Welgo, Inc. v. Wellgistics, LLC

• Court: Court of Chancery of Delaware
• Decided: November 25, 2024
• Docket: C.A. No. 2024-0342-KMM
• Status: Published

Opinion

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

WELLGISTICS, LLC, ) ) Plaintiff/counterclaim ) defendant, ) C.A. No.: N22C-08-182 KMM ) v. ) ) WELGO, INC., ) ) Defendant/counterclaim ) plaintiff. )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

WELGO, INC., ) ) Petitioner, ) ) C.A. No.: 2024-0342-KMM1 v. ) ) ) WELLGISTICS, LLC, ) ) Respondent. ) )

Submitted: July 11, 2024 Decided: September 27, 2024 Corrected: November 25, 20242

1 Sitting as a Vice Chancellor in the Court of Chancery of the State of Delaware by designation of the Chief Justice of the Supreme Court of Delaware pursuant to In re: Designation Of The Honorable Kathleen M. Miller under Del. Const. art. IV § 13(2) dated April 9, 2024. 2 Corrected footnotes 130 and 132. MEMORANDUM OPINION AND ORDER

Upon Wellgistics, LLC’s Motion to Dismiss Welgo, Inc.’s Third Amended Counterclaim: GRANTED

Upon Wellgistics, LLC’s Motion to Strike Welgo, Inc.’s Affirmative Defenses: GRANTED

Upon Wellgistics, LLC’s Motion to Dismiss Welgo, Inc.’s Petition: GRANTED

Chad S.C. Stover, Esquire, Amy E. Tryon, Esquire, Barnes & Thornburg LLP, Wilmington, Delaware, Marc S. Silver, Esquire (pro hac vice) (argued), Christine E. Skoczylas, Esquire (pro hac vice), Barnes & Thornburg LLP, Chicago, Illinois, Attorneys for Wellgistics, LLC.

Basil C. Kollias, Esquire, Gordon L. McLaughlin, Esquire, Kollias Law, LLC, Wilmington, Delaware, Geri Lyons Chase, Esquire (pro hac vice) (argued), Law Office of Geri Lyons Chase, Annapolis, Maryland, Attorneys for Welgo, Inc.

MILLER, J.

1 I. INTRODUCTION

Welgo, Inc. (“Welgo”) generated revenue through its wholly-owned

subsidiary, Welgo, LLC, which sold prescription medications. Welgo, LLC had

negotiated favorable contracts with distributors for certain medications. Prior to

Wellgistics, LLC’s (“Wellgistics”) investment in Welgo, Welgo, LLC’s distributor

contracts were disclosed to Wellgistics.

Welgo alleges that after the identity of Welgo, LLC’s distributors and its high-

profit prescription medications were disclosed to Wellgistics, it improperly used this

confidential information to begin purchasing large quantities of these medications.

Wellgistics’ sharp increase in purchases substantially contributed to an increase in

the national utilization rate, causing insurance companies to curtail or stop covering

the medications. This, in turn, caused Welgo, LLC’s physician-customers to

substantially reduce the amount of these medications they dispensed to their patients,

resulting in lost revenue for Welgo, LLC and ultimately, Welgo.

Welgo further alleges that just days after the identity of Welgo, LLC’s

distributors were disclosed to Wellgistics, the distributors sold their rights in these

medications to third-parties. The new distributors increased the price, cutting into

Welgo, LLC’s profit margin. The new owners aggressively marketed the

medications, which also contributed to the increase in the national utilization rate

and the attendant loss of revenue for Welgo, LLC. Additionally, Wellgistics’

2 increased purchases of these medications prompted other companies to jump into

the market, further contributing to the increase in national utilization rate.

In response to Wellgistics’ debt action filed in the Superior Court seeking to

recover amounts due under a promissory note, Welgo filed its Third Amended

Counterclaim3 (“TAC”) asserting claims for breach of contract (Count I), breach of

fiduciary duty (Count II), tortious interference with contract (Count III), fraud

(Count IV), and estoppel (Count V). Welgo’s answer asserts affirmative defenses

of fraud and estoppel. Welgo also filed a Court of Chancery action, asserting a claim

for breach of fiduciary duty. The Court of Chancery and the Superior Court claims

(and affirmative defenses) rest on the same factual predicate described above.

Wellgistics filed motions to dismiss the TAC4 and the Court of Chancery5

action, pursuant to Superior Court Civil Rules 12(b)(1), 12(b)(6) and 9(b) and Court

of Chancery Rule 12(b)(6), asserting that Welgo lacks standing and failed to

adequately plead the causes of action. Wellgistics also filed a motion to strike

Welgo’s affirmative defenses, pursuant to Rules 8(a), 8(c), 9(b), and 12(f).6

The TAC asserts a breach of fiduciary duty claim (Count II) despite that claim

previously being dismissed for lack of jurisdiction. There is no basis for jurisdiction

3 Welgo’s Second Amended Counterclaim was dismissed on January 9, 2024 (D.I. 44), with leave to amend. 4 D.I. 59. 5 D.I. 6. 6 D.I. 60.

3 over this claim in the Superior Court. For the reasons stated in this Court’s

November 29, 2023 Order,7 Count II is DISMISSED.

Although the TAC asserts substantially more facts than the previously

dismissed Second Amended Counterclaim, the TAC fails to adequately plead the

asserted causes of action. Likewise, the Court of Chancery complaint fails to

adequately plead a claim for breach of fiduciary duty. Therefore, Wellgistics’

motions are GRANTED.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. The parties and relevant non-parties

1. Welgo and related non-parties

Welgo is a holding company, owning 100% of Welgo, LLC from its formation

until March 2023.8 Michael Lion (“Lion”) and Keith Holdan (“Holdan”) each

owned 50% of Welgo’s stock at its formation in 2018.9

Welgo, LLC is a specialty prescription medication wholesaler. In 2019, its

business model focused on selling a limited number of medications, but with high

profit margins.10 To that end, it contracted with distributors for the purchase of

7 D.I. 42. 8 TAC (D.I. 48), ¶ 4; Court of Chancery complaint (“CC Com.”), ¶ 13. 9 TAC, ¶ 14. 10 TAC, ¶ 5; CC Com., ¶ 14.

4 certain medications at favorable prices11 and sold them to physicians, who dispensed

the medications directly to their patients.12

On March 30, 2023, Welgo sold its interest in Welgo, LLC to an unrelated

third-party.13

2. Welgo, LLC’s distributors

Prior to the events with Wellgistics, Welgo, LLC contracted with Athena

Bioscience LLC (“Athena”) to purchase Naprosyn Oral Solution.14 Athena was the

exclusive distributor for this product in the United States.15 Philip Volt is the Chief

Operating Officer of Athena.

Also prior to the events with Wellgistics, Welgo, LLC contracted with Crown

Laboratories, Inc. (“Crown”) to purchase Ala-Scalp and Ala-Quin.16 David

Arapakes (“Arapakes”) is the business development manager at Crown.

3. Wellgistics and related parties

Wellgistics, also a specialty prescription medication wholesaler, sells

primarily to independent pharmacies.17 Wellgistics is a much larger wholesaler than

Welgo, LLC.18 However, Wellgistics is much smaller than the large national

11 Id. 12 Id. 13 D.I. 71. 14 TAC, ¶ 6; CC Com., ¶ 15. 15 CC Com., ¶ 7. 16 TAC, ¶ 13. 17 Id., ¶ 18. 18 TAC, ¶ 61.

5 wholesalers, such as AmerisourceBergen, Cardinal Health, and McKession, that

control 90% of the wholesale market in the United States.19

Wellgistics encourages its pharmacy-customers to hire sales personnel to

market the medications sold by Wellgistics and promises to pass-on discounts to the

pharmacies.20

Charles Jenkins (“Jenkins”) is an Executive Vice President of Brand Strategy

for Wellgistics.

Matthew Starley (“Starley”) is the Chief Operating Officer and General

Counsel for Wellgistics.

Michael Pearce (“Pearce”) is a consultant for Wellgistics, charged with

increasing its profitability.21

4. Other non-parties

Key Therapeutics, LLC (“Key”) “labeled” the only authorized generic of

Naprosyn Oral Solution in the period 2016 through October 2019.22

Marnel Pharmaceuticals, LLC (“Marnel”), owned by Jonathan Alba (“Alba”),

is a prescription drug distributor.23

19 TAC, ¶ 18; CC Com., ¶¶ 26, 27. 20 TAC, ¶ 19. 21 Id., ¶ 32. 22 Id., ¶ 9; CC Com., ¶ 18. 23 TAC, ¶¶ 28, 29.

6 Allegis Pharmaceuticals, LLC (“Allegis”), owned by Rett Crowder

(“Crowder”), is a prescription drug distributor.24

Jamison Roberts (“Roberts”) is an executive consultant for Allegis and also

“work[s] closely” with Pernix Therapeutics Holdings, a company of which Pearce

was the Chief Executive Officer.25

Crowder and Roberts formed Derm Ventures LLC (“Derm”), on September

29, 2019.26

B. Welgo, LLC’s contracts

While the pill form of Naprosyn Oral Solution and its generic – Naproxen

Oral Solution – was widely used in 2019, the oral solution had a low utilization rate

(i.e., low sales volume), because it serves a limited population –– those who cannot

swallow pills.27 With few manufacturers and distributors of this medication, Welgo,

LLC sought to take advantage of its high profit margin.28 So, in 2019, it contracted

with Athena to purchase generic Naprosyn Oral Solution on favorable pricing

terms.29

24 Id., ¶¶ 29, 36. 25 Id., ¶ 36. 26 Id., ¶ 37. 27 Id., ¶ 63. 28 Id., ¶¶ 8-12. In 2019, there were only two manufacturers of this medication. Id., ¶¶ 10, 63. See also CC Com., ¶¶ 17-21. 29 TAC, ¶ 6; CC Com., ¶ 15.

7 Also in 2019, Welgo, LLC contracted with Crown to purchase Ala-Scalp and

Ala-Quin (with Naprosyn Oral Solution, the “Products”) on favorable pricing

terms.30 Like Naprosyn Oral Solution, Ala-Scalp and Ala-Quin had low utilization

rates, but high profit margins.31

C. Wellgistics buys 50% of Welgo’s stock.

Shortly after formation of Welgo, a conflict arose with Holdan who then

sought to sell his interest in the company.32 In July 2019, Lion met Jenkins, who

indicated that Wellgistics may be interested in purchasing Holdan’s Welgo stock.33

Jenkins signed a confidentiality agreement, and discussions progressed.34

On September 24, 2019, Welgo and Welgo, LLC entered into a Mutual

Confidentiality Agreement (the “MCA”), with Wellgistics, the “Purpose” of which

was to exchange information “in connection with their discussions of a possible

business relationship.”35 The MCA provides:

During the term of this Agreement, and for a period of five (5) years thereafter, the Recipient shall keep confidential and shall not divulge the Disclosing Party’s Confidential Information to any third party or use such information other than for the Purpose, without the prior written consent of the Disclosing Party.36

30 TAC, ¶ 13; CC Com., ¶ 22. 31 Id. 32 TAC, ¶ 15; CC Com., ¶ 24. 33 TAC, ¶ 16; CC Com., ¶ 25. 34 Id. 35 TAC., ¶¶ 16, 26-27. 36 Id., Ex. D (emphasis added).

8 After further discussions, the parties agreed that Pearce would buy Holdan’s

stock and soon thereafter, transfer the shares to Wellgistics.37 Accordingly, Pearce

purchased Holdan’s stock in October 2019. Wellgistics acknowledged that Pearce

was its agent in this transaction and that Wellgistics funded the purchase.38 Pearce

joined Welgo’s board of directors in November 2019.39

In December 2019, Pearce transferred the stock to Wellgistics, thus becoming

a 50% owner of Welgo.40

D. Wellgistics receives confidential information.

As of September 2019, a substantial portion of Welgo, LLC’s gross revenue

was derived from selling the Products.41 At the time, Welgo, LLC was servicing 21

physicians.42 In 2020, it added the largest orthopedic practice in the United States

to its customer base.43 Welgo, LLC anticipated servicing an additional 100

physicians in each of 2021 and 2022.44

In due diligence in connection with the stock purchase, Wellgistics requested

information about Welgo, LLC’s products. Wanting to protect Welgo, LLC’s

37 Id., ¶ 33; CC Com., ¶ 43. 38 TAC, ¶¶ 32-33; CC Com., ¶¶ 42-43. 39 TAC, ¶ 40; CC Com., ¶ 50. 40 TAC, ¶ 49. The Complaint asserts that Wellgistics’ interest in Welgo represented only a 40% stake. D.I. 1, ¶ 8. For purposes of the motion to dismiss, the Court must accept Welgo’s allegation that Wellgistics held a 50% interest in the company. 41 TAC, ¶ 31; CC Com., ¶ 41. 42 TAC, ¶ 50; CC Com., ¶ 61. 43 Id. 44 Id.

9 business, Lion refused to disclose this information until a confidentiality agreement

was executed.45

Once the MCA was executed on September 29, 2019, Wellgistics learned the

identity of Welgo, LLC’s distributors and the products it sold.46 On October 4, 2019,

Welgo, LLC’s distributor contracts were provided to Wellgistics.47 On October 7,

2019, Jenkins told Lion that Wellgistics was already “in the works with several of

these.”48

E. Distribution rights to the Products are transferred to third-parties, resulting in higher prices for Welgo, LLC.

Shortly after execution of the MCA, Lion provided Jenkins with contact

information for the business development manager at Crown (Arapakes). On

October 2, 2019, Arapakes advised Lion that Crown changed its distribution process

and Welgo, LLC now was required to purchase Ala-Scalp and Ala-Quin through a

distributor - Marnel.49 The result of this new arrangement was a higher product cost

for Welgo, LLC: its profit margin on Ala-Scalp dropped from $165 per unit to $105,

and on Ala-Quin, it dropped from $150 per unit to $75.50

45 TAC, ¶ 26; CC Com., ¶ 36. 46 Id. 47 TAC, ¶ 30. Wellgistics also received “financial information, existing contracts, proprietary software, and other information critical to [Wellgistics’] consideration of its potential acquisition of a substantial stake in the company.” Id., ¶ 27. 48 TAC, ¶ 34; CC Com., ¶ 44. 49 TAC, ¶ 28; CC Com., ¶ 38. 50 TAC, ¶¶ 41, 52; CC Com., ¶¶ 51, 63.

10 Alba (Marnel’s owner), at some unidentified time, told Lion that Jenkins was

Alba’s college friend and his former employee.51 Alba also told Lion that Marnel

would be purchasing Ala-Scalp and Ala-Quin from Allegis and selling these

products to Welgo, LLC.52 It appears that Crown transferred its rights in these

products to Allegis.53

Also in October 2019, Volt of Athena (Welgo, LLC’s distributor for Naprosyn

Oral Solution) told Lion that he (Volt) met with representatives of Wellgistics.54

Shortly thereafter, Lion learned that Allegis also acquired the rights to sell Naprosyn

Oral Solution.55 Prior to this transaction, Welgo, LLC purchased the medication,

manufactured by Key, for $925 per unit.56 Allegis was now “relabeling” the product

and selling it to Welgo, LLC for $1,135 per unit.57

When Lion learned of these transactions, he warned Wellgistics to “stay

away” from Welgo, LLC’s distributors because if the sales volumes increased, it

would hurt his business.58

51 TAC, ¶ 29; CC Com., ¶ 39. 52 Id. 53 TAC, ¶ 42 (“Lion learned from Jonathan Alba that after acquiring the Ala-Scalp and Ala-Quin products from Crown…”). 54 TAC, ¶ 35; CC Com., ¶ 45. 55 Id. 56 Id., ¶¶ 9-10, 35. 57 TAC, ¶ 35; CC Com., ¶ 45. 58 TAC, ¶ 38; CC Com., ¶ 48.

11 F. Marnel aggressively markets Ala-Scalp and Ala-Quin.

After obtaining the right to sell Ala-Scalp and Ala-Quin, Marnel and Allegis

began aggressively marketing these products.59 As a result, the utilization rate

increased, which caused Pharmacy Benefits Managers (“PBMs”)60 to discontinue

reimbursements for Ala-Scalp in June 2020.61

G. Other wholesalers enter the market.

After PBMs stopped reimbursements for Ala-Scalp due to the much higher

sales volume, Derm (apparently having entered the prescription drug wholesale

market), introduced a dual-pack of Ala-Scalp, which contained two units.62 Because

Ala-Scalp was traditionally sold in single-unit packs, the dual-pack was assigned a

new “National Drug Code,” essentially becoming a new product.63 As a new

59 TAC, ¶ 42; CC Com., ¶ 52. 60 PBM is a group of companies responsible for securing lower costs for insurance companies. Id., ¶ 20. PBMs track market data, including claims activity and available generic alternative medication. Id. “When claims submissions increase on high-profit margin medication and national utilization rates increase for that specific medication or group of medications, PBM’s [sic] advise the insurers to take one of several potential actions intended to reduce the amount of money paid by the insurers for the medications. These potential actions include requiring prior authorization of insurance coverage for a medication, reducing the share of the medication cost covered by the insurer, or removing the medication from the insurer’s formulary (i.e., list of medications paid for by the insurer).” Id. at ¶ 62. 61 TAC, ¶ 42; CC Com., ¶ 52. 62 TAC, ¶ 44; CC Com., ¶ 54. 63 Id.

12 product, utilization rates were low, so PBMs resumed reimbursements for Ala-

Scalp.64 Welgo, LLC did not sell a dual-pack.

In each of 2020, 2021, and 2022, the Food and Drug Administration (the

“FDA”) approved an additional generic drug manufacturer for Naproxen Oral

Solution, thus doubling the number of companies selling this medication.65

H. Wellgistics purchases large quantities of the Products, substantially contributing to an increase in the national utilization rate.

Prior to September 2019, Wellgistics did not purchase a significant amount of

the Products.66 After the identities of Welgo, LLC’s distributors were disclosed,

Wellgistics began purchasing the Products in large quantities. In addition,

Wellgistics encouraged its pharmacy-customers to conduct “test runs” on these

medications and in turn, “sell” their customers (the patients) on Wellgistics’ high-

margin products.67 Wellgistics used training videos to show the pharmacies how

they could profit from this marketing strategy.68

When Welgo learned that Wellgistics’ representatives contacted Welgo,

LLC’s distributors, Welgo and Welgo, LLC immediately demanded that Wellgistics

“cease and desist” from interfering with Welgo, LLC’s contracts and that Wellgistics

64 Id. 65 TAC, ¶ 11; CC Com., ¶ 20. 66 TAC, ¶ 45; CC Com., ¶ 55. 67 TAC, ¶ 64. 68 Id.

13 discontinue its purchases of the Products.69 Welgo “unequivocally advised

Wellgistics that Wellgistics’ high-volume purchases of the aforesaid medications

was a breach of the MCA and may result in a marked increase in national utilization

classification for the medications, which would cause Welgo substantial economic

harm.”70 Despite these demands, Wellgistics “knowingly and intentionally”

continued contacting Welgo, LLC’s distributors and purchasing large quantities of

the Products, knowing the detrimental impact it could have on Welgo, LLC’s

business.71

Wellgistics purchasing large quantities of the Products from Welgo, LLC’s

“contract manufacturers, other manufacturers, wholesalers or third-party logistics

companies” and encouraging its pharmacy-customers to run test claims, caused an

increase in the national utilization rates, consequently triggering scrutiny by the

PBMs.72 As a result, in late 2020, PBMs limited approvals for Naprosyn Oral

Solution and stopped reimbursements for Ala-Scalp and Ala-Quin. Because the

Products were no longer fully covered by insurance, Welgo, LLC’s physician-

customers substantially reduced the number of prescriptions they dispensed.

69 TAC, ¶ 47; CC Com., ¶ 57. 70 TAC, ¶ 47; CC Com., ¶ 57. 71 TAC, ¶ 48; CC Com., ¶ 58. 72 TAC, ¶ 65.

14 Instead, the physicians prescribed other medications that were covered by insurance,

which Welgo, LLC did not sell.

I. Wellgistics’ Aberrant List medications

CVS Caremark is one of the largest PBMs.73 In 2019, it created an “Aberrant

List,” a list of restricted medications, the purpose of which was to reduce the sales

volumes and thus, save costs for its insurer-customers. Medications were placed on

this list due to their high-profit margins, among other reasons.74 Pharmacies were

contractually bound to limit the amount of a medication on the Aberrant List they

dispensed.75

Prior to 2019, Chlorzoxazone was one of Wellgistics’ principal products, from

which it derived substantial revenue.76 CVS Caremark placed Chlorzoxazone on the

Aberrant List and stopped reimbursements due to its high cost.77 With the loss of

revenue on Chlorzoxazone and its other products on the Aberrant List, Wellgistics

needed to find other sources of revenue.78 This led to Wellgistics purchasing Welgo

stock and purchasing large quantities of the Products.79

73 TAC, ¶ 21; CC Com., ¶ 31. 74 TAC, ¶ 23; CC Com., ¶ 33. 75 Id. 76 TAC, ¶ 22; CC Com., ¶ 32. 77 TAC, ¶ 21; CC Com., ¶ 31. 78 TAC, ¶ 25; CC Com., ¶ 35. 79 Id., ¶ 16. None of Welgo, LLC’s products were on the Aberrant List. Id., ¶ 30. See also CC Com., ¶¶ 25, 40.

15 J. Welgo repurchases its stock from Wellgistics.

By May 2020, Welgo and Wellgistics decided to part ways. Jenkins met with

Lion to discuss “unwinding” the stock transaction. During this meeting, Jenkins

made “assurances” to Lion that Wellgistics would “honor the cease and desist and

would no longer sell” the Products.80 In August 2020, Wellgistics and Welgo

executed a Redemption Agreement and Welgo executed a Promissory Note (the

“Note”), to purchase Wellgistics’ interest in Welgo.81

The Redemption Agreement contains the following integration clause:

Entire Agreement. This Agreement constitutes the entire understanding and agreement between the parties hereto with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties are expressly canceled.82

Wellgistics’ Complaint asserts a claim for breach of the Note because Welgo

failed to make required payments.83

K. Welgo files the TAC and asserts the affirmative defenses.

In the TAC, Welgo claims that Wellgistics breached the MCA by using

confidential information regarding Welgo, LLC’s profitable Products. The TAC

also asserts claims for fraud and tortious interference with Welgo, LLC’s distributor

80 Id., ¶ 102. 81 See Complaint (D.I. 1) and TAC (D.I. 48). 82 D. I. 59, Ex. 1, § 8.9. 83 D.I. 1.

16 contracts. In each claim, Welgo asserts that it lost over $7.5 million dollars “in

value” and revenue of $200,000 per month (or another $7.2 million as of the filing

of the TAC).84

The TAC asserts a claim for estoppel, alleging that Welgo relied on

Wellgistics’ promise to stop selling the Products. Had Welgo known that

Wellgistics would break its promise, Welgo would not have agreed to the

Redemption Agreement and Note. Welgo seeks to be relieved of further payment

obligations under the Note.

In Welgo’s answer to the Complaint, it asserts affirmative defenses of fraud

and estoppel, as follows:

FIRST AFFIRMATIVE DEFENSE – ESTOPPEL – “The plaintiff’s conduct

as set forth in the counterclaim appearing below is such that they be [sic] estopped

from prosecuting this action;”85

SECOND AFFIRMATIVE DEFENSE – FRAUD – “the plaintiff’s

conduct/actions are as described in the [defendant’s] counterclaim appearing below

is such that the plaintiff’s actions were fraudulent as to the defendant;”86

84 D.I. 71. 85 D.I. 48. 86 Id.

17 III. STANDARD OF REVIEW

The standard of review is the same under Superior Court Civil Rule 12(b)(6)

and Court of Chancery Rule 12(b)(6): the Court accepts as true all well pleaded

factual allegations and draws all reasonable inferences in favor of the non-moving

party; the liberal construction afforded to a claimant does not “extend to ‘conclusory

allegations that lack specific supporting factual allegations;’” and dismissal will be

denied if there is a reasonably conceivable set of circumstances of recovery on the

claim.87

“A complaint that gives fair notice ‘shifts to the [opposing party] the burden

to determine the details of the cause of action by way of discovery for the purpose

of raising legal defenses.’”88 Therefore, to avoid dismissal under Delaware’s notice

pleading standard, a party “need not plead evidence,” but at a minimum, must “allege

facts that, if true, state a claim upon which relief can be granted.”89

Delaware law requires a claimant to plead fraud with particularity –– a

87 Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Holdings LLC, 27 A.3d 531, 535, 536-37, n.13 (Del. 2011) (the “‘conceivability’ standard is more akin to ‘possibility,’ while the federal ‘plausibility’ standard falls somewhere beyond mere ‘possibility’ but short of ‘probability.’”); Surf’s Up Legacy Partners, LLC v. Virgin Fest, LLC, 2021 WL 117036, at *6 (Del. Super. Jan. 13, 2021) (citation omitted); In re Hennessy Cap. Acquisition Corp. IV S’holder Litig., 318 A.3d 306, 319-20 (Del. Ch. 2024). 88 VLIW Tech., LLC Hewlett-Packard Co., 840 A.2d 606, 611 (Del. 2003). 89 Id.

18 heightened pleading standard90 –– even when asserted as an affirmative defense.91

To satisfy Rule 9(b), a fraud claim must allege: “(1) the time, place, and contents of

the false representation; (2) the identity of the person making the representation; and

(3) what the person intended to gain by making the representations.”92 “Essentially,

the [claimant] is required to allege the circumstances of the fraud with detail

sufficient to apprise the [opposing party] of the basis for the claim.”93

The standard for a motion to strike is similar to that for a motion to dismiss.94

Under Rule 12(f), the Court “may order stricken from any pleading any insufficient

defense or any redundant, immaterial, impertinent, or scandalous matter.”95 “When

ruling on a motion to strike, ‘the Court must construe all facts in favor of the

nonmoving party and deny the motion if the defense is sufficient under law.’”96

90 Super. Ct. Civ. R. 9(b). 91 Commonwealth Const. Co. v. Cornerstone Fellowship Baptist Church, Inc., 2006 WL 2567916, at *25 (Del. Super. Aug. 31, 2006) (“Superior Court Civil Rule 9(b) requires that ‘[i]n all averments of fraud ... the circumstances constituting fraud ... shall be stated with particularity.’ Such particularity requires, even where fraud is pled as an affirmative defense, that the party averring fraud must provide the time, place and contents of the fraudulent act or omission, as well as the person who gave the false representation.”). 92 Medlink Health Sols., LLC v. JL Kaya, Inc., 2023 WL 1859785, at *2 (Del. Super. Feb. 9, 2023) (quoting Abry Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032, 1050 (Del. Ch. 2006)). 93 Id. 94 Nat’l Amusements, Inc. v. Endurance Am. Specialty Ins. Co., 2023 WL 3145914, at *8 (Del. Super. Apr. 28, 2023) (citing Nichols v. Chrysler Grp. LLC, 2010 WL 5549048, at *5 (Del. Ch. Dec. 29, 2010)). 95 Super. Ct. Civ. R. 12(f). 96 Nichols, 2010 WL 5549048, at *5.

19 Motions to strike are disfavored and granted sparingly.97 It is appropriate, however,

to strike an affirmative defense that is legally insufficient.

IV. DISCUSSION

A. The Superior Court claims 1. Standing

Wellgistics argues that Welgo lacks standing to assert its claims for breach of

contract, tortious interference, and fraud98 because Welgo, LLC entered into the

contracts with the distributors and generated revenue from sales of the Products, and

thus it (and not Welgo) suffered any alleged loss.99 Welgo responds that it has

standing because it is a party to the MCA and suffered an injury independent of

Welgo, LLC.

“Standing” refers to the right of a person to invoke jurisdiction of the Court to

redress its grievance. “The issue of standing is concerned ‘only with the question of

who is entitled to mount a legal challenge and not with the merits of the subject

matter of the controversy.’”100 When a defendant argues that the Court does not

97 Salem Church (Del.) Assocs. v. New Castle Cnty., 2004 WL 1087341, at *2 (Del. Ch. May 6, 2004). 98 D.I. 59, pp. 17-20. 99 Relying on Tooley v. Donalson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) and Acrisure Holdings, Inc. v. Frey, 2019 WL 1324943 (D. Del. Mar. 25, 2019), Wellgistics asserts that Welgo is improperly attempting to convert a derivative claim into a direct claim. (D.I. 67 p. 7). Rather, disputes relating to commercial contracts, however, are not derivative claims. Derivative claims relate to breaches of fiduciary duties. NAF Holding, LLC v. Li & Fung (Trading) Ltd., 118 A.3d 175, 179 (Del. 2015). Thus, Wellgistics’ reliance on these cases is misplaced. 100 Albence v. Higgin, 295 A.3d 1065, 1086 (Del. 2022) (emphasis in original) (citation omitted).

20 have authority to grant the requested relief to any plaintiff, standing is analyzed

under Rule 12(b)(1).101 However, where “the issue of standing is so closely related

to the merits, a motion to dismiss based on lack of standing is properly considered

under Rule 12(b)(6) rather than Rule 12(b)(1).”102

Here, as Wellgistics acknowledges, Welgo is a party to the MCA,103 and as

such, Welgo has standing to enforce its rights under the contract. Wellgistics’

argument is that Welgo has not sufficiently alleged facts to state a claim. Therefore,

Wellgistics’ standing argument is more aptly addressed under Rule 12(b)(6) and the

Court will do so.

2. Breach of contract

a. The parties’ contentions

Wellgistics argues that the TAC fails to state a claim because Welgo has not

alleged that it directly sustained damages from Wellgistics’ alleged conduct.

Additionally, even if Welgo suffered damages, its damages are “so untethered” from

its breach of contract allegations that its causation theory is “hopelessly

speculative.”104 Finally, Wellgistics argues that Welgo cannot isolate any damages

101 In re Covid-Related Restrictions on Religious Services, 302 A.3d 464, 478 (Del. Super. 2023). 102 Appriva S’holder Litig. Co., LLC v. EV 3, Inc., 937 A.2d 1275, 1285-86 (Del. 2007); In re Covid-Related Restrictions, 302 A.3d at 478 (when the defendant is arguing that the court cannot grant relief to a plaintiff in a particular case because this particular plaintiff has not pleaded an essential element of the claim, the motion is properly decided under Rule 12(b)(6)). 103 D.I. 67, p. 5. 104 D.I. 59, p. 21.

21 from Wellgistics’ alleged breach of the MCA from its losses from other forces and

therefore, Welgo’s damages theory fails.

Welgo counters that its position in the TAC is clear – Wellgistics agreed not

to use confidential information and breached that agreement when it used that

information to earn a profit for itself.105 Further, Welgo argues that the TAC details

facts showing Wellgistics started a “chain of causation” by (i) purchasing large

quantities of the Products, and (ii) influencing various players in the pharmaceutical

industry, including pharmacies, patients, and physicians, causing harm to Welgo.106

b. Analysis

Under Delaware law,107 a claimant asserting a breach of contract must allege:

(1) the existence of a contract; (2) the breach of a contractual obligation; and (3)

resulting damages.108 While damages may be pled generally, a factual basis to relate

the alleged injury to the breach is required.109 Conclusory allegations of damages

105 D.I. 66, p. 12. 106 TAC, ¶ 65. 107 The MCA provides that it is governed by New York law. The parties, however, argue the motion under Delaware law. Because the parties rely on Delaware law and there is no actual conflict with New York law on the elements of breach of contract, see, e.g., inVentiv Health Clinical, LLC v. Odonate Therapeutics, Inc., 2021 WL 252823, at *4 (Del. Ch. Feb. 18, 2021) (applying New York law to breach of contract claim), the Court is applying Delaware law to the motion to dismiss. 108 VLIW Tech., LLC, 840 A.2d at 612; Anschutz Corp. v. Brown Robin Cap., LLC, 2020 WL 3096744, at *9 (Del. Ch. June 11, 2020). 109 Cf. Phage Diagnostics, Inc. v. Corvium, Inc., 2020 WL 1816192, at *9 (Del. Super. Mar. 9, 2020). The court in Phage Diagnostics found that while damages may be pled generally even in fraud claims, a plaintiff “must relate its alleged injury to the misrepresentations that constitute its grounds for fraud such that the issue of damages may be inferred from the complaint.” While

22 are insufficient.110

The TAC satisfies the first pleading requirement –– the existence of a contract.

Welgo is a party to the MCA.

Under the MCA, Wellgistics had a duty only to use confidential information

for the possible purchase of Welgo stock.111 The TAC alleges that Lion disclosed

the identity of Welgo, LLC’s products and provided Welgo, LLC’s distribution

contracts to Wellgistics.112 While more than one entity within an organization may

have an interest in the same confidential information, “[g]enerally, ‘a parent

corporation does not, by reason of owning the stock of a subsidiary alone, own or

have legal title to the assets of the subsidiary.’”113 Thus, under the general rule, a

parent does not have a claim for improper disclosure of confidential information

belonging to a subsidiary.114

While the TAC alleges that Welgo disclosed confidential information,115 there

are no factual allegations to substantiate this assertion. Indeed, the TAC makes clear

Welgo’s claim is for breach of contract, the same pleading standard applies – a claimant must allege facts relating the alleged injury to the breach. 110 Id. 111 TAC, Ex. D, ¶ 1. 112 CC Com., ¶ 36. 113 Metro Storage Int’l LLC v. Harron, 275 A.3d 810, 869 (Del. Ch. 2022) (quoting 1 Fletcher Cyclopedia L. Corps. § 26). 114 Id. 115 See TAC, ¶ 58 (Wellgistics breached the MCA by using the information disclosed by Welgo, Inc. concerning Welgo’s profitable contracts…”) and ¶ 68 (“Wellgistics’ use of Welgo, Inc. and Welgo, LLC’s confidential information …).

23 that the confidential information –– the contracts and the Products –– belonged to

Welgo, LLC. The Court need not accept conclusory allegations and there are no

well pled allegations that Welgo disclosed its confidential information to Wellgistics.

Accordingly, Welgo failed to sufficiently plead a breach of the MCA for which it

may seek redress.

Even if the Court construed the TAC as pleading that Welgo also held an

interest in Welgo, LLC’s confidential information, the TAC fails to sufficiently

plead the third element –– damages.116

The TAC alleges that Wellgistics used confidential information to purchase

large quantities of (and aggressively marketed) the Products, driven by its need to

generate revenue after Chlorzoxazone was added to the Aberrant List. Wellgistics’

purchases alone, however, did not cause such an increase in the national utilization

rate to prompt action by the PBMs. Other wholesalers jumped into the market for

the Products, allegedly due to Wellgistics’ sales and together, caused the PBMs to

take action. But, there are no factual allegations in the TAC that these other entities

116 Relying on Tanner v. Exxon Corp., 1981 WL 191389 (Del. Super. July 23, 1981) and Deville Court Apartments, L.P. v. Fed. Home Loan Mortg. Corp., 39 F. Supp. 2d 428 (D. Del. 1999), Wellgistics argues that Welgo has not alleged damages with “reasonable certainty.” D.I. 59, p. 21. The court in Tanner ruled that to recover on a breach of contract claim, the plaintiff must prove its damages with reasonable certainty, as opposed to damages based on speculation. Id. at *1. The court in Deville denied a motion for summary judgment due to a dispute of material fact concerning the cause of plaintiff’s alleged damages. Neither court required the plaintiff to plead damages with specificity or to plead evidence. Thus, Wellgistics seeks to hold Welgo to a higher pleading standard, which the Court will not do.

24 were even aware of Wellgistics selling the Products. Further, even if others knew

what products Wellgistics was selling, there are no factual allegations as to how

Wellgistics, a small player in the U.S. market,117 could influence other companies to

enter the market or cause (or cause the need for) the FDA’s approval of additional

generic manufacturers for Naproxen Oral Solution, for example.

Similarly, the TAC lacks factual support for the allegations that Wellgistics

caused Athena and Crown to sell their rights in the Products and change their

distribution processes. Even with Jenkins’ prior connection to Alba and Jenkins

advising Lion that Wellgistics was already “in the works” with distributors, it is not

reasonable to infer that within a few days of learning the confidential information,

Wellgistics caused the distributors to find a contract-counterparty, negotiate a deal,

and close on the deals. Without factual support, it is also not reasonable to infer that

Wellgistics, a relatively small wholesaler, could influence Athena and Crown in such

a way. The timing of the disclosures coupled with the timing of Welgo learning of

the changes made by Crown and Athena is not enough to infer that Wellgistics

caused these fundamental commercial changes.

Because Welgo did not plead a breach of a contract for which it can seek

redress and because it is not reasonably conceivable that Wellgistics caused the

alleged harm to Welgo, Count I is DISMISSED.

117 TAC, ¶ 18.

25 3. Tortious Interference

Welgo, LLC contracted with Crown and Athena. Because Welgo was not a

party to those contracts, it now argues that it was a third-party beneficiary of the

Welgo, LLC contracts. Therefore, Welgo asserts, it may pursue a tortious

interference claim.

Wellgistics argues that Welgo did not plead a third-party beneficiary claim

and therefore, the TAC fails to state a claim for tortious interference. Additionally,

Wellgistics continues, there are no facts alleged (or argued in the brief) to satisfy the

elements of third-party beneficiary.

To assert a claim for tortious interference with a contract, a plaintiff must

allege: “(1) a contract, (2) about which defendant knew, and (3) an intentional act

that is a significant factor in causing the breach of such contract, (4) without

justification, (5) which causes injury.”118

To qualify as a third party beneficiary, (i) the contracting parties must have intended that the third party beneficiary benefit from the contract, (ii) the benefit must have been intended as a gift or in satisfaction of a pre-existing obligation to that person, and (iii) the

118 Bhole, Inc. v. Shore Investments Inc., 67 A.3d 444, 453 (Del. 2013) (citation and emphasis omitted).

26 intent to benefit the third party must be a material part of the parties’ purpose in entering into the contract.119

Welgo’s claim fails for two reasons. First, the TAC does not allege that Welgo

was a third-party beneficiary of the Welgo, LLC contracts. Supporting facts and

allegations must be in the pleading, which cannot be supplemented through

briefing.120 There are no facts alleged in the TAC that the parties intended to benefit

Welgo, that the contracts were a gift to Welgo, or that a pre-contract obligation

existed.121

Second, merely owning the equity of a subsidiary does not make Welgo a

third-party beneficiary of Welgo, LLC’s contracts. Welgo argues that under

Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P.,122a wholly-owned subsidiary is

operated for the benefit of the parent, and thus, Welgo is a third-party beneficiary.123

While it is true that the goal of having a wholly-owned subsidiary is to generate

value for its parent,124 it does not follow that the parent is automatically a third-party

119 Encore Preakness, Inc. v. Chestnut Health and Rehabilitation Group, Inc., 2017 WL 5068753, at *4 (Del. Super. Nov. 1, 2017) (quoting Madison Realty Partners 7, LLC v. Ag ISA, LLC, 2001 WL 406268 (Del. Ch. Apr. 17, 2001)). 120 See Dunn v. FastMed Urgent Care, P.C., 2019 WL 4131010, at *7 n.56 (Del. Ch. Aug. 30, 2019) (explaining that a “brief cannot patch pleading deficiencies”); Intertek Testing Services NA, Inc. v. Eastman, 2023 WL 2544236, at *4 .40 (Del. Ch. Mar. 16, 2023. 121 See id. 122 906 A.2d 168 (Del. Ch. 2006). 123 D.I. 66, p. 15. 124 906 A.2d at 173.

27 beneficiary of the subsidiary’s contracts. Illustration 3 in Comment b to the

Restatement (Second) of Contracts, § 302 is helpful here:

B promises A to pay whatever debts A may incur in a certain undertaking. A incurs in the undertaking debts to C, D and E. If the promise is ... a promise that B will pay C, D and E, they are intended beneficiaries...; if the money is to be paid to A in order that he may be provided with money to pay C, D and E, they are at most incidental beneficiaries.125

Here, the purpose of the distributor contracts was to provide Welgo, LLC with

medications at a certain price. The fact that Welgo, LLC paid Welgo some portion

of Welgo, LLC’s revenue from further sale of the medications makes Welgo, at

most, an incidental beneficiary. Because Welgo was not a party to the Welgo, LLC

contracts or an intended third-party beneficiary, Welgo fails to state a claim for

tortious interference with a contract. Accordingly, Count III is DISMISSED.126

4. Fraud

In its answer to the Complaint, Welgo asserts as an affirmative defense that

Wellgistics’ actions, as described in the TAC, “were fraudulent as to” Welgo.127 In

the TAC, Welgo’s fraud theory consists of two components: (1) Wellgistics never

125 Restatement (Second) of Contracts, § 302, cmt. B, illus. 3 (1981) (June 2024 update). 126 Count III also fails to state a claim for failure to plead damages for the reasons stated in the analysis of Count I. See supra. 127 Because the Rule 12(f) and Rule 12(b)(6) standards are essentially the same, the Court is addressing the grounds for the motion to strike with the motion to dismiss.

28 intended to abide by the MCA because it wanted to exploit the confidential

information for its own benefit; and (2) Wellgistics failed to inform Welgo that

Wellgistics’ products were on the Aberrant List and had Wellgistics done so, Welgo

would not have disclosed the confidential information.

Wellgistics responds that Welgo’s first theory is improper bootstrapping of a

contract claim into a fraud claim and its second theory is fatally flawed because

Wellgistics had no duty of disclosure.

To state a claim for fraud, a party must allege:

(1) the defendant falsely represented or omitted facts that the defendant had a duty to disclose; (2) the defendant knew or believed that the representation was false or made the representation with a reckless indifference to the truth; (3) the defendant intended to induce the plaintiff to act or refrain from acting; (4) the plaintiff acted in justifiable reliance on the representation; and (5) the plaintiff was injured by its reliance.128

A claim for fraud may be based on representations in a contract, but the factual

allegations of fraud must be separate from the factual allegations for breach of

contract.129 Additionally, damages arising from the alleged fraud must be separate

128 Everphone, Inc. v. Go Tech. Mgmt., LLC, 2023 WL 7996560, at *4 (Del. Super. Nov. 17, 2023) (citing DCV Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954, 958 (Del. 2005)). 129 AssuredPartners of Va., LLC v. Sheehan, 2020 WL 2789706, at *10 (Del. Super. May 29, 2020); Everphone, Inc., 2023 WL 7996560, at *8; see also Black Horse Capital, LP v. Xstelos Holdings, Inc., 2014 WL 5025926, at *25 (Del. Ch. Sept. 30, 2014) (“‘a plaintiff cannot ‘bootstrap’ a claim of breach of contract into a claim of fraud merely by alleging that a contracting party never intended to perform its obligations….’”) (citations omitted).

29 from the alleged contractual damages.130

Welgo’s first theory of fraud is bootstrapping. The factual predicate and

alleged damages for the fraud claim are the same as the allegations supporting the

breach of contract claim – Wellgistics used confidential information, which harmed

Welgo.131 Alleging that a contract counterparty did not intend to abide by the terms

of a contract does not then turn the claim into one for fraud.132 Rather, such claims

must be pursued under whatever rights the complaining party has under the contract.

Welgo’s second theory also fails. Welgo alleges that Wellgistics failed to

disclose that some of Wellgistics’ products were on the soon-to-be-released Aberrant

List. Had Welgo known this information, the argument goes, it would not have

disclosed the Welgo, LLC contracts to Wellgistics.

“Generally, there is no duty to disclose a material fact or opinion, unless the

defendant had a duty to speak.”133 Welgo makes no argument (and provides no facts)

130 Earth Pride Organics LLC v. Corona-Orange Foods Intermediate Holdings, LLC, 2024 WL 1905384, at *9 (Del. Super. Apr. 17, 2024); Cornell Glasgow, LLC v. La Grange Properties, LLC, 2012 WL 2106945, at *9 (Del. Super. June 6, 2012) (“Delaware courts have consistently held that to successfully plead a fraud claim, the allegedly defrauded plaintiff must have sustained damages as a result of a defendant’s actions. And the damages allegations may not simply ‘rehash’ the damages allegedly caused by the breach of contract.”) (citation omitted). 131 See TAC, ¶ 98 (“Welgo relied on the false representations of Wellgistics, that it intended to be bound by the MCA…”). 132 Black Horse Capital, LP, 2014 WL 5025926, at *25. 133 Nicolet, Inc. v. Nutt, 525 A.2d 146, 149 (Del. 1987); See also Airborne Health, Inc. v. Squid Soap, LP, 2010 WL 2836391, at *9 (Del. Ch. July 20, 2010) (citing Prop. Assoc. 14 v. CHR Holding Corp., 2008 WL 963048, at *6 (Del. Ch. Apr. 10, 2008)) (holding that in the absence of a special relationship, one party to a contract is under no duty to disclose “‘facts of which he knows the other is ignorant’ “even if “‘he further knows the other, if he knew of them, would regard

30 that Wellgistics had a duty to speak in this arms’ length commercial transaction.

Welgo argues that once Wellgistics made a partial disclosure, its duty to fully

disclose was triggered.134 The “partial disclosure” Welgo relies on, however, is

Wellgistics’ execution of the MCA. This is no disclosure at all, but rather a spin on

Welgo’s argument that Wellgistics never intended to abide by its contractual

obligations. Accordingly, Count IV is DISMISSED and the affirmative defense is

STRICKEN.135

5. Estoppel

In its answer to the Complaint, Welgo asserts as an affirmative defense that

Wellgistics’ actions, as described in the TAC, were “such that [Wellgistics] should

be estopped from prosecuting this action.”136 In the TAC, Welgo asserts that when

negotiating the Redemption Agreement, Wellgistics promised to stop selling the

Products. Because of this promise, Welgo entered into the Redemption Agreement.

Wellgistics makes two arguments for dismissal of the estoppel claim. First,

Welgo’s claim fails as a matter of law because the integration clause in the

[them] as material in determining his course of action in the transaction in question’”) (quoting Restatement (Second) of Torts § 551 cmt. a (1977)). 134 D.I. 66, p. 17. 135 Count IV also fails to state a claim for failure to plead damages for the reasons stated in the analysis of Count I. See supra. 136 Because the Rule 12(f) and Rule 12(b)(6) standards are essentially the same, the Court is addressing the grounds for the motion to strike with the motion to dismiss the estoppel count.

31 Redemption Agreement prevents any justifiable reliance on the alleged promise.137

Second, the TAC makes general allegations of a promise by Wellgistics, but it does

not include factual details, as required by Rule 9(b).138

Welgo responds that it has sufficiently pled its claim for estoppel and that it

justifiably relied on Wellgistics’ promise. Welgo further argues that it would be

unfair to enforce the Redemption Agreement because of an integration clause, but

ignore Wellgistics’ obligations under the MCA.139

i. Estoppel elements

To assert estoppel, the claimant must show that: (i) a promise was made; (ii)

it was the reasonable expectation of the promisor to induce action or forbearance on

the part of the promisee; (iii) the promisee reasonably relied on the promise and took

action to his detriment, and (iv) such promise is binding because injustice can be

avoided only by enforcement of the promise.140

137 D.I. 59, pp. 29-30. 138 D.I. 59, p. 31. 139 D.I. 66, p. 18. 140 Davis v. Town of South Bethany Beach, 2022 WL 6646506, at *3 (Del. Super. Oct. 11, 2022) (citing Lord v. Souder, 748 A.2d 393, 399 (Del. 2000)); Harmon v. Delaware Harness Racing Comm., 62 A.3d 1198, 1201 (Del. 2013); Keating v. Board of Education, 1993 WL 460527 (Del. Super. Nov. 3, 1993). See also Delmar News, Inc. v. Jacobs Oil Co., 584 A.2d 531, 535 (Del. Super. 1990); Borders v. Townsend Assocs., 2002 WL 725266, at *5 (Del. Super. Apr. 17, 2002).

32 ii. Does the integration clause bar the estoppel claim?

“‘Where the parties have made a contract and have expressed it in writing to

which they both assented as the complete and accurate integration of that contract,

evidence, whether parol or otherwise, of antecedent understanding and negotiations

will not be admitted for the purpose of varying or contradicting the writing.’”141

Wellgistics argues that the Redemption Agreement’s integration clause bars

Welgo’s estoppel claim, but Welgo is not seeking to vary or contradict the terms of

the Redemption Agreement. Rather, Welgo is claiming that it would not have agreed

to the Redemption Agreement had it known that Wellgistics would breach its

promise to stop selling the Products. Accordingly, the integration clause does not

bar the estoppel claim.

iii. Has Welgo sufficiently alleged a claim for estoppel?

Under Rule 8(a), a claim or defense must be stated in a “short and plain

statement.”142 An exception to Rule 8(a) is found in Rule 9(b)’s heightened pleading

standard. Under Rule 9(b), “averments of fraud, negligence or mistake, the

circumstances constituting fraud, negligence or mistake” must be stated with

141 Scott v. Land Lords Inc., 616 A.2d 1214 (TABLE), 1992 WL 276429, at *3 (Del. Sept. 22, 1992) (emphasis added) (quoting Scott-Douglas Corp. v. Greyhound Corp., 304 A.2d 309, 315 (Del. 1973)); Chrin v. Ibrix, 2005 WL 2810599, at *5 (Del. Ch. Oct. 19, 2005) (“Thus, the court cannot reasonably allow the FED, an antecedent preliminary understanding, to vary or contradict the facially unambiguous SPA.”) (emphasis added). 142 Del. Super. Ct. Civ. R. 8(a).

33 particularity.143 While estoppel is subject to a heightened burden of proof at trial,144

it is not among the claims/defenses that must be plead with particularity under Rule

9(b).145 Estoppel is not subject to Rule 9(b)’s heightened pleading standard. Thus,

the claim will not be dismissed for failure to plead with particularity.

In the context of a motion to dismiss under Rule 12(b)(6), the Court reviews

the pleading to determine whether it asserts facts from which it is reasonably

conceivable that the claimant could establish estoppel by clear and convincing

evidence.146 “Clear and convincing” means to prove something “that is highly

probable, reasonably certain, and free from serious doubt.”147

The crux of Welgo’s position is that Wellgistics improperly used confidential

information, sold large quantities of the Products, causing Welgo to lose millions of

dollars in value. Welgo alleges that in negotiations over unwinding Wellgistics’

stock purchase, Wellgistics assured Lion it would stop selling the Products. It is not

reasonable to infer that Welgo would obtain such a critical promise but not include

143 Super. Ct. Civ. R. 9(b) (“In all averments of fraud, negligence or mistake, the circumstances constituting fraud, negligence or mistake shall be stated with particularity.”). 144 See Davis, 2022 WL 6646506, at *3. 145 See Hydrogen Master Rights, Ltd. v. Weston, 228 F. Supp. 3d 320, 333 (D. Del. 2017) (referring to the estoppel allegations in the complaint, the court stated that while “‘[D]etailed factual allegations’ are not required, … a complaint must do more than simply provide ‘a formulaic recitation of the elements of a cause of action.’”) (emphasis added). 146 See In re TIBCO Software Inc. S’holders Litig., 2015 WL 6155894, at *14 n.48 (Del. Ch. Oct. 20, 2015) (noting that on a motion to dismiss a claim that requires proof by clear and convincing evidence, the legal standard is whether the complaint alleges facts from which it is reasonably conceivable that the plaintiff could establish its right by clear and convincing evidence). 147 Hudak v. Procek, 806 A.2d 140, 147 (Del. 2002) (quoting Superior Court Civil Pattern Jury Instruction on clear and convincing as a proper articulation of the standard).

34 that promise in its written contract. Welgo is essentially looking to estoppel as a

way to obtain a benefit that it failed to secure for itself at the drafting table. It is not

reasonably conceivable that Welgo will be able to prove by clear and convincing

evidence that injustice can be avoided only by enforcing this alleged promise.

Accordingly, Count V is DISMISSED and the affirmative defense is STRICKEN.

B. Court of Chancery claim

1. The parties’ contentions

Welgo makes three arguments in support of its breach of fiduciary duty claim.

First, Pearce breached his duty of loyalty by taking no action to prevent Wellgistics

from misusing the confidential information and that he effectively “sat back” and

watched his principal “drain the value” from Welgo. Thus, Wellgistics is

responsible for its agent’s (Pearce) inaction. Second, because Pearce owed fiduciary

duties to Welgo as a director and he was Wellgistics’ agent, Wellgistics is therefore

cloaked with the same fiduciary duties, which it breached by misusing the

confidential information. Third, as a majority stockholder, Wellgistics owed

fiduciary duties to Welgo, which Wellgistics then breached by misusing the

confidential information. Welgo argues that these actions caused the same damages

asserted in its breach of contract claim – due to the increase in the national utilization

rate and subsequent actions of insurers reducing or eliminating coverage for Welgo,

LLC’s Products, Welgo was damaged.

35 Wellgistics counters that the claim must be dismissed because the complaint

does not actually allege a breach of fiduciary duty, and it is improper for Welgo to

rely on allegations in the Superior Court TAC.

Further, Wellgistics continues, even if the Court considers the allegations in

the TAC, the complaint fails to adequately allege agency. While Pearce was

Wellgistics’ agent for purposes of purchasing the Welgo stock, Wellgistics argues

that there are no allegations that he was Wellgistics’ agent as a director. Also, there

are no allegations in the complaint to rebut the presumption that directors are

independent.

Finally, Wellgistics argues that the complaint does not adequately allege that

it owed fiduciary duties as a stockholder. The complaint does not allege that

Wellgistics owned more than 50%, so it cannot be a majority owner, and further, it

argues, the complaint is devoid of allegations that Wellgistics controlled the Welgo

board.

2. Analysis

To state a claim for breach of fiduciary duty, a plaintiff must allege that the

defendant owed a fiduciary duty and that he breached that duty.148 Directors of a

Delaware corporation owe fiduciary duties to the company and its stockholders.149

148 Maka v. Musial, 2024 WL 2374483, at *3 (Del. Ch. May 23, 2024). 149 See Gantler v. Stephens, 965 A.2d 695, 708-09 (Del. 2009); McRitchie v. Zuckerberg, 315 A.3d 518, 537, 543, 546 (Del. Ch. 2024).

36 A stockholder may act in its own self-interest without the constraints of fiduciary

duties,150 except when the stockholder owns voting control, or it owns less than a

majority and it controls the board.151 When a plaintiff’s allegations are based on the

stockholder owning less than a majority, the plaintiff must plead facts to support a

reasonable inference that the alleged controller possessed “(i) control over the

corporation’s business and affairs in general or (ii) control over the corporation

specifically for purposes of the challenged transaction.”152

Welgo alleges that Pearce, as a director of Welgo, owed fiduciary duties to

the company.153 Welgo argues in its brief that Pearce breached this duty when he

took no action to prevent Wellgistics from misusing Welgo’s confidential

information. Welgo, does not, however, make any such allegation in its complaint.

Factual allegations not asserted in the complaint cannot be asserted through the

party’s briefing.154

150 Skye Mineral Investors LLC v. DXS Capital (U.S.) Ltd., 2020 WL 881544, at *26 (Del. Ch. Feb. 20, 2020). 151 Sciannella v. AstraZenca UK Limited, 2024 WL 3327765, at *16 (Del. Ch. July 8, 2024) (“Delaware courts ‘will deem a stockholder a controlling stockholder when the stockholder: (1) owns more than 50% of the voting power of a corporation or (2) owns less than 50% of the voting power of the corporation but exercises control over the business affairs of the corporation.’”). 152 Id. (“‘To plead that the requisite degree of control exists generally, a plaintiff may allege facts supporting a reasonable inference that a defendant or group of defendants exercised sufficient influence ‘that they, as a practical matter, are not differently situated than if they had majority voting control.’”). 153 D.I. 1, ¶ 43. 154 See Dunn v. FastMed Urgent Care, P.C., 2019 WL 4131010, at *7 n.56 (Del. Ch. Aug. 30, 2019) (explaining that a “brief cannot patch pleading deficiencies”); Intertek Testing Services NA, Inc. v. Eastman, 2023 WL 2544236, at *4 n.40 (Del. Ch. Mar. 16, 2023).

37 Even if the Court considered this argument, the complaint fails to identify a

breach by Pearce, which is a necessary predicate under Welgo’s theory. First, there

are no factual allegations, in the complaint, the TAC, or Welgo’s brief, that Pearce

was even aware of Wellgistics’ alleged misuse of the confidential information. Even

if he was aware, there are no factual allegations that he controlled Wellgistics or

could have stopped the alleged misuse. Indeed, Welgo’s allegations are the opposite

– it alleges Wellgistics controlled Pearce.155

The case Welgo relies on, Skye Mineral Investors LLC v. DXS Capital (U.S.)

Ltd.,156 also does not support its theory. In Skye Mineral, the director-defendant

shared information regarding the value of the company’s assets with his affiliates,

but did not share this information with the other directors. Armed with information

that the assets were worth far more than anticipated, the director-defendant ordered

management to take actions that impeded the company’s ability to meet its financial

obligations, he participated in a lawsuit with the intention of blocking much-needed

company financing, and he lied to the board about his involvement in negotiating

the affiliates’ purchase of the loan from the company’s secured lender. This was

part of a scheme to force the company into bankruptcy, which would (and did) allow

155 TAC, ¶¶ 32-33; see also Skye Mineral, 2020 WL 881544, at *23 (“A defining feature of the principal-agent relationship is the principal’s right to control the agent’s conduct.”) (emphasis in original). 156 2020 WL 881544 (Del. Ch. Feb. 20, 2020).

38 the affiliates to purchase the assets as the secured creditor, at a steep discount. The

plaintiff’s theory was bolstered by an email from the director-defendant that

disclosed the scheme to “sit back,” wait for the company’s collapse, and as the first-

lien holder, “buy it out of bankruptcy very cheap.”157

Unlike the director in Skye Mineral, there are no allegations that Pearce took

any actions as a director. There are no allegations of a scheme by which Pearce

used his position as a director to assist Wellgistics harm Welgo. Simply asserting

that Pearce “sat back” and watched as Wellgistics devalued the company is

insufficient to state a claim.

Welgo’s theory that Wellgistics owed its own fiduciary duties by virtue of

Pearce being its agent, also fails. Even assuming that the complaint sufficiently

alleged that Pearce was Wellgistics’ agent as a director, Welgo offers no legal

authority that imposes fiduciary duties on a third-party just because its agent served

as a director. Such a theory would run contrary to the nature of directors’ fiduciary

duties, which were developed from a concept that “rested on the fact that

stockholders entrusted their capital to the firm, which the directors had virtually

plenary power to manage.”158 As Welgo would have it, fiduciary duties would be

157 Skye Mineral, 2020 WL 881544, at *6. 158 McRitchie, 315 A.3d at 557. (detailing the history of the development of the law of directors’ fiduciary duties).

39 imposed on any principal of a director, despite the alleged principal having no ability

to make decisions for the corporation. There is no legal basis for Welgo’s theory.

Finally, Welgo argues that the definition of a “minority” stockholder is one

who owns less than 50% of the stock. Because Wellgistics cannot be a minority

stockholder (as it owns 50%), the argument goes, Wellgistics must be a majority

holder. Even if Welgo’s theory is accepted, there are no allegations that Wellgistics,

as a stockholder, exerted any control over Welgo. The complaint fails to sufficiently

allege that Wellgistics owed a fiduciary duty to Welgo. Accordingly, the complaint

is DISMISSED.

V. CONCLUSION

Because Welgo failed to allege any reasonably conceivable circumstances

under which it is entitled to recover under its claims in the TAC, Wellgistics’ Motion

to Dismiss is GRANTED. Because Welgo has already amended its counterclaim

three times, the TAC is dismissed with prejudice.

Because Welgo failed to plead legally sufficient affirmative defenses

Wellgistics’ Motion to Strike is GRANTED, and the affirmative defenses are

stricken with prejudice.

40 The Court of Chancery complaint fails to state a claim and therefore

Wellgistics’ Motion to Dismiss is GRANTED. Under Rule 15(aaa), the dismissal

is with prejudice.

IT IS SO ORDERED.

/s/Kathleen M. Miller Kathleen M. Miller, Judge