11 (Del. Super. Ct. June 4, 2021) (ORDER) (dismissing plaintiff’s implied covenant claim in support of an earnout upon concluding that a merger agreement’s scheme of granting buyer discretion to operate the business post-closing so long as it does not do so with an intent to avoid the earnout left no gaps for the implied covenant to fill). 101 Answering Br. in Opp. to Def. Albertsons Companies, Inc.’s Mot. to Dismiss the Verified Compl. (D.I. 13) (“AB”) at 24; Amirsaleh, 2008 WL 4182998, at *1 (“[T]he law presumes that parties never accept the risk that their counterparties will exercise their contractual discretion in bad faith.”); Neurvana, 2020 WL 949917, at *20 (“[V]esting [a contracting party] with discretion does not relieve [the party] of its obligation to use that discretion constituently with the implied covenant of good faith and fair dealing.” (alteration in original)). 102 Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d 126, 147 (Del. Ch. 2009); Amirsaleh, 2008 WL 4182998, at *8 (“Simply put, the implied covenant requires that the ‘discretion- exercising party’ make that decision in good faith.”); Gilbert v. El Paso Co., 490 A.2d 1050, 1055 (Del. Ch. 1984) (“[I]f one party is given discretion in determining whether the condition in fact has occurred that party must use good faith in making that determination.”). 103 Lazard, 114 A.3d at 196.

26 identical circumstance where the seller sought to invoke the implied covenant in the

face of a contractual provision that expressly “left the buyer free to conduct its

business post-closing in any way it chose so long as it did not act with the intent to

reduce or limit the earn-out payment.”104 The Court held “that the implied covenant

did not inhibit the buyer’s conduct” because the parties’ bargained-for limitation on

the exercise of the buyer’s discretion left no room for the implied covenant.105 That

same result is required here.

Plaintiff next argues that because Plated’s “reasonable expectations were

frustrated” by Albertsons, the implied covenant must operate as the vehicle by which

those frustrated expectations can be realized.106 Even setting aside the fact that the

104 Id. 105 Id. While I recognize that Lazard was decided in the context of a post-trial appeal, the Court’s expressed view that the lower court “was very generous in assuming that the implied covenant of good faith and fair dealing operated at all” supports the notion that, even on a motion to dismiss, an implied covenant claim is not viable in the context of express contractual provisions cabining a buyer’s discretion. Id.; accord Reardon, C.A. No. N12-12-016 AML CLLD, at ¶¶ 9–11 (dismissing implied covenant claim under identical circumstances under Rule 12(b)(6)). 106 Renco Gp., Inc. v. MacAndrews AMG Hldgs. LLC, 2015 WL 394011, at *6 (Del. Ch. Jan. 29, 2015) (“[A] claim for violation of the implied covenant of good faith and fair dealing can survive if, notwithstanding contractual language on point, the defendant failed to uphold the plaintiff’s reasonable expectations under that provision.”). There is, of course, a distinction between frustration of purpose and trampling over bargained-for contractual language. Our courts will allow the implied covenant to remedy the former, but not to facilitate the latter. See, e.g., Edinburgh Hldgs., Inc. v. Educ. Affiliates, Inc., 2018 WL 2727542, at *9 (Del. Ch. June 6, 2018) (“The implied covenant is available only where the terms to be implied are missing from the contract; it cannot be invoked to override the express terms of a contract. Thus, if the contract at issue expressly addresses a particular matter, an implied covenant claim respecting that matter is duplicative and not 27 Merger Agreement fully occupies the space with respect to the buyer’s post-closing

operation of the business,107 as a matter of law, Plaintiff’s alleged “expectations”

were unreasonable. According to Plaintiff, the realization of the Earnout itself is the

“expectation,” and Albertsons’ failure to achieve the Earnout is the kind of

“frustration” the implied covenant is meant to remedy.108 That view of contingent

consideration ignores the risk allocation that animates an earnout; parties anticipate

(or should anticipate) at the time of contracting that earnouts might be paid or they

might not be paid.109 In the case of the Merger Agreement, Plated bargained for a

provision that prevented Albertsons from intentionally scuttling the Earnout. That

was the bargained-for means by which Plated managed the risk of non-payment. Its

shareholders are now enforcing that right, and at least for now, that claim has

viable.” (internal quotations omitted)); 3M Co. v. Neology, Inc., 2019 WL 2714832, at *11 (Del. Super. Ct. June 28, 2019) (“[Renco] is inconsistent with other Delaware cases defining the pleading requirements of implied covenant claims.”). 107 Edinburgh, 2018 WL 2727542, at *9 (holding that the implied covenant cannot “override” bargained-for contractual rights and obligations). 108 AB at 22; Compl. ¶ 29. 109 Neurvana, 2020 WL 949917, at *1 (“In an effort to allocate the risk associated with the device, the parties agreed to a post-closing earn-out structure.”); see also John D. Cromie, A Practical Guide to Structuring Earn-Outs in Merger and Acquisition Transactions, 2013 WL 7121054, at *3 (Aspatore) (Dec. 2013) (“[A] well-drawn earn-out provision can allocate risk among the parties to a transaction and bridge the immediate financial and valuation uncertainty posed by these factors.”).

28 survived dismissal. Again, there is no gap for the implied covenant to fill, and no

expectation that cannot be realized by enforcement of the parties’ contract.110

C. Fraudulent Inducement

To state a claim for fraud or fraudulent inducement a plaintiff must well plead

the following elements:

(1) a false representation, usually one of fact, made by the defendant; (2) the defendant’s knowledge or belief that the representation was false, or was made with reckless indifference to the truth; (3) an intent to induce the plaintiff to act or to refrain from acting; (4) the plaintiff’s action or inaction taken in justifiable reliance upon the representation; and (5) damage to the plaintiff as a result of such reliance.111

The first element of fraud, a “false representation” can take several forms, including:

an “overt misrepresentation (i.e. a lie), a deliberate concealment of material facts, or

else silence in the face of a duty to speak.”112 Plaintiff alleges all three varieties here.

Ultimately, each of Plaintiff’s fraud allegations fails as a matter of law for the

same reason: a lack of well pled justifiable reliance. “[W]hether a party’s reliance

110 Winshall, 55 A.3d at 636–37 (holding the court cannot allow a plaintiff to employ the implied covenant in order to “rewrite contractual language just because the plaintiff failed to negotiate for protections that, in hindsight, would have made the contract a better deal”). 111 Great Hill Equity P’rs IV, LP v. SIG Growth Equity Fund I, LLLP, 2018 WL 6311829, at *32 (Del. Ch. Dec. 3, 2018) (citing E.I. DuPont de Nemours & Co. v. Fla. Evergreen Foliage, 744 A.2d 457, 461–62 (Del. 1999)); Abry P’rs V, L.P. v. F & W Acqs. LLC, 891 A.2d 1032, 1050 (Del. Ch. 2006). 112 Maverick Therapeutics, Inc. v. Harpoon Therapeutics, Inc., 2020 WL 1655948, at *26 (Del. Ch. Apr. 3, 2020) (cleaned up).

29 was reasonable is not generally suitable for resolution on a motion to dismiss.”113

With that said, Delaware courts have found a lack of justifiable reliance at the

pleading stage when the dispute involves alleged prior misrepresentations or

omissions that run expressly counter to the terms of a fully integrated contract.114

The Complaint alleges a constellation of alleged oral misrepresentations made

during negotiations, including that Albertsons promised to give Plated the tools and

resources to further scale their operations,115 provide equity to retain key

employees,116 give the Plated management team broad latitude in setting

compensation,117 and prioritize Plated’s e-commerce subscription business over in-

store meal kits.118 The Complaint further alleges that Albertsons concealed its true

motive to prioritize Plated’s role in Albertsons’ existing brick-and-mortar business

113 TrueBlue, Inc. v. Leeds Equity P’rs IV, LP, 2015 WL 5968726, at *7 (Del. Super. Ct. Sept. 25, 2015). 114 Chapter 7 Tr. Constantino Flores v. Strauss Water Ltd., 2016 WL 5243950, at *7–9 (Del. Ch. Sept. 22, 2016); MicroStrategy Inc. v. Acacia Research Corp., 2010 WL 5550455, at *14 (Del. Ch. Dec. 30, 2010); DeBakey Corp. v. Raytheon Serv. Co., 2000 WL 1273317, at *22 (Del. Ch. Aug. 25, 2000). 115 Compl. ¶ 33. 116 Compl. ¶ 35. 117 Compl. ¶ 36. 118 Compl. ¶¶ 5, 26, 30, 32, 45.

30 at the expense of e-commerce.119 According to Plaintiff, had Plated known of

Albertsons’ true intentions, it would not have executed the Merger Agreement, at

least not without insisting on substantial revisions to the Earnout provisions.120

Taking the alleged oral misrepresentations as true, the question is whether, given the

existence of contractual language to the contrary, Plated was justified in relying on

Albertsons’ misrepresentations. In my view, the answer is no.121

Albertsons asserts that the Merger Agreement was a fully integrated contract

between two sophisticated parties, making Plaintiff’s reliance on any prior oral

representation as a basis for a fraud claim unreasonable.122 Defendant cites to the

Merger Agreement’s integration clause at Section 11.4, which reads, in relevant part:

“This Agreement . . . and other agreements specifically referred to herein . . .

119 Compl. ¶¶ 39–40, 42, 46. 120 Compl. ¶¶ 5, 109. 121 To be clear, justifiable reliance is what makes Plaintiff’s fraud claim distinguishable from its breach of contract claim. As already discussed, Albertsons promised in the Merger Agreement that it would not intentionally take actions or fail to take actions “with the intent of decreasing or avoiding any Earnout Issuance.” Merger Agreement § 2.9(h)(vii). Plaintiff has appropriately pointed to certain discussions between the negotiators pre- closing as circumstantial evidence that Albertsons knew that certain actions or omissions post-closing would place achievement of the Earnout in jeopardy. As discussed below, that is different from pointing to alleged false future promises from Albertsons, contradicted by or not stated in the integrated contract, as support for a claim that Plated justifiably relied upon those promises as binding such that the failure to perform them constitutes actionable fraud. For reasons stated below, if there is a claim here, it is for breach of contract, not fraud. 122 OB at 20.

31 constitute the entire agreement among the Parties with respect to the subject matter

hereof and supersede all prior agreements and understandings, both written and oral,

among the Parties with respect to the subject matter hereof.”123

Importantly, the Merger Agreement’s integration clause lacks anti-reliance

language explicitly providing “that a party is not relying on any extra-contractual

representations.”124 And, our law is now settled that “[t]he presence of a standard

integration clause alone, which does not contain explicit anti-reliance

representations and which is not accompanied by other contractual provisions

demonstrating with clarity that the plaintiff had agreed that it was not relying on

facts outside the contract, will not suffice to bar fraud claims.”125 Thus, if the

allegation here was that Plated relied upon intentionally false extra-contractual

statements of fact, the integration clause would not bar the claim.126 But that is not

what Plaintiff has alleged, and the distinction matters.

The gravamen of Plaintiff’s fraudulent inducement claim is that Albertsons

lied about its “future intent” with respect to the operation of the business post-

123 Merger Agreement § 11.4. 124 Black Horse Cap., LP v. Xstelos Hldgs., Inc., 2014 WL 5025926, at *22 (Del. Ch. Sept. 30, 2014). 125 Kronenberg v. Katz, 872 A.2d 568, 593 (Del. Ch. 2004) (emphasis supplied). 126 Id.; Black Horse, 2014 WL 5025926, at *22–23.

32 closing.127 While anti-reliance language is needed to stand as a contractual bar to an

extra-contractual fraud claim based on factual misrepresentations,128 an integration

clause alone is sufficient to bar a fraud claim based on expressions of future intent

or future promises.129

This distinction was on full display in Black Horse, where the plaintiff alleged

that, prior to signing an acquisition agreement, the parties orally agreed that the

plaintiff would be given the opportunity to make a $10 million bridge loan to

defendant post-closing in exchange for an increased percentage of the target

entity.130 Yet, the oral agreement never made it into the written contract.131 When

the defendant refused to commit to the bridge loan post-closing, the plaintiff sued

for fraud. The court dismissed the claim, holding that an extra-contractual fraud

claim based on a “future promise” cannot stand when the parties committed “in a

127 Compl. ¶¶ 30, 33, 35, 36; see Black Horse, 2014 WL 5025926, at *24 (noting a distinction between inducement claims based on statements of present fact and claims based on “future intent”); Kronenberg, 872 A.2d at 585–86 (addressing claim that defendant made factual representations regarding a purported third-party feasibility study that was actually fabricated by defendant); Abry P’rs, 891 A.2d at 1051 (“[T]he Buyer has alleged, with specificity, precisely what financial statements were materially false and why they were false.”). 128 Kronenberg, 872 A.2d at 590–92. 129 Black Horse, 2014 WL 5025926, at *24. 130 Id. 131 Id.

33 clear integration clause . . . that [they] will not rely on promises and representations

outside of the agreement . . . .”132 To hold otherwise, the court noted, would allow

the party claiming fraud to “shirk its own bargain in favor of a ‘but we did rely on

those other representations’ fraudulent inducement claim.”133 As distinguished from

a claim of extra-contractual fraud based on a statement of fact, the fraud claim based

on a “future promise” amounts to an improper attempt to introduce “parol evidence

that would vary the extant terms in the subsequent integrated writings.”134 That is

precisely what Plaintiff would have the Court do here.

The plain terms of the Merger Agreement contradict the alleged

misrepresentations on which Plated claims it relied. To reiterate, Section 2.9(h)(vii)

provides “[Albertsons] will have the exclusive right to make all business and

operational decisions regarding [Albertsons] and its Subsidiaries (including

[Plated]) in its sole and absolute discretion.”135 The only contractual limitation to

such discretion requires that Albertsons not take any action “with the intent of

decreasing or avoiding” the Earnout.136 Despite this far-reaching contractual

132 Id. 133 Id. (quoting Abry P’rs, 891 A.2d at 1057). 134 Id. 135 Merger Agreement § 2.9(h)(vii). 136 Id.

34 discretion, Plaintiff’s allegations of fraud are centered on certain “business and

operational decisions” Albertsons implemented post-closing that were purportedly

inconsistent with promises made during negotiations.137 As this court has noted:

Delaware is a contractarian state. As such, a party who enters into a contract governed by Delaware law will be charged with knowledge of the contents of the instrument and will be deemed to have knowingly agreed to the plain terms of the instrument absent some well-pled reason to infer otherwise. And this same party will face an uphill climb when it seeks to prosecute claims that it relied on promises that are explicitly contradicted by its own clear and unambiguous written contract. These bedrocks of Delaware law apply in full force here.138

If Plated wanted contractual commitments from Albertsons that it would operate

Plated in a particular manner post-closing, Plated could and should have bargained

for those commitments as carve-outs to the broad discretion it otherwise agreed to

give to Albertsons.139 Having failed to secure those commitments in a fully

integrated contract, it cannot now claim fraud as a basis “to avoid the deal it made

137 Compl. ¶¶ 5, 26, 30, 32, 33, 35, 36, 45. 138 Chapter 7 Tr. Constantino Flores, 2016 WL 5243950, at *6. 139 See Debakey Corp., 2000 WL 1273317, at *22 (rejecting a fraud claim based on extra- contractual representations that the buyer would inject additional capital into the acquired business post-closing after a contractually pre-set spending limit was reached because the operative contract “expressly and unambiguously permitted RSC to terminate the Agreement ‘in its sole discretion’ once the $2 million limit was reached”); Kronenberg, 872 A.2d at 593 n.46 (recognizing that the outcome might be different if the alleged prior oral misrepresentations “contradict or vary any express term of the written agreement”); Carrow v. Arnold, 2006 WL 3289582, at *11 (Del. Ch. Oct. 31, 2006) (“It is unreasonable to rely on oral representations when they are expressly contradicted by the parties’ written agreement.”).

35 in favor of the deal it now wishes it made.”140 Plaintiff bargained for Albertsons not

to intentionally scuttle the Earnout. It may attempt to prove a breach of that

contractual obligation but cannot claim fraud based on future promises not

memorialized in the Merger Agreement.141

III. CONCLUSION

For the foregoing reasons, Defendant’s Motion to Dismiss Count I is DENIED

to the extent it alleges a breach of Section 2.9(h)(vii) of the Merger Agreement.

Defendant’s Motion to Dismiss Counts II–IV, as well as the portion of Count I

alleging breach of Section 2.9(h)(ii) of the Merger Agreement, is GRANTED.

IT IS SO ORDERED.

140 Chapter 7 Tr. Constantino Flores, 2016 WL 5243950, at *9. 141 In apparent recognition that the Merger Agreement confounds its fraud claim, Plaintiff contends that its reasonable reliance upon Albertsons’ pre-closing representations that it would prioritize e-commerce over brick-and-mortar was encouraged by several provisions in the Merger Agreement that indicate Albertsons intended to operate Plated as a subscription business post-closing. See AB at 37; Merger Agreement Art. I (defining “Business” as “(a) [Plated’s] current business of sourcing, designing, advertising, marketing, preparation, handling, shipping and delivery of cook-at-home meal kits, and (b) any other businesses currently conducted by [Plated]”); § 8.3(l) (defining “Key Employee” to include the Chief Data Science Officer and the Chief Technology Officer); § 2.6(b) (permitting Plated’s officers to stay on at the company until their resignation or removal); §§ 6.3–6.4 (requiring Plated to operate in the ordinary course of business pre-closing). The effort misses the mark for the simple reason that, contrary to Plaintiff’s suggestion, none of these provisions state or even suggest that e-commerce was to be Albertsons’ only or even primary focus post-closing.