   IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

MHS CAPITAL LLC, a Delaware            )
limited liability company,             )
                                       )
                    Plaintiff,         )
                                       )
      v.                               ) C.A. No. 2017-0449-SG
                                       )
KEITH GOGGIN, MICHAEL                  )
GOODWIN, and JOHN COLLINS,             )
                                       )
                    Defendants,        )
                                       )
and                                    )
                                       )
EAST COAST MINER LLC, a Delaware )
limited liability company,             )
                                       )
                    Nominal Defendant. )

                        MEMORANDUM OPINION

                       Date Submitted: March 5, 2018
                        Date Decided: May 10, 2018

Philip Trainer, Jr. and Marie M. Degnan, of ASHBY & GEDDES, P.A., Wilmington,
Delaware; OF COUNSEL: Stanley S. Arkin, Robert C. Angelillo, and Alex Reisen,
of ARKIN SOLBAKKEN LLP, New York, New York, Attorneys for Plaintiff.

Gregory V. Varallo and Susan M. Hannigan, of RICHARDS, LAYTON & FINGER,
P.A., Wilmington, Delaware; OF COUNSEL: David L. Katsky, Adrienne B. Koch,
and Joseph Weiner, of KATSKY KORINS LLP, New York, New York, Attorneys
for Defendants Keith Goggin and Michael Goodwin.

Michael Busenkell, of GELLERT SCALI BUSENKELL & BROWN LLC,
Wilmington, Delaware; OF COUNSEL: Michael T. Leigh, of KAPLAN JOHNSON
ABATE & BIRD LLP, Louisville, Kentucky, Attorneys for Defendant John Collins.

GLASSCOCK, Vice Chancellor
      This matter involves an alleged scheme by which the sole manager of an LLC

diverted part ownership of assets of the LLC to interests belonging to himself and

his friends. The assets involved were subject to a lien held by the LLC against a

bankrupt entity, which lien gave the LLC the right to bid on the assets using its

secured interest, rather than cash, as consideration at the bankruptcy sale. According

to the Complaint, the manager arranged to have the bankruptcy court transfer the

assets, not to the LLC, but to a consortium of entities of which the LLC was only

one, with the remainder composed of entities associated with the manager and his

cronies. The Plaintiff, a member of the LLC, has sued to vindicate individual or

corporate rights under the LLC’s operating agreement.

      That agreement eschews default common-law fiduciary duties in favor of a

rigorous, if less than clear, list of contractual duties, which appears to hold the

manager to standards of good faith and ordinary care. Parties to the operating

agreement waive the right to seek damages from the manager, except as otherwise

required by the LLC Act. The Plaintiff asserts breach of contract and other assorted

claims, and seeks damages and equitable relief.

      This Memorandum Opinion involves the Defendants’—the manager and his

cronies—Motions to Dismiss. The manager, Keith Goggin, seeks dismissal of the

contract claim, alleging that recovery of damages against him is precluded by the

exculpatory provision in the operating agreement; and that equitable relief is

                                          1
precluded as in violation of the bankruptcy court’s orders. I find that equitable relief

is not necessarily in conflict with those orders, and that the breach of contract claim

survives. All Defendants seek dismissal of the other claims, which I find are either

subsumed within the contract claim or fail to state an independent claim under which

relief can be granted.

      Accordingly, the Defendants’ Motions to Dismiss are granted in part and

denied in part. My reasoning follows.

                                 I. BACKGROUND1

      A. Parties

      Plaintiff MHS Capital LLC is a Delaware limited liability company that

invests in companies based in the United States.2 MHS owns a 23.75% stake in

Nominal Defendant East Coast Miner LLC (“ECM”), another Delaware limited

liability company.3

      Defendant Keith Goggin is the manager of ECM, and he resides in New York

City.4 Goggin holds an 11.88% interest in ECM.5




1
  The facts, drawn from the Complaint and from other material I may consider on a motion to
dismiss, are presumed true for purposes of evaluating the Motions to Dismiss.
2
  Compl. ¶ 16.
3
  Id. ¶¶ 13, 18.
4
  Id. ¶¶ 19–20.
5
  Id. ¶ 29.

                                            2
       Defendant Michael Goodwin is a member of ECM, in which he holds a

10.69% interest.6 Goodwin and Goggin are friends.7 Like Goggin, Goodwin resides

in New York City.8

       Defendant John Collins is another friend of Goggin’s, and he is a member of

non-party USC Management LLC, which holds a 6.65% stake in ECM.9 Collins

resides in Kentucky.10

       B. Factual Background

               1. The Scheme11

       ECM was formed by investors in U.S. Coal, Inc., a Kentucky-based coal

mining company, to buy a senior debt note from U.S. Coal for $21 million.12 MHS

provided $5 million in funding to ECM, representing a 23.75% interest in the

company.13 When ECM purchased the debt note from U.S. Coal, it obtained a

security interest in assets owned by the Licking River (“LR”) division of U.S. Coal.14

That security interest gave ECM the right to “credit bid”—that is, to bid with the


6
  Id. ¶ 30.
7
  Id. ¶ 21.
8
  Id. ¶ 22.
9
  Id. ¶¶ 23, 30. The remainder of ECM is owned by various non-parties. Id. ¶ 30.
10
   Collins Aff. ¶ 1.
11
    The Complaint alleges that in February 2012, Goggin hired a lawyer on behalf of ECM,
purportedly to represent it in litigation in New York. Compl. ¶¶ 31–32. In fact, Goggin also
retained this lawyer to advise him on how to carry out the scheme described below. Id. ¶ 33. The
Complaint makes clear, however, that it “does not seek to recover any funds that were paid to [the
attorney].” Id. ¶ 39.
12
   Id. ¶ 26.
13
   Id. ¶ 27.
14
   Id. ¶ 40.

                                                3
value of the note, instead of cash15—for the LR assets if U.S. Coal entered

bankruptcy.16 U.S. Coal ultimately went bankrupt in May 2014.17

       Goggin, ECM’s sole manager, repeatedly told MHS that ECM would receive

a majority stake in the “New LR,” and that this stake would allow ECM to receive

the full value of its secured interest in the LR assets.18 But Goggin, in fact, had other

plans. First, he set up a separate entity named East Coast Miner II (“ECM II”).19

Then, with Goodwin’s assistance, he created another entity, Licking River Lenders,

which was made up of ECM, ECM II, Goodwin, and Goggin.20 Of these four entities

and individuals, only ECM held the right to credit bid on the LR assets.21

       When it came time to credit bid on the LR assets, Goggin allowed Licking

River Lenders to exercise ECM’s credit-bid rights.22 Thus, because Licking River

Lenders—and not, as Goggin had represented, ECM—was the entity that credit bid

for the LR assets, ECM was forced to share the proceeds of those assets with ECM

II, Goggin, and Goodwin.23 In effect, Goggin benefited himself, Goodwin, and ECM

II by diluting the interest in the LR assets that ECM had expected to receive. MHS,


15
   See In re Phila. Newspapers, LLC, 599 F.3d 298, 302 n.4 (3d Cir. 2010) (“A credit bid allows a
secured lender to bid its debt in lieu of cash.”).
16
   Compl. ¶ 40.
17
   Id. ¶ 28.
18
   Id. ¶ 41.
19
   Id. ¶ 46.
20
   Id. ¶ 47.
21
   Id. ¶ 48.
22
   Id. ¶¶ 50–51.
23
   Id. ¶ 53.

                                               4
which held a 23.75% stake in ECM, was “particularly disadvantaged” by Goggin’s

actions.24 The scheme was apparently advanced via an April 10, 2015 sale order

entered by the United States Bankruptcy Court for the Eastern District of

Kentucky.25 That order authorized the sale of certain LR assets to ECM “and/or”

ECM II as the “Credit Bid Purchasers.”26

      In a separate series of transactions, Goggin misappropriated a different set of

LR assets.27 Goggin formed yet another entity, Ember Energy LLC, in which he

held an 83% stake, with the remainder belonging to Collins.28            Goggin then

“misappropriated ECM’s proprietary and confidential information and trade secrets

in order to effect the assignment of . . . separate and additional assets held by LR to

Ember.”29 As a result, ECM’s interest in the “New LR” was transferred entirely to

Ember, and ECM was left with a small share of lease payments pursuant to an

agreement between Licking River Lenders and Ember.30 These allegations, it

appears, relate to a second sale order entered by the Bankruptcy Court in Kentucky




24
   Id. ¶ 56.
25
   Defs. Goggin & Goodwin Opening Br. Ex. 2.
26
   Id. at 2–3.
27
   Compl. ¶ 62.
28
   Id. ¶¶ 13, 63.
29
   Id. ¶ 62.
30
   Id. ¶¶ 65–66.

                                               5
on April 22, 2015.31 In that order, the Bankruptcy Court authorized the sale of

certain LR assets to Ember.32

      Collins allegedly plays an active role in Ember’s business operations, and he

and Goggin purportedly used ECM’s confidential and proprietary information in

managing Ember.33 The material in question includes “information regarding the

assets acquired by Ember, the potential returns on such assets and strategies for

optimization of the returns from such assets.”34

             2. MHS Is Stonewalled, and Goggin Seeks Ratification for His
             Actions

      Goggin has repeatedly rebuffed MHS’s attempts to obtain information about

its investment in ECM.35 Between early 2014 and April 2015, Goggin did not

provide MHS with any information about the transactions just described. 36 On

March 23, 2015, MHS’s attorney sent a letter to ECM’s counsel requesting

information about the credit bids made by Licking River Lenders, “including the

rationale for making [the] bids.”37 The letter, which MHS styles as a books-and-

records demand,38 also sought clarification as to (i) how ECM decided to approve



31
   Defs. Goggin & Goodwin Opening Br. Ex. 3.
32
   Id. at 2–3, 8.
33
   Compl. ¶ 69.
34
   Id. ¶ 70.
35
   Id. ¶ 61.
36
   Id. ¶ 57.
37
   Id. ¶ 58.
38
   Id. ¶ 76.

                                               6
the bids, (ii) whether ECM gave notice to any ECM members in advance of the bids,

and (iii) the planned allocation of assets among the Licking River Lenders

members.39

        On April 1, 2015, ECM’s lawyer sent a letter to MHS denying its request for

information.40 About two weeks later, MHS wrote a letter to Goggin to again

demand that ECM provide information about its operations; this time, MHS sought,

among other things, tax returns, contact information for ECM’s members and

managers, the minutes of all meetings, business plans and projections, and all

contracts involving ECM.41 The purpose of this request, according to the letter, was

to “evaluate the investments of MHS Capital, to inquire into [ECM’s] significant

expenditures, . . . and to assess the Company’s business and financial condition.”42

MHS did not receive any information in response to its request.43

        On April 9, 2015, Goggin sent a “Consent Package” to MHS.44 In the Consent

Package, Goggin requested a vote on ECM’s exercise of its credit-bid rights, though

he did not seek approval of the Ember transaction.45 The Package was sent less than

twenty-four hours before the vote was due, and it did not include any financial



39
   Id. ¶¶ 59–60.
40
   Id. ¶ 77.
41
   Id. ¶ 78.
42
   Id. ¶ 79 (alterations in original).
43
   Id. ¶ 80.
44
   Id. ¶ 81.
45
   Id. ¶¶ 81–82.

                                         7
information relevant to evaluating any proposed transactions.46 Goggin additionally

asked ECM’s members to “ratify [all] actions I [i.e., Goggin] have taken so far on

behalf of ECM,” though Goggin failed to inform ECM’s members of the nature of

those actions.47 MHS did not vote in favor of the proposals contained in the Consent

Package, and MHS alleges, on information and belief, that no valid approval was

obtained.48

              3. ECM’s Operating Agreement

       ECM’s operating agreement contains two provisions that are particularly

relevant to MHS’s claims. First, the operating agreement provides that “[t]he

Manager [Goggin] shall discharge his . . . duties in good faith, with the care an

ordinarily prudent person in a like position would exercise under similar

circumstances, and in a manner [he] reasonably believes to be in the best interests of

the Company.”49 Second, the operating agreement provides that “[t]he Manager

shall not be liable to the Company [ECM] or any Member [for example, MHS] for




46
   Id. ¶ 82.
47
   Id. ¶ 83 (alterations in original).
48
   Id. ¶ 85. The Complaint also alleges that, in August 2017, Goggin sent a letter to ECM’s
members “declar[ing] that he would make ECM pay lenders of funds for legal defense costs –
including funds to be used to pay the legal fees in this action – ‘12% per annum, compounded
monthly’ and that all such loans would ‘be paid off [by ECM] in full before any distributions are
made with respect to the capital accounts of the members’ – including MHS.” Id. ¶ 89. The letter
noted that the loans were made in part because Goggin and Goodwin were named as defendants
in several of the lawsuits involving ECM. Id. ¶ 90.
49
   Pl.’s Answering Brief in Opp’n to Collins’ Mot. to Dismiss Ex. 1, § 5.6(a).

                                               8
monetary damages for breach of such person’s duty as a Manager, except as

otherwise required under the [Delaware LLC] Act.”50

       C. Procedural History

       On August 26, 2015, MHS and ECM brought suit in New York state court

against Goggin, Goodwin, and Collins.51 The complaint in that action rested on

essentially the same allegations as those recounted above.52 On March 9, 2016,

Collins removed the action to the United States District Court for the Southern

District of New York.53 The Defendants then sought to transfer venue to the

Bankruptcy Court in Kentucky on the ground that the matter “‘arises in’ the Title 11

bankruptcy of United States Coal.”54 The court ultimately remanded the matter to

New York state court after determining that the relief sought in the plaintiffs’

proposed amended complaint would not impact the U.S. Coal bankruptcy estate.55

Later, on May 1, 2017, the New York state court dismissed the complaint as to

Goodwin and Goggin based on the exclusive venue provision contained in the

operating agreement, and as to Collins for lack of personal jurisdiction.56




50
   Id. § 5.10.
51
   Defs. Goggin & Goodwin Opening Br. Ex. 4, at 4.
52
   Id. at 1–4.
53
   Id. at 4.
54
   MHS Capital v. Goggin, 193 F. Supp. 3d 304, 305 (S.D.N.Y. 2016).
55
   Id. at 305–06.
56
   Defs. Goggin & Goodwin Opening Br. Ex. 4, at 5–17.

                                             9
       MHS commenced the present litigation on June 14, 2017, and amended its

Complaint on September 22, 2017. The Complaint contains twelve counts. Count

I is brought against Goggin for breach of fiduciary duty.57 Count II is brought against

Goodwin and Collins, and it alleges that they aided and abetted Goggin’s breaches

of fiduciary duty.58 Count III alleges that the Defendants conspired to commit

breaches of fiduciary duty.59 Count IV alleges that Goggin committed fraud, Count

V asserts that Collins and Goodwin aided and abetted that fraud, and Count VI avers

that the Defendants conspired to commit fraud.60 Count VII alleges that Goggin

breached ECM’s operating agreement through the conduct described in the

Complaint.61    In Count VIII, MHS asserts that Goggin breached the implied

covenant of good faith and fair dealing.62 Count IX seeks relief for tortious

interference with contract against Goodwin and Collins.63 Count X alleges that the

Defendants were unjustly enriched by the conduct set out in the Complaint. 64 In

Count XI, MHS alleges that Goggin and Collins misappropriated trade secrets

belonging to ECM.65 Finally, Count XII is a demand for books and records.66


57
   Compl. ¶¶ 97–103.
58
   Id. ¶¶ 104–13.
59
   Id. ¶¶ 114–25.
60
   Id. ¶¶ 126–57.
61
   Id. ¶¶ 158–66.
62
   Id. ¶¶ 167–79.
63
   Id. ¶¶ 180–86.
64
   Id. ¶¶ 187–95.
65
   Id. ¶¶ 196–208.
66
   Id. ¶¶ 209–14.

                                          10
       The Complaint emphasizes that MHS is not seeking any relief for or on behalf

of the bankruptcy estate of U.S. Coal, and that the relief it does seek will not affect

any orders issued by the Kentucky Bankruptcy Court.67 Specifically, MHS seeks

money damages and equitable relief, including a constructive trust, disgorgement,

restitution, an accounting, and an injunction.68 MHS also notes that the claims it

seeks to bring have never been before the Bankruptcy Court.69

       The Defendants moved to dismiss the Complaint on October 6, 2017. I heard

argument on those Motions on March 5, 2018.

                                      II. ANALYSIS

       The Defendants have moved to dismiss the Complaint under Court of

Chancery Rule 12(b)(6). When reviewing such a motion,

       (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.70

I need not, however, “accept conclusory allegations unsupported by specific facts or

. . . draw unreasonable inferences in favor of the non-moving party.”71



67
   E.g., id. ¶¶ 1–8.
68
   E.g., id. ¶ 9.
69
   Id. ¶ 7.
70
   Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (footnotes and internal quotation
marks omitted).
71
   Price v. E.I. DuPont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011).

                                              11
      A. Goggin

      MHS brings nine claims against Goggin: breach of fiduciary duty, conspiracy

to commit breach of fiduciary duty, fraud, conspiracy to commit fraud, breach of

contract, breach of the implied covenant of good faith and fair dealing, unjust

enrichment, misappropriation of trade secrets, and a books-and-records demand.

The Defendants argue that all of these claims should be dismissed. According to the

Defendants, an overarching defect with several of these claims is that Goggin is

exculpated from any liability for monetary damages for breaches of his duties as

ECM’s manager. Moreover, the Defendants argue, MHS cannot get around the

exculpation clause by seeking equitable relief, because such relief would interfere

with the sale orders entered by the Bankruptcy Court and is in any event barred by

judicial estoppel. I first address the question whether MHS is precluded from

seeking equitable relief. I then turn to the Defendants’ other arguments for dismissal

of the claims against Goggin.

             1. MHS Is Not Precluded from Seeking Equitable Relief

      The Complaint emphasizes that MHS does not seek to reverse or modify the

sale orders authorizing the transfer of certain LR assets to ECM II and Ember.

Instead, MHS seeks (among other things) to disgorge the monetary proceeds

received by the Defendants through their misconduct, and to impose a constructive

trust over those proceeds. The Defendants nevertheless argue that any equitable



                                         12
relief granted to MHS would necessarily undermine the sale orders. Those orders

specify that the purchasers take title to the assets free and clear of any “encumbrance

of any kind.”72 The sale orders also provide that “all persons and entities holding . .

. Claims . . . are . . . permanently enjoined from asserting . . . such . . . Claims of any

kind and nature” against the purchasers with respect to the assets at issue.73 In my

view, the Defendants’ concerns about potential interference with the sale orders do

not establish that MHS is precluded as a matter of law from seeking equitable relief.

       At the outset, this Court “has broad discretionary power to fashion appropriate

equitable relief.”74 The Court may even “depart from strict application of the

ordinary forms of relief where circumstances require.”75 Moreover, the availability

and scope of equitable remedies are fact-intensive questions that are ill-suited for

resolution on a motion to dismiss.76 Indeed, “on a motion to dismiss all that need be

decided is whether a claim is stated upon which any relief could be granted. If that

question is answered in the affirmative, the nature of that relief is not relevant and



72
   Defs. Goggin & Goodwin Opening Br. Ex. 2, at 5; Defs. Goggin & Goodwin Opening Br. Ex.
3, at 9.
73
   Defs. Goggin & Goodwin Opening Br. Ex. 2, at 6; Defs. Goggin & Goodwin Opening Br. Ex.
3, at 10
74
   William Penn P’ship v. Saliba, 13 A.3d 749, 758 (Del. 2011); see also Cornerstone Brands, Inc.
v. O’Steen, 2006 WL 2788414, at *4 (Del. Ch. Sept. 20, 2006) (“The Court of Chancery has broad
discretion to fashion any remedy required by equity.”).
75
   PharmAthene, Inc. v. SIGA Techs., Inc., 2011 WL 6392906, at *3 (Del. Ch. Dec. 16, 2011).
76
   See, e.g., Chaffin v. GNI Grp., Inc., 1999 WL 721569, at *7 (Del. Ch. Sept. 3, 1999) (“At this
stage, to decide whether rescission relief is (or is not) feasible would not only go beyond the scope
of a motion to dismiss, but also would be imprudent, because the issue is fact driven and cannot
be decided in the absence of an evidentiary record.”).

                                                13
need not be addressed.”77 For example, this Court has declined to dismiss an

otherwise well-pled claim for promissory or equitable estoppel that rested on a

request for rescission which may have been “impossible” to grant.78 The Court,

citing its broad authority to fashion appropriate relief, reasoned that it did not need

to evaluate the effect of any remedial order at the pleading stage.79

       Here, the Defendants ask me to rule, at the motion to dismiss stage, on the

availability of certain forms of equitable relief. Any such ruling, however, would be

premature. It is not clear to me that the equitable relief MHS seeks would necessarily

interfere with the sale orders entered by the Kentucky Bankruptcy Court. True, those

orders assign interests in the LR assets to the purchasers free and clear of any

encumbrances, and one of the orders specifies that the proceeds of the assets in

question shall be distributed “subject to order of the Court after notice and a

hearing.”80 But once the Bankruptcy Court has finalized the distribution of the LR

assets, it may be possible to equitably attach their proceeds without running afoul of

anything contained in the sale orders. Whether that is so depends in part on the scope

of the relief—if any—I ultimately grant in this action. That is a fact-intensive

question that cannot be resolved at the pleading stage. Of course, discovery may


77
   Id.
78
   O’Steen, 2006 WL 2788414, at *3–4.
79
   Id. at *4; see also Microsoft Corp. v. Amphus, Inc., 2013 WL 5899003, at *20 (Del. Ch. Oct. 31,
2013) (declining to rule that rescission was not available at the pleading stage even though the
plaintiff would “face an uphill battle” in establishing one of the predicates for that remedy).
80
   Defs. Goggin & Goodwin Opening Br. Ex. 2, at 4.

                                               14
reveal that any form of equitable relief sought by MHS would necessarily and

impermissibly modify the sale orders. In that case, Goggin may raise the issue via

a motion for summary judgment or at trial. At the pleading stage, however, I cannot

rule out the possibility that MHS may be entitled to forms of equitable relief that

would not derogate the sale orders.

       The Defendants also argue that MHS is judicially estopped from seeking

equitable relief. In opposing transfer to the Kentucky Bankruptcy Court, MHS and

ECM argued to the District Court that the relief they sought would not affect the

U.S. Coal bankruptcy estate.81 MHS and ECM explained that they

       seek monetary damages against the manager of ECM, defendant
       Goggin, who, through fraud and breaches of fiduciary duty owed to
       MHS and ECM, and with assistance of the other defendants, usurped
       an opportunity belonging to plaintiff ECM, thereby causing monetary
       damages to both ECM and MHS. This case does not require the
       interpretation or enforcement of any of the Bankruptcy Court’s
       orders.82

The District Court agreed with MHS and ECM, denying the motion to transfer on

the ground that the plaintiffs “do not seek damages or other relief from the

bankruptcy estate or reversal, overruling, or modification of the Bankruptcy Court

sale order.”83 In my view, these representations, along with the District Court’s

ruling, do not estop MHS from seeking equitable relief.


81
   Defs. Goggin & Goodwin Opening Br. Ex. 5, at 1.
82
   Id.
83
   Goggin, 193 F. Supp. 3d at 305.

                                            15
       “Judicial estoppel acts to preclude a party from asserting a position

inconsistent with a position previously taken in the same or earlier legal

proceeding.”84 The doctrine is designed to “protect the integrity of the judicial

proceedings.”85 “Judicial estoppel operates only where the litigant’s [position]

contradicts another position that the litigant previously took and that the Court was

successfully induced to adopt in a judicial ruling.”86 Three factors bear on the

judicial estoppel analysis:

       First, a party’s later position must be clearly inconsistent with its earlier
       position. Second, courts regularly inquire whether the party has
       succeeded in persuading a court to accept that party’s earlier position,
       so that acceptance of an inconsistent position in a later proceeding
       would create the perception that either the first or the second court was
       misled. . . . A third consideration is whether the party seeking to assert
       an inconsistent position would derive an unfair advantage or impose an
       unfair detriment if not estopped.87

“Doubts about inconsistency often should be resolved by assuming there is no

disabling inconsistency, so that the second matter may be resolved on the merits.”88

       Here, MHS’s request for equitable relief is not “clearly inconsistent” with the

position it took before the District Court. MHS never told the District Court that it

would not seek equitable relief against the Defendants. Instead, MHS and ECM


84
   Motorola Inc. v. Amkor Tech., Inc., 958 A.2d 852, 859 (Del. 2008).
85
   Id.
86
   Id. at 859–60 (internal quotation marks, alterations, and citation omitted).
87
   Whittington v. Dragon Grp. L.L.C., 2011 WL 1457455, at *9 (Del. Ch. Apr. 15, 2011) (alteration
in original) (quoting New Hampshire v. Maine, 532 U.S. 742, 750–51 (2001)).
88
   18B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 4477 (2d ed.
2018).

                                               16
assured the District Court that the relief they sought would not derogate the sale

orders entered by the Bankruptcy Court. MHS and ECM tried to support their

position by pointing out that they sought monetary damages against Goggin, but that

is not tantamount to a representation that MHS would never seek equitable relief

against him or his purported co-conspirators. Tellingly, the District Court relied on

MHS’s representations to find that (i) MHS does not seek damages from the U.S.

Coal bankruptcy estate, and (ii) MHS does not seek “reversal, overruling or

modification” of the Bankruptcy Court’s orders.89             Those findings are not

incompatible with MHS’s position here.

       The Defendants’ argument might have more force if it were beyond dispute

that equitable relief would undermine the sale orders. If that were the case, a

representation, relied on by the District Court, that the requested relief would not

derogate those orders would tend to raise an estoppel. But, for the reasons discussed

above, it is not clear to me that equitable relief here would conflict with the sale

orders. Thus, judicial estoppel does not bar MHS from seeking equitable remedies.

       The Defendants argue that this case is on all fours with Nutzz.com, LLC v.

Vertrue Inc.90 I disagree. In that case, the plaintiff explicitly asserted that several of

its claims were not subject to an arbitration clause.91 The Court relied on that


89
   Goggin, 193 F. Supp. 3d at 305.
90
   2006 WL 2220971 (Del. Ch. July 25, 2006).
91
   Id. at *10.

                                               17
representation in ruling on the plaintiff’s motion for a preliminary injunction.92 The

plaintiff later attempted to argue that similar claims in fact belonged in arbitration.93

The Court rejected that argument as barred by judicial estoppel.94 In effect, the Court

explained, the plaintiff sought to “walk away from an argument it previously

convinced th[e] Court to adopt.”95 Here, by contrast, MHS has not taken the type of

directly conflicting positions that troubled the Court in Nutzz.com. If the District

Court had relied on a promise by MHS that it would not seek equitable relief,

Nutzz.com would be on point. But that is not what MHS said, or what the District

Court did. Thus, Nutzz.com96 does not help the Defendants.

       MHS also seeks monetary damages for breach of contract against Goggin, and

argues that the operating agreement’s exculpatory clause does not prevent an award

of damages for actions of the manager taken in bad faith. I have held that MHS is

not barred from seeking equitable relief. Apart from the question of remedies, the

Defendants do not argue that the Complaint fails to state a claim based on Goggin’s

alleged breach of the duties imposed by ECM’s operating agreement. Thus, because

I may assume that the Complaint states a claim against Goggin for breach of contract,

and because I have found that equitable relief is not necessarily precluded with



92
   Id.
93
   Id (emphasis added).
94
   Id.
95
   Id.
96
   There is not a single pun in this Memorandum Opinion, and I intend to keep it that way.

                                               18
respect to that claim, I need not decide whether the exculpatory provision bars

MHS’s request for monetary damages against Goggin.97 Moreover, at this stage of

the litigation, I need not decide whether MHS’s request for some forms of equitable

relief is so close to a request for monetary damages that it runs afoul of the

exculpatory provision. Finally, the way the operating agreement’s “Manager”

standard of care—good faith and ordinary care—is meant to work with the

exculpatory clause, which purports to eliminate all damages, is unclear to me. These

issues all await a developed record.

               2. Breach of Fiduciary Duty

       The Defendants seek dismissal of the fiduciary duty count on the ground that

it is duplicative of the breach of contract count. The Complaint alleges that Goggin

breached his fiduciary duties by failing to act in the best interests of ECM.

Specifically, Goggin usurped business opportunities belonging to ECM, stonewalled

MHS when it sought information about its investment, improperly sought

ratification for his actions from ECM’s members, and “impair[ed] ECM’s assets to

pay his . . . personal legal defense fees.”98 The Complaint also alleges that Goggin



97
   See, e.g., Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963, 991 (Del. Ch. 2000) (“In
response to a motion to dismiss, I simply determine whether plaintiff has stated a claim for which
relief might be granted. If I find that plaintiffs have stated cognizable claims, then ‘the nature of
that relief is not relevant and need not be addressed.’ Because the determination of relief is beyond
the scope of this motion and premature without an established evidentiary record, I will not address
this issue.” (footnotes omitted) (quoting Chaffin, 1999 WL 721569, at *7)).
98
   Compl. ¶ 88.

                                                 19
breached the operating agreement. MHS points to Section 5.6(a) of the agreement,

which provides that Goggin “shall discharge his . . . duties in good faith, with the

care an ordinarily prudent person in a like position would exercise under similar

circumstances, and in a manner [he] reasonably believes to be in the best interests of

the Company.”99 According to MHS, Goggin breached these obligations through

the conduct just described—that is, his usurpation of business opportunities and his

other purportedly disloyal actions.100 Notably, MHS seeks the same relief for its

fiduciary duty and breach of contract counts.101

      Delaware law is clear that fiduciary duty claims may not proceed in tandem

with breach of contract claims absent an “independent basis for the fiduciary duty

claims apart from the contractual claims.”102 This rule stems from “the primacy of

contract law over fiduciary law” in this state.103 Thus, “where a dispute arises from

obligations that are expressly addressed by contract, that dispute will be treated as a

breach of contract claim.”104 “In that specific context, any fiduciary claims arising

out of the same facts that underlie the contract obligations would be foreclosed as

superfluous.”105 A fiduciary duty claim cannot proceed in parallel with a breach of


99
   Pl.’s Answering Brief in Opp’n to Collins’ Mot. to Dismiss Ex. 1, § 5.6(a).
100
    Pl.’s Answering Brief in Opp’n to Goggin & Goodwin’s Mot. to Dismiss 33–35.
101
    Compl. ¶¶ 112–13, 165–66.
102
    Renco Grp., Inc. v. MacAndrews AMG Holdings LLC, 2015 WL 394011, at *7 (Del. Ch. Jan.
29, 2015) (internal quotation marks and citation omitted).
103
    Stewart v. BF Bolthouse Holdco, LLC, 2013 WL 5210220, at *12 (Del. Ch. Aug. 30, 2013).
104
    Nemec v. Shrader, 991 A.2d 1120, 1129 (Del. 2010).
105
    Id.

                                           20
contract claim unless the former “depend[s] on additional facts . . . , [is] broader in

scope, and involve[s] different considerations in terms of a potential remedy.”106

       MHS’s breach of fiduciary duty claim is duplicative of its breach of contract

claim and must be dismissed. Goggin’s obligations as ECM’s manager are defined

in Section 5.6(a) of the operating agreement, which requires him to act in good faith,

with ordinary care, and in the best interests of the company. All of the conduct that

could conceivably form the basis of a fiduciary duty claim—for instance, Goggin’s

usurpation of ECM’s business opportunities, and his use of company money to pay

personal legal expenses—is clearly covered by the duties spelled out in the operating

agreement. Moreover, MHS seeks identical remedies with respect to the fiduciary

duty and breach of contract claims. Thus, there is no “independent basis for the

fiduciary duty claim[] apart from the contractual claim[].”107

       MHS tries to salvage its fiduciary duty count by pointing to conduct that

potentially constitutes a breach of contract but does not form part of the fiduciary

duty allegations. For example, the Complaint alleges that Goggin breached the

contractual requirements that “each member of ECM . . . be entitled to vote in

proportion to the percentage interest [it] own[s]” and that “a 75% supermajority




106
    Renco Grp., Inc., 2015 WL 394011, at *7 (internal quotation marks, alterations, and citation
omitted).
107
    Id.

                                              21
vote” be obtained for major decisions.108             Even if MHS is correct that these

contractual breaches do not also involve a breach of fiduciary duty, that does not

establish an independent basis for the fiduciary duty count. Indeed, MHS gets the

analysis required precisely backwards. The question is whether “there is some harm

to be remedied through the lens of fiduciary duty which cannot be adequately

compensated through enforcement of the contract.”109 Obviously, conduct that

constitutes a breach of contract (and not a breach of fiduciary duty) can be remedied

through a breach of contract claim. MHS has failed to point to any conduct that

would constitute a breach of fiduciary duty and would not also form the basis of a

claim for breach of contract. Thus, the fiduciary duty count is duplicative and must

be dismissed.110

               3. Fraud

       MHS alleges that Goggin committed fraud when, “[o]ver the course of many

months, [he] repeatedly represented to [MHS] that he was arranging for ECM to use

its credit bid right to get the full value of its secured interest in [U.S. Coal’s]



108
    Compl. ¶¶ 162–63.
109
    Matthew v. Laudamiel, 2014 WL 5904716, at *2 (Del. Ch. Nov. 12, 2014).
110
    Because the Complaint fails to state a claim for breach of fiduciary duty, the corresponding
counts for conspiracy to commit breach of fiduciary duty and aiding and abetting breach of
fiduciary duty must be dismissed as well. See, e.g., Trenwick Am. Litig. Trust v. Ernst & Young,
L.L.P., 906 A.2d 168, 215 (Del. Ch. 2006) (dismissing claims for conspiracy to breach fiduciary
duty and aiding and abetting breach of fiduciary duty because the complaint failed to state a claim
for breach of fiduciary duty), aff’d sub nom. Trenwick Am. Litig. Trust v. Billett, 931 A.2d 438
(Del. 2007).

                                                22
assets.”111 MHS similarly alleges that “[a]t all times, Goggin represented to [MHS]

that he was working on a deal by which ECM would get a majority share in the ‘New

LR,’ and the full value of its secured interest in the LR assets.”112 As discussed

above, these representations turned out to be false. MHS further alleges that Goggin

failed to disclose his plan to usurp business opportunities from ECM. Notably, MHS

clarifies in its opposition brief that the purported misrepresentations and omissions

took place at some point between 2009, when MHS invested in ECM, and April

2015, when the Bankruptcy Court sale orders were entered.113 These allegations fail

to plead fraud with the particularity required to survive a motion to dismiss.

Moreover, MHS has failed to adequately allege reliance, and its fraud claim is an

impermissible bootstrap of its breach of contract claim.

       To state a claim for fraud, a plaintiff must allege that “(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



111
    Compl. ¶ 129.
112
    Id. ¶ 41.
113
    Pl.’s Answering Brief in Opp’n to Goggin & Goodwin’s Mot. to Dismiss 38 (“With respect to
the dates of these representations and the ongoing omissions, it is implicit in the pleading that they
took place during the period after MHS’s investment in 2009, but prior to Defendants’ exercise of
the credit bid rights and the Ember transaction, which took place on April 22, 2015 – a fact about
which the Defendants were obviously aware and about which this Court can take judicial notice.”).

                                                 23
reliance on the representation; and (5) the plaintiff was injured by its reliance.”114

“In addition to arising from overt misrepresentations, fraud also may occur through

deliberate concealment of material facts, or by silence in the face of a duty to

speak.”115

       Court of Chancery Rule 9(b) requires a plaintiff to plead fraud with

particularity.116 To satisfy Rule 9(b), the plaintiff must allege “(1) the time, place,

and contents of the false representation [or omission]; (2) the identity of the person

making the representation [or omission]; and (3) what the person intended to gain

by making the representations [or omissions].”117                A plaintiff need not plead

knowledge or state of mind with particularity, because “any attempt to require

specificity in pleading a condition of mind would be unworkable and

undesirable.”118 The purpose of Rule 9(b) is to provide the defendant with “detail

sufficient to apprise [her] of the basis for the claim.”119

       MHS’s fraud claim fails to comply with the particularity requirement of Rule

9(b). The Complaint does not provide enough specificity as to when the false

representations and omissions were made. Rule 9(b) is not satisfied by the allegation


114
    Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1050 (Del. Ch. 2006).
115
    Vichi v. Koninklijke Philips Elecs., N.V., 85 A.3d 725, 773–74 (Del. Ch. 2014).
116
    Ct. Ch. R. 9(b) (“In all averments of fraud or mistake, the circumstances constituting fraud or
mistake shall be stated with particularity.”).
117
    Abry Partners V, L.P., 891 A.2d at 1050.
118
    Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199, 1208
(Del. 1993) (citation omitted).
119
    Abry Partners V, L.P., 891 A.2d at 1050.

                                                24
that, at some unspecified time between MHS’s investment in 2009 and the

usurpation of business opportunities in April 2015, Goggin made false

representations and omitted material facts.120               Indeed, that allegation “is the

functional equivalent to providing no time parameter at all because the

misrepresentations logically could not have occurred during any other period of

time.”121 Moreover, a years-long time frame such as the one offered by MHS cannot

possibly give Goggin enough information “to apprise [him] of the basis for the

claim.”122 Thus, because MHS has failed to allege fraud with enough particularity

to satisfy Rule 9(b), its fraud claim must be dismissed.

       MHS’s primary response to this pleading deficiency is that Rule 9(b) should

not apply to its fraud claim because the information underlying that claim lies in the

Defendants’ possession. Relatedly, MHS contends that it cannot be expected to

satisfy Rule 9(b) absent discovery. MHS is correct that this Court has required less

particularity from plaintiffs alleging fraud “when the facts lie more in the knowledge




120
    Federal courts applying the analogous Federal Rule of Civil Procedure 9(b) have held that
alleging a time frame of six or more months is insufficient to satisfy the particularity requirement.
See, e.g., Hatteras Enters. Inc. v. Forsythe Cosmetic Grp., Ltd., 2018 WL 1935984, at *11
(E.D.N.Y. Apr. 23, 2018) (“[I]t is insufficient to state that the misrepresentations occurred over a
six to seven month period.” (collecting cases)); McCann v. Jupina, 2017 WL 1540719, at *2 (N.D.
Cal. Apr. 28, 2017) (“[C]ourts have held that a nine-month window is not sufficiently narrow to
satisfy Rule 9(b).” (collecting cases)).
121
    Fortis Advisors LLC v. Dialog Semiconductor PLC, 2015 WL 401371, at *7 (Del. Ch. Jan. 30,
2015).
122
    Abry Partners V, L.P., 891 A.2d at 1050.

                                                25
of the opposing party than of the pleading party.”123 But that rule does not apply

here. Generally speaking, “[t]he lack of prior discovery poses no impediment to a

plaintiff’s ability to plead ‘the circumstances constituting fraud.’ After all, the

plaintiff was there.”124 If Goggin in fact lied to (or concealed material information

from) MHS, on which MHS relied to change position to its detriment, MHS ought

to be able to plead when those lies or omissions took place with far more specificity

than its Complaint displays.125 Contrary to MHS’s suggestion, the fact of when those

events occurred is not solely in the Defendants’ possession. I reject MHS’s attempt

to sidestep the strictures of Rule 9(b).126

       Setting aside MHS’s failure to comply with Rule 9(b), I note that the nature

of its fraud claim remains unclear to me. MHS alleges that the fraud began after its




123
    H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 146 (Del. Ch. 2003).
124
    Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d 126, 142 (Del. Ch. 2009); see also
Crescent/Mach I Partners, L.P., 846 A.2d at 988–89 (“I note that the plaintiffs argue that they
cannot sufficiently articulate their fraud-based claims without seeking discovery from the
defendants, who allegedly possess the information forming the basis for their claim. For me to
permit this kind of conclusory allegation in the absence of any particularized facts is contrary to
the limitations of Rule 9(b). Moreover, plaintiffs’ suggestion that their allegations cannot be fully
articulated in the absence of discovery belies the fraud-based pleading standard. I know of no
Delaware precedent that permits a conclusory allegation to proceed on the basis that later discovery
will fill in the purported gaps if only the pleading is allowed to survive a motion to dismiss.”).
125
    Cf. Aronov v. Mersini, 2015 WL 1780164, at *4 (S.D.N.Y. Apr. 20, 2015) (“The identity of the
speaker and the location from which the calls were placed may be only known to defendants;
however, the dates on which [the defendants] placed the calls and the content of the alleged
misrepresentations are known to the customers who received these calls.”).
126
    Because MHS’s fraud claim fails, its claims for aiding and abetting and conspiracy to commit
fraud must be dismissed as well. See, e.g., Airborne Health, Inc. v. Squid Soap, LP, 2010 WL
2836391, at *10 (Del. Ch. July 20, 2010) (“Lacking an underlying wrong, [the plaintiff’s] claims
against [the defendant] for aiding and abetting and conspiracy likewise fail.”).

                                                26
investment in ECM.              How, then, did MHS rely on Goggin’s purported

misrepresentations and omissions? MHS offers the conclusory allegation that it

“believed [Goggin’s] statements and omissions to be true and w[as] deceived, and

justifiably acted in reliance on them and w[as] damaged thereby.”127 But MHS never

explains what it did in reliance on these misrepresentations and omissions.128

Indeed, given that MHS had already invested in ECM before the fraud began, it is

hard to see how it could successfully plead reliance. Perhaps MHS would have taken

steps to protect its rights if it had learned of Goggin’s scheme before the sale orders

were entered. But those steps presumably would have culminated in filing a lawsuit

against Goggin—which is precisely what MHS has done here.129 In any event,




127
    Compl. ¶ 137. Such an allegation, standing alone, is insufficient to plead reliance. See, e.g.,
Anglo Am. Sec. Fund, L.P. v. S.R. Global Int’l Fund, L.P., 829 A.2d 143, 159 (Del. Ch. 2003)
(dismissing a fraud claim because, among other things, the plaintiffs offered only “[t]he conclusory
allegation that ‘Plaintiffs were in fact deceived by the acts, omissions and conduct described in
this complaint and relied thereon to their detriment’”); Smith v. Smitty McGee’s, Inc., 1998 WL
246681, at *5 (Del. Ch. May 8, 1998) (“One obvious defect in plaintiff’s allegation is the statement
that he ‘relied upon’ Rick McGee's statement. This conclusory statement is insufficient; to plead
reliance with particularity, plaintiff must explain what he did, or refrained from doing, in justifiable
reliance upon the statement.”).
128
    In opposing Goggin and Goodwin’s Motion to Dismiss, MHS points out that it alleges “MHS
relied on and was damaged by the[] misstatements and omissions.” Pl.’s Answering Brief in Opp’n
to Goggin & Goodwin’s Mot. to Dismiss 38. But that simply restates the Complaint’s conclusory
allegation that MHS relied to its detriment on Goggin’s lies and omissions.
129
    Cf. Touch of It. Salumeria & Pasticceria, LLC v. Bascio, 2014 WL 108895, at *5 (Del. Ch. Jan.
13, 2014) (“In fact, at oral argument, the Plaintiffs’ counsel disclosed that, absent any
misrepresentation, the Plaintiffs would have done precisely what they ultimately did here; bring
suit to vindicate what they believe to be their rights under the Amended LLC Agreement. As such,
the Plaintiffs are not able to plead reliance or resulting damages.”).

                                                  27
MHS’s failure to offer any non-conclusory allegations regarding reliance provides

an independent basis for dismissing its fraud claim.

       Moreover, although the Defendants do not raise the issue, MHS’s fraud claim

runs afoul of the well-established principle that “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.”130 In other words, a plaintiff cannot

state a fraud claim “merely by intoning the prima facie elements of the tort while

telling the story of the defendant’s failure to perform under the contract.”131 Here,

MHS’s fraud count boils down to the assertion that, after MHS made its investment,

Goggin either (i) failed to inform it that he intended to breach the operating

agreement, or (ii) falsely represented that he would perform his obligations under

the agreement. That is “exactly the type of bootstrapping this Court will not

entertain.”132 MHS’s fraud claim thus suffers from several deficiencies, each of

which independently compels dismissal.


130
    Narrowstep, Inc. v. Onstream Media Corp., 2010 WL 5422405, at *15 (Del. Ch. Dec. 22, 2010)
(internal quotation marks and citation omitted).
131
    Cornell Glasgow, LLC v. La Grange Props., LLC, 2012 WL 2106945, at *8 (Del. Super. June
6, 2012) (Slights, J.).
132
    BAE Sys. N. Am. Inc. v. Lockheed Martin Corp., 2004 WL 1739522, at *8 (Del. Ch. Aug. 3,
2004); see also Bean v. Fursa Capital Parners, LP, 2013 WL 755792, at *4 (Del. Ch. Feb. 28,
2013) (“[T]o the extent [the fraud count] relates to representations made at the time of the LPA,
the allegations in the Complaint do not support Plaintiff’s argument that his fraud claim is broader
than his breach of contract claim. The alleged misrepresentation is that Defendants knew they
would not deliver audited annual financial statements. But, the failure to deliver such statements
is what forms the basis of Bean’s breach of contract claims.”); Cornell Glasgow, LLC, 2012 WL
2106945, at *8 (“[E]ven if the defendants never intended to perform, their alleged scheme to
breach the Development Agreement simply cannot give rise to an actionable claim for fraud or

                                                28
               4. The Implied Covenant of Good Faith and Fair Dealing

       MHS alleges that Goggin breached the implied covenant of good faith and fair

dealing. According to MHS, the ECM operating agreement implicitly required

Goggin to refrain from usurping ECM’s business opportunities and using ECM

funds to pay his and Goodwin’s personal legal expenses. The Defendants argue that

these allegations fail to state a claim for breach of the implied covenant. I agree.133

       Because a claim for breach of the implied covenant is contractual, “the

elements of an implied covenant claim are those of a breach of contract claim: ‘a

specific implied contractual obligation, a breach of that obligation by the defendant,

and resulting damage to the plaintiff.’”134 Applying the implied covenant is a

“cautious enterprise,”135 and the doctrine is “rarely invoked successfully.”136 The

implied covenant applies only when one party “proves that the other party has acted



negligent misrepresentation.”); Pinkert v. John J. Oliveri, P.A., 2001 WL 641737, at *5 (D. Del.
May 24, 2001) (“Plaintiffs allege that the Brosnahan defendants: (1) contracted to perform
construction services; (2) failed to perform the services in the manner called for by the
Construction Contract; and (3) submitted payment applications indicating the services had been
performed according to the Construction Contract. The gravamen of plaintiffs’ common law fraud
. . . claim[] is that the Brosnahan defendants knowingly misrepresented the nature of their work
each time they submitted an Application and Certification for Payment. These alleged
misrepresentations were not collateral to the Construction Contract, but rather memorialized as
some of the Brosnahan defendants’ principal obligations under their agreement with plaintiffs.”).
133
     Because MHS has failed to state a claim for breach of the implied covenant, I need not address
the Defendants’ argument that Section 18-1101(e) of the LLC Act distinguishes between “bad
faith” violations of the implied covenant and violations of the implied covenant that are not
committed in bad faith.
134
     NAMA Holdings, LLC v. Related WMC LLC, 2014 WL 6436647, at *16 (Del. Ch. Nov. 17,
2014) (quoting Fitzgerald v. Cantor, 1998 WL 842316, at *1 (Del. Ch. Nov. 10, 1998)).
135
     Nemec, 991 A.2d at 1125.
136
     Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872, 888 (Del. Ch. 2009).

                                                29
arbitrarily or unreasonably, thereby frustrating the fruits of the bargain that the

asserting party reasonably expected.”137 A party’s reasonable expectations are

measured as of the time of contracting,138 and any implied terms must address

“developments or contractual gaps that the asserting party pleads neither party

anticipated.”139 The Court will not rewrite a contract simply because a party now

wishes it had gotten a better deal.140 Moreover, the implied covenant does not

“establish a free-floating requirement that a party act in some morally commendable

sense.”141 Instead, “good faith” in the implied covenant context entails “faithfulness

to the scope, purpose, and terms of the parties’ contract.”142 Similarly, “fair dealing”

here does not imply equitable behavior. The term “fair” is something of a misnomer

here; it simply means actions consonant “with the terms of the parties’ agreement

and its purpose.”143 Put differently, any implied obligation “must be consistent with

the terms of the agreement as a whole.”144




137
    Nemec, 991 A.2d at 1126.
138
    Id.
139
    Id. at 1125.
140
    Id. at 1126.
141
    Allen v. El Paso Pipeline GP Co., L.L.C., 2014 WL 2819005, at *10 (Del. Ch. June 20, 2014),
aff’d, 2015 WL 803053 (Del. Feb. 26, 2015).
142
    Gerber v. Enter. Prods. Holdings, LLC, 67 A.3d 400, 419 (Del. 2013) (emphasis omitted),
overruled on other grounds by Winshall v. Viacom Int’l, Inc., 76 A.3d 808 (Del. 2013).
143
    Id.
144
    Airborne Health, Inc., 984 A.2d at 146.

                                              30
       It follows that the first step in evaluating an implied covenant claim is to

determine whether the contract in fact contains a gap that must be filled.145 That is

because the implied covenant applies only if the contract is silent as to the subject at

issue.146 If the contract directly addresses the matter at hand, “[e]xisting contract

terms control . . . such that implied good faith cannot be used to circumvent the

parties’ bargain.”147 If, on the other hand, the express terms of the contract do not

address the subject at issue, the Court must then consider whether implied

contractual terms fill the gap.148 The Court conducts that inquiry by asking “whether

it is clear from what was expressly agreed upon that the parties who negotiated the

express terms of the contract would have agreed to proscribe the act later complained

of as a breach of the implied covenant of good faith—had they thought to negotiate

with respect to that matter.”149 The Court does not derive implied obligations from

its own notions of justice or fairness.150 Instead, it asks what the parties themselves

would have agreed to “had they considered the issue in their original bargaining




145
     Allen, 2014 WL 2819005, at *10 (citing Mohsen Manesh, Express Contract Terms and the
Implied Contractual Covenant of Delaware Law, 38 Del. J. Corp. L. 1, 19 (2013)).
146
    E.g., Allied Capital Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1032 (Del. Ch. 2006).
147
     Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 441 (Del. 2005); see also Shenandoah
Life Ins. Co. v. Valero Energy Corp., 1988 WL 63491, at *8 (Del. Ch. June 21, 1988) (“Where . .
. a specific, negotiated provision directly treats the subject of the alleged wrong and has been found
to have not been violated, it is quite unlikely that a court will find by implication a contractual
obligation of a different kind that has been breached.”).
148
    NAMA Holdings, LLC, 2014 WL 6436647, at *16.
149
    Katz v. Oak Indus., Inc., 508 A.2d 873, 880 (Del. Ch. 1986).
150
    NAMA Holdings, LLC, 2014 WL 6436647, at *17.

                                                 31
positions at the time of contracting.”151 The implied covenant therefore “operates

only in that narrow band of cases where the contract as a whole speaks sufficiently

to suggest an obligation and point to a result, but does not speak directly enough to

provide an explicit answer.”152

       With these precepts in mind, I find that MHS’s implied covenant claim fails

because it rests entirely on conduct explicitly addressed by ECM’s operating

agreement. MHS asks me to read into the agreement implicit promises on Goggin’s

part to refrain from usurping ECM’s business opportunities and using ECM assets

to pay personal legal expenses. But there is no need to read these promises into the

agreement, for they are already there. Section 5.6(a) of the operating agreement

provides that Goggin, as ECM’s manager, “shall discharge his . . . duties in good

faith, with the care an ordinarily prudent person in a like position would exercise

under similar circumstances, and in a manner [he] reasonably believes to be in the

best interests of the Company.”153 These contractual duties cover the allegations on

which MHS’s implied covenant claim is premised. Specifically, Goggin’s purported

theft of ECM’s business opportunities constitutes a breach of his contractual

obligation to act in good faith and in a manner he “reasonably believes to be in the




151
    Gerber, 67 A.3d at 418.
152
    Airborne Health, Inc., 984 A.2d at 146.
153
    Pl.’s Answering Brief in Opp’n to Collins’ Mot. to Dismiss Ex. 1, § 5.6(a).

                                               32
best interests of the Company,”154 and the same is true for Goggin’s decision to use

ECM funds to pay personal legal fees. Because there is no gap in the operating

agreement to be filled by implied contractual terms,155 the Complaint fails to state a

claim for breach of the implied covenant.156

               5. Unjust Enrichment

       MHS asserts that the Defendants were unjustly enriched by the misconduct

described in the Complaint. Specifically, MHS alleges that the Defendants were

enriched at MHS’s expense when they received “the value of the property, benefits,

and opportunities [they] wrongfully obtained.”157 According to the Defendants, the

unjust enrichment claim is barred by the operating agreement, which exclusively

governs the parties’ relationship. I agree with the Defendants that the unjust

enrichment claim must be dismissed.




154
    Id.
155
    Notably, the Complaint does not allege that the implied covenant applies in connection with
the parties’ adoption of the exculpation clause, which arguably eliminates recovery of money
damages against Goggin here, regardless of his violation of his contractual duty of good faith.
156
    See, e.g., Haney v. Blackhawk Network Holdings, Inc., 2016 WL 769595, at *9 (Del. Ch. Feb.
26, 2016) (“Where a plaintiff has failed to identify a gap in the contract, merely repeating the
defendant’s allegedly improper acts or omissions already the subject of a separate breach of
contract claim is insufficient to support a claim for breach of the implied covenant of good faith
and fair dealing.”); Fortis Advisors LLC, 2015 WL 401371, at *5 (dismissing an implied covenant
claim because, “[i]nstead of identifying any contractual gap or term to be implied, [the plaintiff]
mimicks [sic] the language of its contract claim to argue that the same six alleged actions and
failures cited as evidence of [the defendant’s] alleged breach of Section 3.04 of the Merger
Agreement were contrary to the parties’ intent in the Merger Agreement”).
157
    Compl. ¶ 191.

                                                33
       “Unjust enrichment is ‘the unjust retention of a benefit to the loss of another,

or the retention of money or property of another against the fundamental principles

of justice or equity and good conscience.’”158 “The elements of unjust enrichment

are: (1) an enrichment, (2) an impoverishment, (3) a relation between the enrichment

and impoverishment, (4) the absence of justification, and (5) the absence of a remedy

provided by law.”159 In evaluating an unjust enrichment claim, I first determine

“whether a contract already governs the relevant relationship between the parties.”160

“If the contract is the measure of the plaintiff’s right, ‘there can be no recovery under

an unjust enrichment theory independent of it.’”161 “This is the case even when the

. . . contract gives rise to a fiduciary relationship between the parties.”162

       MHS’s unjust enrichment claim must be dismissed because MHS’s rights in

this action are governed entirely by the ECM operating agreement. The crux of the

Complaint is that Goggin, with the assistance of Goodwin and Collins, acted


158
    Nemec, 991 A.2d at 1130 (quoting Fleer Corp. v. Topps Chewing Gum, Inc., 539 A.2d 1060,
1062 (Del. 1988)).
159
    Id.
160
    BAE Sys. Info. & Elec. Sys. Integration, Inc. v. Lockheed Martin Corp., 2009 WL 264088, at
*7 (Del. Ch. Feb. 3, 2009).
161
    Dietrichson v. Knott, 2017 WL 1400552, at *6 (Del. Ch. Apr. 19, 2017) (quoting Kuroda, 971
A.2d at 891). There is an exception to this general principle: “The contract itself is not necessarily
the measure of [the] plaintiff’s right where the claim is premised on an allegation that the contract
arose from wrongdoing (such as breach of fiduciary duty or fraud) or mistake and the [defendant]
has been unjustly enriched by the benefits flowing from the contract.” Donald J. Wolfe, Jr. &
Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of Chancery §
12.01[b] (2016) (citing McPadden v. Sidhu, 964 A.2d 1262, 1276 (Del. Ch. 2008)). But MHS
does not argue that this exception applies here.
162
    Bakerman v. Sidney Frank Importing Co., Inc., 2006 WL 3927242, at *18 (Del. Ch. Oct. 10,
2006).

                                                 34
disloyally toward ECM and MHS. As noted above, that disloyalty is covered by

Section 5.6(a) of the operating agreement, which imposes contractual fiduciary

obligations on Goggin.         Thus, any enrichment stems entirely from Goggin’s

contractual breaches and the benefits the Defendants received from them. Notably,

MHS has failed to cite a single allegation in the Complaint that falls outside the

purview of the operating agreement. For example, MHS points to Goggin’s use of

ECM funds to pay “profoundly outrageous and unjustifiable fees” to an attorney who

represented his interests rather than ECM’s.163             But that conduct is squarely

addressed by Goggin’s contractual duty to act in good faith and in a manner “[he]

reasonably believes to be in the best interests of the Company.”164 Because MHS’s

rights vis-à-vis the Defendants stem entirely from the ECM operating agreement,

MHS’s unjust enrichment claim fails.165




163
    Compl. ¶ 14.
164
    Pl.’s Answering Brief in Opp’n to Collins’ Mot. to Dismiss Ex. 1, § 5.6(a).
165
    The duties allegedly breached in this case belonged to Goggin, not Goodwin. That, however,
does not save the unjust enrichment claim as to Goodwin. See, e.g., CIM Urban Lending GP, LLC
v. Cantor Commercial Real Estate Sponsor, L.P., 2016 WL 768904, at *2 (Del. Ch. Feb. 26, 2016)
(“[W]hen the standard is set by contract, ‘contractual remedies remain the sole remedies even if
the claim of unjust enrichment is alleged against a party who is not a party to the contract.’”
(quoting AM Gen. Holdings LLC v. Renco Grp., Inc., 2013 WL 5863010, at *15 (Del. Ch. Oct. 31,
2013))).

                                              35
       In other words, MHS, having bargained for certain contractual rights against

Goggin, and for certain remedies, cannot use equity to circumvent the results of its

bargain.166

              6. Misappropriation of Trade Secrets

       According to MHS, Goggin and Collins misappropriated ECM’s trade secrets

and used them to benefit themselves. The Complaint’s description of the purported

trade secrets is threadbare. MHS alleges that Goggin and Collins stole “material

information regarding the assets acquired by Ember and [Licking River Lenders],

including but not limited to information regarding the potential returns on such assets

and strategies for optimization of the returns from such assets.”167 MHS also

alleges—without any supporting factual detail—that “ECM made efforts to maintain

the secrecy of the [confidential] [i]nformation, and these efforts were reasonable

under the circumstances.”168 The Defendants are correct that these allegations fall

short of stating a claim for misappropriation of trade secrets.

       Under the Delaware Uniform Trade Secrets Act (“DUTSA”), a plaintiff “may

obtain injunctive relief and damages against one who acquires, uses or discloses a

trade secret obtained through improper means.”169 To plead a claim for trade secret



166
    I note that the unjust enrichment claim is not brought against the entities allegedly holding
purloined assets; those entities are not party defendants.
167
    Compl. ¶ 198.
168
    Id. ¶ 199.
169
    Savor, Inc., 812 A.2d at 897.

                                               36
misappropriation, a plaintiff must allege that “(1) a trade secret exists; (2) the

plaintiff communicated the secret to the defendant; (3) there was an express or

implied understanding that the secrecy of the matter would be respected; and (4) the

secret information was improperly used or disclosed to the injury of the plaintiff.”170

       DUTSA defines a trade secret as “information” that “[d]erives independent

economic value, actual or potential, from not being generally known to, and not

being readily ascertainable by proper means by, other persons who can obtain

economic value from its disclosure or use,” and that “[i]s the subject of efforts that

are reasonable under the circumstances to maintain its secrecy.”171 Thus, “to qualify

as a ‘trade secret’ information must both derive independent economic value from

not being generally known or readily ascertainable and be subject to reasonable

efforts to maintain its secrecy.”172

       The Complaint fails to state a claim for trade secret misappropriation. The

claim fails at the outset, because MHS has not alleged the existence of a trade secret.

As just noted, information does not constitute a trade secret unless it is “subject to

reasonable efforts to maintain its secrecy.”173 The sole allegation in the Complaint

on this score is that “ECM made efforts to maintain the secrecy of the [i]nformation,



170
    Elenza, Inc. v. Alcon Labs. Holding Corp., 2018 WL 1387729, at *3 (Del. Mar. 20, 2018).
171
    6 Del. C. § 2001(4).
172
    Beard Research, Inc. v. Kates, 8 A.3d 573, 589 (Del. Ch. 2010), aff’d sub nom. ASDI, Inc. v.
Beard Research, Inc., 11 A.3d 749 (Del. 2010).
173
    Id.

                                              37
and these efforts were reasonable under the circumstances.”174 It is true that I must

accept “even vague allegations [as] ‘well-pleaded’ if they give the opposing party

notice of the claim.”175 But I need not “accept as true conclusory allegations

‘without specific supporting factual allegations.’”176 Here, MHS has simply recited

the bare legal conclusion that ECM took reasonable steps to maintain the secrecy of

its confidential information, described vaguely as “potential returns” and

“strategies” regarding the purloined assets of ECM.177               No facts are pled about

ECM’s efforts to maintain secrecy.              Absent such supporting detail, MHS’s

conclusory allegations need not be credited for purposes of a Rule 12(b)(6)

motion.178 Because MHS has failed to allege facts supporting the existence of a trade

secret, its misappropriation claim must be dismissed.

               7. The Books-and-Records Demand

       The Complaint includes a demand for books and records against ECM and

Goggin. Section 18-305 of the LLC Act gives members of a limited liability




174
    Compl. ¶ 199.
175
    Savor, Inc., 812 A.2d at 896–97.
176
    In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (quoting In re Santa
Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 65–66 (Del. 1995)).
177
    Compl. ¶ 198.
178
    See Addy v. Piedmonte, 2009 WL 707641, at *6 (Del. Ch. Mar. 18, 2009) (“The standard of
review under Rule 12(b)(6) does not compel the court to accept all legal conclusions and strained
interpretations of fact offered by the nonmoving party.”); cf. Savor, Inc., 812 A.2d at 897
(upholding a claim for trade secret misappropriation where the plaintiff “described the program to
[the defendant] after receiving an assurance that [one of the defendant’s employees] would respect
the confidentiality of the information”).

                                               38
company the right to “‘demand for any purpose reasonably related to the member’s

interest as a member’ certain of the limited liability company’s books and records,

subject to requirements that a member’s demand for such information must be in

writing and must state the purposes for which the information is sought.”179 As the

Defendants point out, however, “the general rule [is] that books and records claims

should be litigated in distinct proceedings.”180                     Moreover, MHS’s counsel

represented at oral argument that, if any of the counts in the Complaint survived the

Motions to Dismiss, ordinary civil discovery would be sufficient to its purpose.181 I

have already held that the Complaint states a claim for breach of contract. Thus, I

will dismiss the books-and-records count without prejudice.182

                                                 ***

        To summarize, I have dismissed MHS’s claims for breach of fiduciary duty,

aiding and abetting (and conspiracy to commit) breach of fiduciary duty, fraud,

aiding and abetting (and conspiracy to commit) fraud, breach of the implied

covenant, unjust enrichment, and misappropriation of trade secrets. I have also



179
    DFG Wine Co., LLC v. Eight Estates Wine Holdings, LLC, 2011 WL 4056371, at *4 (Del. Ch.
Aug. 31, 2011) (footnote omitted) (quoting 6 Del. C. § 18-305(a), (e)).
180
    TravelCenters of Am., LLC v. Brog, 2008 WL 868107, at *1 (Del. Ch. Mar. 31, 2008).
181
    Mar. 5, 2018 Draft Oral Arg. Tr. 85:2–7: (“MR. ANGELILLO: As far as dismissal without
prejudice, if – I would just extend that – if, in fact, this case survives in any of the causes of action,
then I would think that the discovery in the case would be sufficient.”).
182
    See Brog, 2008 WL 868107, at *1–2 (dismissing a books-and-records counterclaim without
prejudice where the plaintiff’s complaint additionally sought to invalidate an action taken by a
limited liability company for failure to comply with an advance notice bylaw).

                                                   39
dismissed the books-and-record count without prejudice. MHS’s claim for breach

of contract survives, however, because (i) it states a claim for relief under the

operating agreement, (ii) I do not find as a matter of law that no equitable or legal

relief is available, and (iii) MHS is not judicially estopped from seeking equitable

relief. I turn now to what (if anything) remains of the Complaint with respect to

Defendants Goodwin and Collins.

       B. Goodwin

       The Complaint asserts the following claims against Goodwin: aiding and

abetting (and conspiracy to commit) breach of fiduciary duty and fraud, tortious

interference with contract, and unjust enrichment. The aiding and abetting and

conspiracy claims have already been dismissed. I have also dismissed the unjust

enrichment claim. That leaves the claim for tortious interference with contract. The

problem with that claim, however, is that Goodwin is a party to ECM’s operating

agreement,183 and it is well established that a party to a contract cannot be liable for

tortiously interfering with it.184 Recognizing the deficiency of this claim, MHS asks

me to “deem” it a claim for breach of the implied covenant of good faith and fair


183
    Pl.’s Answering Brief in Opp’n to Collins’ Mot. to Dismiss Ex. 1, at 21.
184
    See, e.g., Gilbert v. El Paso Co., 490 A.2d 1050, 1058 (Del. 1984) (“Because Burlington was
a party to the contract representing the first tender offer, the plaintiffs plainly have no cause of
action against Burlington for tortious interference with that contract.”); see also Tenneco Auto.,
Inc. v. El Paso Corp., 2007 WL 92621, at *5 (Del. Ch. Jan. 8, 2007) (“Imposition of liability for
tortious interference with contractual relationship requires that the defendant be a stranger to both
the contract and the business relationship giving rise to and underpinning the contract.” (internal
quotation marks and citation omitted)).

                                                40
dealing.185 Even if such a request were procedurally proper,186 it would not help

MHS, because I have already held that the Complaint fails to state a claim for breach

of the implied covenant. Moreover, the Complaint does not allege that Goodwin

breached the operating agreement as written.187 Thus, the Complaint does not state

any cognizable claim against Goodwin, and he must be dismissed from this action.

       C. Collins

       The Complaint alleges the following claims against Collins: aiding and

abetting (and conspiracy to commit) breach of fiduciary duty and fraud, tortious

interference with contract, unjust enrichment, and misappropriation of trade secrets.

Collins has moved to dismiss all of these claims, in addition to arguing that this

Court lacks personal jurisdiction over him. Yet in its brief opposing Collins’s

Motion to Dismiss, MHS defends only its claim for misappropriation.188 MHS’s

discussion of its other claims against Collins is limited to the bare assertion that “the

allegations in the Complaint support each and every claim MHS asserted.”189 MHS

has thus abandoned every claim against Collins except the one for

misappropriation.190 As discussed above, however, the misappropriation claim is


185
    Pl.’s Answering Brief in Opp’n to Goggin & Goodwin’s Mot. to Dismiss 50–51.
186
    See Ct. Ch. R. 15(aaa).
187
    Compl. ¶¶ 158–66.
188
    Pl.’s Answering Brief in Opp’n to Collins’ Mot. to Dismiss 2–3, 28–33.
189
    Id. at 3.
190
    See, e.g., Emerald Partners v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are
deemed waived.”); Capano v. Capano, 2014 WL 2964071, at *16 (Del. Ch. June 30, 2014)
(“Defendants argue that the Court lacks jurisdiction to grant Joseph punitive damages and that

                                                41
deficient and must be dismissed. Accordingly, the Complaint fails to state any claim

against Collins, and he must be dismissed from the litigation.191

       D. Res Judicata

       As a fallback, the Defendants argue that all of MHS’s claims are barred by res

judicata. Specifically, the Defendants point out that MHS’s counsel participated in

the bankruptcy proceedings that gave rise to this litigation,192 yet failed to object to

the self-dealing conduct described in the Complaint.                   Thus, according to the

Defendants, the sale orders that transferred the LR assets to ECM II and Ember were




some of Joseph’s claims are derivative claims which he cannot assert after the Merger. Joseph did
not respond to these arguments in his answering briefs or at oral argument and thus he has
abandoned those claims.”); In re Novell, Inc. S’holder Litig., 2013 WL 322560, at *6 n.91 (Del.
Ch. Jan. 3, 2013) (“The Plaintiffs did not address their claim under 8 Del. C. § 251(b) in their
Omnibus Answering Brief in Opposition to Defendants’ Motions to Dismiss the Second Amended
Verified Consolidated Class Action Complaint . . . , despite being challenged by the Brief in
Support of Novell Defendants’ Motion to Dismiss. . . . That claim, thus, has been abandoned.”).
191
     “As a general rule, jurisdictional matters should be decided before substantive matters.”
Solomon v. Pathe Commc’ns Corp., 672 A.2d 35, 40 (Del. 1996). But the Delaware Supreme
Court has recognized an exception to this rule where, as here, all defendants have moved to dismiss
on Rule 12(b)(6) grounds and only one has sought dismissal on Rule 12(b)(2) grounds. Id.
Because I have independently determined that the sole claim against Collins must be dismissed, it
would make little sense to engage in a Rule 12(b)(2) analysis. In any case, MHS rests its personal
jurisdiction assertion against Collins on the “conspiracy theory” of jurisdiction, which requires the
plaintiff to plead an unlawful act and a conspiracy to commit that unlawful act. See Boulden v.
Albiorix, Inc., 2013 WL 396254, at *9 (Del. Ch. Jan. 31, 2013) (“Because Boulden has failed to
state a claim for fraud, and because the conspiracy to commit fraud claim must be predicated on
an underlying wrong, Boulden’s conspiracy to commit fraud claim must also fail. . . . Thus, the
first prong of the [conspiracy theory] test—that a conspiracy existed—is not satisfied.”). The only
surviving claim is one for breach of contract against Goggin. But breach of contract cannot serve
as a predicate for a conspiracy. E.g., OptimisCorp v. Waite, 2015 WL 5147038, at *56 (Del. Ch.
Aug. 26, 2015), aff’d, 137 A.3d 970 (Del. 2016). Thus, there is no underlying wrong that could
form the basis of a conspiracy, and MHS’s attempt to premise personal jurisdiction over Collins
on the conspiracy theory fails.
192
    E.g., Collins Aff. Ex. F.

                                                42
final decisions on the merits that should be given preclusive effect. Res judicata,

however, does not bar MHS’s breach of contract claim, at least at this stage of the

litigation.

       Res judicata prevents a party from “bringing a second suit based on the same

cause of action after a judgment has been entered in a prior suit involving the same

parties.”193 “Res judicata exists to provide a definite end to litigation, prevent

vexatious litigation, and promote judicial economy.”194 I apply a five-part test in

determining whether res judicata applies:

       (1) the court making the prior adjudication had jurisdiction, (2) the
       parties in the present action are either the same parties or in privity with
       the parties from the prior adjudication, (3) the cause of action must be
       the same in both cases or the issues decided in the prior action must be
       the same as those raised in the present case, (4) the issues in the prior
       action must be decided adversely to the plaintiff’s contentions in the
       instant case, and (5) the prior adjudication must be final.195

“Res judicata encompasses ‘all claims that were litigated or which could have been

litigated in the earlier proceeding.’”196 “For res judicata to bar an unasserted claim,

the underlying facts must have been known or capable of being known at the time

of the first action.”197


193
    Betts v. Townsends, Inc., 765 A.2d 531, 534 (Del. 2000).
194
    LaPoint v. AmerisourceBergen Corp., 970 A.2d 185, 191 (Del. 2009) (footnotes omitted).
195
    Bailey v. City of Wilmington, 766 A.2d 477, 481 (Del. 2001).
196
    Aveta Inc. v. Bengoa, 986 A.2d 1166, 1185 (Del. Ch. 2009) (emphasis omitted) (quoting Hendry
v. Hendry, 2006 WL 1565254, at *8 (Del. Ch. May 26, 2006)).
197
    Id. (citing LaPoint, 970 A.2d at 193–94); accord RBC Capital Mkts., LLC v. Educ. Loan Trust
IV, 87 A.3d 632, 646 (Del. 2015) (“The res judicata doctrine operates to bar only later claims that
could have been brought at the time of an earlier asserted claim.”).

                                                43
       Res judicata is an affirmative defense.198 Affirmative defenses “are not

ordinarily well-suited for treatment on . . . a motion [to dismiss].”199 Thus, “[u]nless

it is clear from the face of the complaint that an affirmative defense exists and that

the plaintiff can prove no set of facts to avoid it, dismissal of the complaint based

upon an affirmative defense is inappropriate.”200

        Even assuming that the sale orders entered by the Bankruptcy Court were

final decisions on the merits entitled to preclusive effect,201 the Defendants have

failed to establish that res judicata applies at this stage of the litigation. Res judicata

cannot preclude an unasserted claim where the plaintiff either did not know or could

not have known the underlying facts at the time of the first action. Based on the

Complaint and other materials I may consider on a motion to dismiss, I cannot

determine whether MHS knew or could have known of Goggin’s scheme at the time

of the sale orders. The Complaint alleges that Goggin continually kept MHS in the

dark about ECM prior to the entry of the sale orders. For example, a few weeks




198
    Ct. Ch. R. 8(c); see also In re Nat’l Auto Credit, Inc. S’holders Litig., 2004 WL 1859825, at *1
n.1 (Del. Ch. Aug. 3, 2004) (describing res judicata as an affirmative defense).
199
    Reid v. Spazio, 970 A.2d 176, 183 (Del. 2009).
200
    Id. at 183–84.
201
    Several federal circuit courts have held that a bankruptcy court sale order is a final decision on
the merits for res judicata purposes. See, e.g., Winget v. JP Morgan Chase Bank, N.A., 537 F.3d
565, 578 (6th Cir. 2008) (“We join other circuits in holding that a bankruptcy court’s sale order is
a final order for res judicata purposes, not only because it is in line with our holdings that an order
confirming a reorganization is a final order, but also because it is in line with the policy behind res
judicata.”). The parties have not cited a decision from this state that addresses this precise issue,
and I do not decide the question here.

                                                 44
before the orders were issued, MHS’s lawyer sent a letter to ECM’s counsel

requesting information about the credit bids. About a week later, ECM’s counsel

wrote back to deny the request. Later, on April 9, 2015—the day before the first

sale order was entered—Goggin sent out a “Consent Package” seeking a vote on

ECM’s exercise of its credit-bid rights. Notably, he did not ask for approval of the

Ember transaction, and he did not include financial information relevant to assessing

any proposed transactions.            Given Goggin’s alleged efforts to conceal his

wrongdoing, I cannot rule as a matter of law that MHS was in a position to raise

claims attacking Goggin’s self-dealing conduct at the time of the Bankruptcy Court

proceedings.202

       Goggin may be able to show that res judicata applies on a more fully

developed record. As it stands, however, res judicata does not bar MHS’s breach of

contract claim.203



202
    MHS’s counsel represented at oral argument that his client did not discover Goggin’s
wrongdoing until after the sale orders were entered. Mar. 5, 2018 Draft Oral Arg. Tr. 71:23–72:2.
This representation is consistent with the pleadings referred to above.
203
    The Defendants also ask me to rule that any surviving claim is derivative rather than direct. I
need not decide this question, however. The Defendants have not argued that demand would not
be futile as to Goggin. Mar. 5, 2018 Draft. Oral Arg. Tr. 44:18–21 (“THE COURT: But you are
not arguing that demand would not be futile? MS. KOCH: We have not made a demand futility
argument, Your Honor.”). Thus, even if I held that MHS’s breach of contract claim were
derivative, demand would be excused and the claim would proceed. See Needham v. Cruver, 1993
WL 179336, at *3 (Del. Ch. May 12, 1993) (“This Court need not decide at this point whether
plaintiffs’ claims . . . are individual or stockholder derivative claims because, even if the claims
are derivative claims, a pre-suit demand should be excused.”); Chrysogelos v. London, 1992 WL
58516, at *7 n.8 (Del. Ch. Mar. 25, 1992) (“I need not decide the character of th[e] claim, because
even if it is derivative, demand is excused.”).

                                                45
                               III. CONCLUSION

      For the foregoing reasons, the Defendants’ Motions to Dismiss are granted in

part and denied in part. The parties should submit an appropriate form of order.




                                        46
