      IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

                    IN AND FOR NEW CASTLE COUNTY

ITW GLOBAL INVESTMENTS INC.,               )
                                           )
            Plaintiff,                     )
                                           )
            v.                             ) C.A. No.: N14C-10-236 JRJ CCLD
                                           )
AMERICAN INDUSTRIAL PARTNERS               )
CAPITAL FUND IV, L.P.; AMERICAN            )
INDUSTRIAL PARTNERS CAPITAL                )
FUND IV (PARALLEL), L.P.; AIPCJ IV,        )
LLC; KIM MARVIN; PAUL                      )
BAMATTER; and ERIC BAROYAN,                )
                                           )
            Defendants.                    )

                                   OPINION

                          Date Submitted: March 24, 2015
                           Date Decided: June 24, 2015

           Upon Defendants’ Motion to Dismiss Count I Against AIP:
                               GRANTED.

           Upon Defendants’ Motion to Dismiss Count II Against AIP:
                 GRANTED, in part, and DENIED, in part.

 Upon Defendants’ Motion to Dismiss Counts I through V Against the Individual
                                Defendants:
                               GRANTED.

Steven B. Feirson, Esquire (pro hac vice) (argued), Dechert LLP, Cira Center,
2929 Arch Street, Philadelphia, PA 19104, Michael H. Park, Esquire (pro hac
vice), and Rebecca Kahan Waldman, Esquire (pro hac vice), Dechert LLP, 1095
Avenue of the Americas, New York, NY 10036, Ann Mary Olson, Esquire (pro
hac vice), Dechert LLP, One Bush Street, Suite 1600, San Francisco, CA 94014, P.
Clarkson Collins, Jr., Esquire, and Meghan A. Adams, Esquire, Morris James LLP,
500 Delaware Avenue, Suite 1500, P.O. Box 2306, Wilmington, DE 19899,
Attorneys for Plaintiff.

Peter D. Doyle, Esquire (pro hac vice) (argued), and Seth Fier, Esquire (pro hace
vice), Proskauer Rose LLP, Eleven Times Square, New York, NY 10036, John E.
Roberts, Esquire (pro hac vice), Proskauer Rose LLP One International Place,
Boston, MA 02110, William D. Johnston, Esquire, and Mary F. Dugan, Esquire,
Young Conaway Stargatt & Taylor, LLP, Rodney Square, 1000 North King Street,
Wilmington, DE 19801, Lawrence Portnoy, Esquire (pro hac vice), and Jillian
Rennie Stillman, Esquire (pro hac vice), Davis Polk & Wardwell LLP, 450
Lexington Avenue, New York, NY 10017, Attorneys for Defendants.

JURDEN, P.J.




                                       2
                              I. INTRODUCTION

       Before the Court is Defendants American Industrial Partners Capital Fund

IV, L.P., American Industrial Partners Capital Fund IV (Parallel), L.P., and AIPCF

IV, LLC’s (“AIP”) Motion to Dismiss Counts I and II of the Complaint; and

Defendants Kim Marvin, Paul Bamatter, and Eric Baroyan’s (“Individual

Defendants”) Motion to Dismiss Counts I through V (“Defendants” includes AIP

and the Individual Defendants).

       Plaintiff ITW Global Investments Inc. (“ITW”) alleges that Defendants

committed fraud, fraud in the inducement, and breach of contract in connection

with   ITW’s    acquisition   of   Brooks   Instrument   (“Brooks”)    from   AIP

(“Transaction”). According to ITW, Defendants committed fraud and breached the

Securities Purchase and Sale Agreement (“SPSA”) by misrepresenting the

financial statements and other provisions in the SPSA, and orchestrated a series of

“sham sales” designed to fraudulently induce ITW to enter into an agreement it

otherwise would not have entered into by artificially inflating Brooks’ November

2011 sales.

       In opposition, AIP argues that Count I (fraud) of the Complaint should be

dismissed because it impermissibly “rehashes” the damages allegedly caused by

ITW’s breach of contract claim.      AIP contends that Count II (fraud in the

inducement) of the Complaint should be dismissed because: (1) any alleged fraud


                                        3
based on misrepresentations in the SPSA constitutes an “impermissible bootstrap”

to ITW’s breach of contract claim; and (2) any alleged fraud based on extra-

contractual statements was disclaimed in the SPSA.

       The Individual Defendants contend that all counts in the Complaint should

be dismissed because: (1) the Complaint fails to plead sufficient facts showing they

had knowledge of the alleged misrepresentations; and (2) alternatively, this Court

does not have personal jurisdiction over them.

       For the following reasons, AIP’s Motion to Dismiss Count I (fraud) is

GRANTED; AIP’s Motion to Dismiss Count II (fraud in the inducement) is

GRANTED, in part, and DENIED, in part; and the Individual Defendants’

Motion to Dismiss all counts against them is GRANTED.

                                  II. BACKGROUND

       ITW, a Delaware corporation with its principal place of business in Illinois,

is a public company specializing in the manufacture, sales, and service of industrial

components and equipment. 1

       AIP is a middle-market private equity firm that invests primarily in

industrial manufacturing businesses.2 Kim Marvin is a Partner in AIP and resident



1
 Compl. ¶ 9.
2
 Id. ¶ 10. AIP includes American Industrial Partners Capital Fund IV, L.P., American Industrial
Partners Capital Fund IV (Parallel), L.P., which are Delaware limited partnerships that are
managed by AIPCF IV, LLC, a Delaware limited liability company. Id.
                                              4
of Maryland. 3 Paul Bamatter is a Partner in AIP, AIP’s Chief Financial Officer,

and a resident of Connecticut. 4 Eric Baroyan is a Partner in AIP and a resident of

New York. 5

       On December 31, 2007, AIP purchased Brooks from Emerson Electric

Company. 6       Brooks is a Pennsylvania-based manufacturing company that

manufactures advanced flow, pressure, and vacuum measurement and control

solutions. 7

       In September 2011, ITW and AIP began to negotiate the Transaction. 8 On

September 22, 2011, at AIP’s direction, Brooks’ management provided ITW with

historical financial information and future financial projections that it intended

ITW to use as the basis for valuing Brooks. 9 AIP projected that Brooks’ revenue

would be approximately $210 million in fiscal year 2011, $247 million in fiscal

year 2012, and $322 million in fiscal year 2013. 10

       On October 28, 2011, ITW delivered a Letter of Intent to purchase Brooks

for $500 million.11 On November 3, 2011, AIP accepted the Letter of Intent,

promising to operate Brooks in “a normal and customary manner” and “not to

3
  Id. ¶ 12.
4
  Id. ¶ 13.
5
  Id. ¶ 14.
6
  Id. ¶ 11.
7
  Compl. ¶ 11.
8
  Id. ¶ 23.
9
  Id. ¶ 24.
10
   Id.
11
   Id. ¶ 25.
                                          5
engage in any transaction which may adversely and materially affect the decision

of ITW to pursue” the purchase of Brooks. 12

       On November 10, 2011, Brooks’ management informed AIP (specifically,

the Individual Defendants) that Brooks’ sales had fallen from $15.2 million in

September 2011 to $10.8 million in October 2011––Brooks’ worst sales month in

2011. 13 Brooks also informed AIP that its sales projections for November would

reach only approximately $13 million. 14 When Bamatter learned of the financial

results and projections, he asked Clark Hale, Brooks’ Chief Executive Officer, and

Waqar Nasim, Brooks’ Chief Financial Officer, “is there a story that is not

scary?”15 Thereafter, according to ITW, Baroyan pushed Brooks’ sales team to

“book the hell out of everything we possibly can over the next 10–15 days to ease

any concern ITW is going to have once they see October data.” 16

       On November 18, 2011, ITW learned of the October financial results.17 AIP

explained to ITW that the October sales drop was an anomaly caused by three days

of lost production due to a year-end physical inventory and a one-time unusual

supplier delay. 18 AIP then provided projections that Brooks’ November 2011 sales



12
   Id. ¶ 25.
13
   Compl. ¶¶ 26, 41.
14
   Id. ¶ 41.
15
   Id. ¶ 42.
16
   Id. ¶ 43.
17
   Id. ¶ 26.
18
   Id.
                                        6
would be $17 million and December 2011 sales would be $21.5 million.19 After

the October sales drop, ITW decided to hold off on the purchase of Brooks until

after the November 2011 sales met AIP’s projections. 20

       Throughout the month of November, Baroyan was in daily contact with Hale

and Nasim, monitoring Brooks’ progress toward AIP’s $17 million sales forecast.21

Through Baroyan and others at AIP, AIP directed Brooks to maximize its

November sales. 22

       ITW alleges that AIP directed Brooks to enter into a series of “sham sales”

with AIP affiliates, Ichor Systems (“Ichor”) and Precision Flow Technologies

(“PFT”), throughout the fall of 2011 in an effort to inflate Brooks’ sales figures to

meet AIP’s revenue projection.23 ITW alleges that in order for AIP to “effectuate

this scheme,” in the fall of 2011, Brooks’ management, including Hale (CEO) and

Bhushan Somani (Vice President Global Account Management) attempted to sell a

large amount of soon-to-be-discontinued products to Applied Materials, Inc.

(“AMAT”). 24 When the parties were unable to reach an agreement, AIP and

Brooks arranged to “sell” the products to Ichor (“Last Time Buy Agreement”). 25



19
   Compl. ¶ 27.
20
   Id. ¶ 28.
21
   Id. ¶ 44.
22
   Id.
23
   Id. ¶¶ 44–55.
24
   Id. ¶¶ 45–46.
25
   Compl. ¶ 45.
                                         7
        After those negotiations deteriorated, a second version of the Last Time Buy

Agreement was prepared on November 21, 2011 by Geoffrey Chriswisser on

behalf of Ichor, which required Brooks to repurchase up to 20 percent of the

original quantity of product acquired by Ichor as part of the Last Time Buy

Agreement (“partial right of return”).26 According to ITW, Brooks agreed to

repurchase certain legacy products in Ichor’s excess inventory at a later date in

order to induce Ichor to enter into the transaction. 27 The Brooks accounting team,

however, strongly objected to recording the shipments as revenue because doing so

(given the partial right of return) would violate Generally Accepted Accounting

Principles (“GAAP”). 28

        On December 1, 2011, Chriswisser drafted a final Last Time Buy Agreement

that removed the partial right of return and Brooks’ obligation to repurchase Ichor-

owned legacy products, but Hale simultaneously affirmed by email to Ichor’s

Chief Executive Officer that Brooks would buy back certain products later––

completely inconsistent with the final Last Time Buy Agreement. 29 ITW alleges

that this partial right of return inflated Brooks’ revenue, making Brooks more

attractive to ITW. 30 Accordingly, ITW alleges that AIP granted the partial right of



26
   Id. ¶ 48.
27
   Id. ¶ 47.
28
   Id.
29
   Id. ¶ 49.
30
   Id. ¶ 45.
                                          8
return with the hope that the products would not be returned until after ITW had

taken control of Brooks.31

       ITW further alleges that AIP and Brooks effectuated a similar scheme of

“sham sales” with PFT––another AIP affiliate. From September to November

2011, Brooks recorded $867,029 in sales to PFT.32 The agreement between PFT

and Brooks included an obligation for Brooks to buy back any product that had no

usage for 120 days. 33 Nevertheless, even though the terms of the agreement

violated GAAP, Brooks recorded the sales as revenue. 34

       On November 29, 2011, ITW and AIP entered into a second Letter of Intent

whereby ITW would purchase Brooks for $425 million with a potential earn-out

payment of up to $75 million.35 Marvin signed the second Letter of Intent on

behalf of AIP.36 Because the second Letter of Intent made clear that ITW would

not acquire Brooks unless ITW approved of Brooks’ unaudited financial

statements ending November 30, 2011, ITW alleges that AIP knew or should have

known that the November 2011 sales were essential to ITW’s decision whether to

purchase Brooks.37



31
   Compl. ¶ 45.
32
   Id. ¶ 54.
33
   Id.
34
   Id.
35
   Id. ¶ 31.
36
   Id. ¶ 31.
37
   Compl. ¶ 28.
                                        9
       On December 8, 2011, AIP provided ITW with Brooks’ consolidated

balance sheets, statements of income, and statements of cash flow for each

September 30 fiscal year from 2009–2011, as well as for October and November

2011 (“Financial Statements”). 38 The Financial Statements showed that November

2011 sales were $17.8 million. 39 This prompted ITW to request a face-to-face

meeting, but Marvin refused to allow ITW to meet with Brooks’ management in

person.40 Instead, Marvin agreed to provide written answers to ITW’s questions

about the November results and allowed ITW to speak with Brooks’ management

by phone.41 In its written answers, AIP assured ITW that the November financial

results reflected the ordinary course of business and that the December financial

projections of $21.5 million in sales would be met. 42 Actual sales, however, turned

out to be only $9.8 million. 43

       On December 13, 2011, ITW and AIP entered into the SPSA whereby ITW

agreed to purchase Brooks for $425 million with a potential earn-out payment of

up to an additional $75 million.44

       After the SPSA was executed in early 2012, products from Ichor and PFT

started to be returned. 45 Out of the approximately $5 million in products sold to

38
   Id. ¶ 34. See also Defs.’ Op. Br., Ex. 1 SPSA § 2.8.
39
   Compl. ¶ 34.
40
   Id.
41
   Id.
42
   Id. ¶¶ 35, 37.
43
   Id. ¶ 38.
44
   Id. ¶ 40.
                                                10
Ichor during the fall of 2011, approximately $1.2 million in products were

returned.46 Additionally, Brooks accepted purchase orders from Ichor for certain

legacy products, which ITW alleges were booked during November 2011 to induce

Ichor to enter into the sham sales. 47

                          III. PARTIES’ CONTENTIONS

       AIP argues that Count I (fraud) of the Complaint should be dismissed

because it impermissibly “rehashes” the damages allegedly caused by ITW’s

breach of contract claim. 48 AIP argues that Count II (fraud in the inducement) of

the Complaint must be dismissed for two separate reasons. First, the fraud in the

inducement claim based on the SPSA is barred as an “impermissible bootstrap” to

ITW’s breach of contract claim. 49 Specifically, AIP argues that both the fraud in

the inducement claim and the breach of contract claim are premised on the same

conduct––the alleged sham sales to Ichor and PFT. 50 Second, AIP argues that any

fraud in the inducement claim based on extra-contractual statements was

disclaimed under the SPSA in an anti-reliance clause.51




45
   Compl. ¶ 50.
46
   Id. ¶¶ 46, 59.
47
   Id. ¶ 53.
48
   Defendants’ Opening Brief in Support of Their Motion to Dismiss at 21 (Trans. ID. 56390395)
(“Defs.’ Op. Br.”).
49
   Id. at 15–17.
50
   Id. at 16–17.
51
   Id. at 18–19.
                                             11
       The Individual Defendants argue the Complaint fails to plead with the

requisite particularity that the Individual Defendants knew the Financial

Statements were false when made. 52          Alternatively, the Individual Defendants

contend that this Court does not have personal jurisdiction over them because the

Individual Defendants do not transact business in Delaware and do not have any

contacts with Delaware. 53

       In opposition, ITW contends that its fraud in the inducement claim is not an

impermissible bootstrap to its breach of contract claim because Delaware case law

permits simultaneous breach of contract and fraud claims when the fraud claims

relate to misrepresentations in the contract. 54 ITW further contends that the anti-

reliance clause in the SPSA should not be enforced based on public policy

grounds.55

       ITW asserts it has properly alleged independent claims for fraud and fraud in

the inducement against the Individual Defendants because Marvin, Bamatter, and

Baroyan played a role in the negotiations of the SPSA, and the harm caused to




52
   Defendants’ Reply Brief in Support of Their Motion to Dismiss at 12–16 (Trans. ID.
56746794) (“Defs.’ Reply Br.”).
53
   Defs.’ Op. Br. at 26–28.
54
   Plaintiff’s Brief in Opposition to Defendants’ Motion to Dismiss at 15, 17–18 (Trans. ID.
56590866) (“Pl.’s Ans. Br.”).
55
   Id. at 19–20. ITW does not dispute that the language of the SPSA created a valid,
unambiguous anti-reliance clause. Id. at 21.
                                            12
ITW, based on their awareness of the alleged misrepresentations and the

affirmative steps they took to mislead and prevent ITW from learning the truth. 56

      Finally, ITW contends that the Court has personal jurisdiction over the

Individual Defendants because each of the Individual Defendants is a partner in a

Delaware limited partnership, and because they entered into the SPSA—which is

governed by Delaware law. 57

                          IV. STANDARD OF REVIEW

      The Court assumes that all well-pleaded facts in a complaint are true when

considering a Motion to Dismiss under Superior Court Civil Rule 12(b)(6).58

Allegations are well-pleaded if they place the defendant on notice of the claim. 59

Although the pleading threshold in Delaware is low, “[a]llegations that are merely

conclusory and lacking factual basis, however, will not survive a motion to

dismiss.”60

      In considering a motion to dismiss under Rule 12(b)(6), the court generally

may not consider matters outside the complaint. 61 However, documents that are

integral to or incorporated by reference in the complaint may be considered.62


56
   Id. at 26, 29–30.
57
   Pl.’s Ans. Br at 34.
58
   Brevet Capital Special Opportunities Fund, LP v. Fourth Third, LLC, 2011 WL 3452821, at
*6 (Del. Super. 2011).
59
   Precision Air, Inc. v. Standard Chlorine of Del., Inc., 654 A.2d 403, 406 (Del. 1995).
60
   Brevet Capital, 2011 WL 3452821, at *6.
61
   Super. Ct. Civ. R. 12(b).
62
   In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 70 (Del. 1995).
                                           13
“Where an agreement plays a significant role in the litigation and is integral to a

plaintiff’s claims, it may be incorporated by reference without converting the

motion to a summary judgment.”63

      Because the Court finds that the SPSA is integral to and incorporated by

reference in the Complaint, it will consider the terms of the SPSA without

converting this motion into one for summary judgment.

                                  V. DISCUSSION

      In order to survive a motion to dismiss a fraud claim, a plaintiff must allege

that: (1) defendant falsely represented a material fact or omitted facts that the

defendant had a duty to disclose; (2) defendant knew that the representation was

false or made with a reckless indifference to the truth; (3) defendant intended to

induce plaintiff to act or refrain from action; (4) plaintiff acted in justifiable

reliance on the representation; and (5) plaintiff was injured by its reliance on

defendant’s representation. 64

      Superior Court Civil Rule 9(b) requires that “[i]n all averments of fraud or

mistake, the circumstances constituting fraud or mistake shall be stated with

particularity.” The particularity pleading standard requires a plaintiff to plead “the




63
  Furnari v. Wallpang, Inc., 2014 WL 1678419, at *4 (Del. Super. 2014).
64
  See, e.g., ABRY Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1050 (Del. Ch.
2006).
                                           14
time, place and contents of the false representations.” 65             However, “[m]alice,

intent, knowledge, and other condition of mind of a person may be averred

generally.” 66

       ITW has alleged two counts of fraud against AIP: one for fraud, and one for

fraud in the inducement.67 Both counts as pleaded are materially identical, other

than the damages sought. 68

A. Count I: Fraud

       “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 action.” 69 “[T]he damages allegations may not simply ‘rehash’ the

damages allegedly caused by the breach of contract.” 70

       Here, Count I of the Complaint pleads, “[a]s a direct and proximate result of

AIP’s fraudulent representations and omissions, ITW sustained damages in an

amount exceeding $85 million.” 71 Count III for Breach of Contract pleads: “[a]s a


65
   See, e.g., Browne v. Robb, 583 A.2d 949, 955 (Del. 1990) (internal quotations omitted).
66
   Super. Ct. Civ. R. 9(b).
67
   Compl. ¶¶ 111–124.
68
   Compare id. ¶¶ 111–117, with id. ¶¶ 118–124.
69
   Cornell Glasgow, LLC v. La Grange Properties, LLC, 2012 WL 2106945, at *8 (Del. Super.
2012) (quoting Dalton v. Ford Motor Co., 2002 WL 338081, at *6 (Del. Super. 2002)).
70
   Cornell Glasgow, 2012 WL 2106945, at *8–9 (dismissing a fraud claim because the plaintiffs’
damages allegation was nothing more than a “rehash” of the allegations in its breach of contract
claims). See also AFH Holding Advisory, LLC v. Emmaus Life Sciences, Inc., 2013 WL
2149993, at *13 (Del. Super. 2013) (dismissing a fraud claim because the plaintiff’s damages
allegation for fraud was not separate and distinct from its damages allegation for breach of
contract).
71
   Compl. ¶ 117.
                                              15
direct and proximate result of AIP’s breaches, ITW has sustained damages in an

amount exceeding $85 million, plus its attorney fees and costs.” 72 Because ITW

has pleaded materially identical damages for $85 million, they fail to separate the

damages incurred by any alleged fraudulent misrepresentation and any alleged

breach of contract under the SPSA. Accordingly, Count I for fraud must be

dismissed because it pleads damages that are simply a “rehash” of the breach of

contract damages. Because Count II for fraud in the inducement pleads damages

for rescission or rescissory damages, the Court will now address Count II.

B. Count II: Fraud in the Inducement

       ITW has alleged that AIP fraudulently induced it in two ways: (1) by

statements made in the SPSA; and (2) by statements made outside the SPSA with

the intent to induce ITW to enter into the SPSA.

       1. Fraud in the Inducement Based on the SPSA

       A fraud claim can be based on representations found in a contract, 73

however, “where an action is based entirely on a breach of the terms of a contract

between the parties, and not on a violation of an independent duty imposed by law,

a plaintiff must sue in contract and not in tort.” 74 Under Delaware law, a plaintiff

“cannot ‘bootstrap’ a claim of breach of contract into a claim of fraud merely by
72
   Id. ¶ 130.
73
   Ameristar Casinos, Inc. v. Resorts Int’l Holdings, LLC, 2010 WL 1875631, at *11 (Del. Ch.
2010).
74
   Midland Red Oak Realty, Inc. v. Friedman, Billings & Ramsey & Co., 2005 WL 445710, at *3
(Del. Super. 2005).
                                            16
alleging that a contracting party never intended to perform its obligations.”75

Stated differently, “a plaintiff cannot state a claim for fraud simply by adding the

term ‘fraudulently induced’ to a complaint.” 76 “Essentially, a fraud claim alleged

contemporaneously with a breach of contract claim may survive, so long as the

claim is based on conduct that is separate and distinct from the conduct

constituting breach.”77 Allegations that are focused on inducement to contract are

“separate and distinct” conduct. 78

      AIP relies on MicroStrategy Inc. v. Acacia Research Corp., Cornell

Glasgow, LLC v. La Grange Properties, LLC, and Furnari v. Wallpang, Inc. to

argue that ITW’s claim for fraudulent inducement based on the SPSA is an

impermissible bootstrap to its claim for breach of contract. 79 However, AIP’s

reliance on those cases is misplaced. In all three cases the plaintiffs alleged fraud

based on the performance of a contract, rather than the inducement to contract

because of alleged fraudulent conduct occurring prior to entering the contract.

      In MicroStrategy, the defendant had warranted in a settlement agreement

that it had no present intention of bringing a patent infringement suit against the



75
   Furnari, 2014 WL 1678419, at *8 (quoting Narrowstep Inc. v. Onstream Media Corp., 2010
WL 5422405, at *15 (Del. Ch. 2010)) (emphasis added).
76
   MicroStrategy Inc. v. Acacia Research Corp., 2010 WL 5550455, at *17 (Del. Ch. 2010).
77
   Furnari, 2014 WL 1678419, at *8 (internal quotations omitted).
78
   See Osram Sylvania Inc. v. Townsend Ventures, LLC, 2013 WL 6199554, at *16–17 (Del. Ch.
2013); Brasby v. Morris, 2007 WL 949485, at *6–7 (Del. Super. 2007).
79
   Defs.’ Op. Br. at 15–18.
                                           17
plaintiff.80   After the execution of the agreement, the defendant notified the

plaintiff that the defendant planned to sue for patent infringement. 81 The plaintiff

then sued for both breach of the settlement agreement and fraud. 82 The Court of

Chancery dismissed the fraud claim as an impermissible bootstrap to the extent

that the fraud claim alleged that the representation and warranty in the settlement

agreement was false when defendant made it. 83

       Similarly, in Cornell Glasgow, the plaintiff sued for breach of contract and

fraudulent inducement because the defendants delayed payment of invoices and

then induced the plaintiff’s “continued performance by promising payment upon

receipt of additional information.” 84 The Court dismissed the fraud claim because

the alleged misrepresentations all related to the defendants failed performance after

the execution of the agreement.85

       Finally, in Furnari, the plaintiff sued for breach of contract and fraudulent

inducement because the defendant failed to pay amounts allegedly owed under the

contract.86 The Court dismissed the plaintiff’s fraud claim as an impermissible

bootstrap to the breach of contract claim because the plaintiff failed to allege any

80
   2010 WL 5550455, at *2.
81
   Id. at *3.
82
   Id. at *17.
83
   Id. The Court of Chancery did not dismiss the fraud claim to the extent that the allegations fell
outside the agreement based on oral assurances to fraudulently induce the plaintiff to enter into
the agreement. Id. The agreement did not contain an anti-reliance clause. Id.
84
   2012 WL 2106945, at *8.
85
   Id.
86
   2014 WL 1678419, at *1–2.
                                                18
fraud that occurred prior to entering into the contract that induced the plaintiff into

signing it.87

       The instant case is distinguishable from the foregoing cases because Count II

of ITW’s Complaint relates to misrepresentations about the Financial Statements

occurring before the closing of the SPSA. The Delaware Court of Chancery

confronted a similar situation to the present case, and concluded that simultaneous

fraud and breach of contract claims were viable because the claims were based on

the manipulation of financial statements before entering into a stock purchase

agreement.88 In Osram Sylvania Inc. v. Townsend Ventures, LLC, the plaintiff–

buyer entered into a Stock Purchase Agreement (“SPA”) with the defendants–

sellers.89 After the closing, the plaintiff–buyer discovered that the defendants–

sellers allegedly manipulated the acquired companies’ financial statements to

induce the plaintiff–buyer to enter into the SPA.90 The SPA represented and

warranted that the financial statements were “correct and complete in all material

respects . . . and fairly present[ed] the financial condition . . . of the Acquired

Companies.”91 The plaintiff–buyer alleged that the information in the financial

statements did not fairly present the financial condition of the acquired companies



87
   Id. at *8.
88
   2013 WL 6199554, at *16–17.
89
   Id. at *1.
90
   Id. at *2.
91
   Id. at *3.
                                          19
and violated GAAP. 92 The Court of Chancery refused to dismiss the fraud claim as

impermissible bootstrapping because the plaintiff–buyer “pointed to specific

misrepresentations by [the defendants–sellers] including misrepresentations about

the sales results and financial condition of the [acquired companies] made before

the [e]xecution of the SPA.” 93

       In ABRY Partners V, L.P. v. F & W Acquisition LLC, the parties entered into

a Stock Purchase Agreement (“SPA”) for the buyer’s purchase of a portfolio

company. 94 The SPA contained several representations and warranties about the

company’s financial statements.95 After the parties entered into the agreement, the

buyer discovered that the financial statements prior to the agreement were

fraudulently manipulated by the buyer. 96    The Court of Chancery refused to

dismiss the fraudulent inducement claim, finding that the “financial statements

were represented and warranted in the Agreement and were therefore intended to

induce the Buyer to sign the Agreement and close the sale to purchase the

Company.” 97

       Similar to the allegations Osram and ABRY Partners, ITW alleges that AIP

manipulated the Financial Statements by engaging in the alleged sham sales with


92
   Id. at *2.
93
   Id. at *16–17.
94
   ABRY Partners, 891 A.2d at 1034.
95
   Id. at 1034–35.
96
   Id. at 1038–40.
97
   Id. at 1051.
                                        20
Ichor and PFT. 98       Importantly, ITW alleges the sham sales occurred before

entering into the SPSA and were designed to induce ITW to enter into the SPSA. 99

AIP warranted in Section 2.8(c) of the SPSA that all of the Financial Statements

conformed to GAAP and were presented fairly, in all material respects, and that

AIP had sufficient controls to ensure that the statements were accurate. 100 If any of

AIP’s representations and warranties were false, AIP and the other sellers agreed to

indemnify ITW for any resulting “losses.” 101 ITW alleges AIP knew that the

November 2011 sales were essential to ITW’s desire to purchase Brooks.102

       ITW has alleged sufficient facts from which it can be reasonably inferred

that AIP fraudulently induced ITW to enter into the SPSA by directing Brooks to

artificially inflate its November 2011 sales through a series of “sham sales” before

the SPSA was entered into. 103           Count II for fraud in the inducement is not

impermissibly bootstrapped to Count III for breach of contract. Therefore, the

Court will not dismiss Count II to the extent it alleges that AIP manipulated the

November 2011 financial statements before ITW entered into the SPSA and is

based on misrepresentations in the SPSA.



98
   Compl. ¶¶ 44–55.
99
   Id. ¶ 46.
100
    Defs.’ Op. Br., Ex. 1 SPSA § 2.8.
101
    Id. § 8.2.
102
    Compl. ¶ 28.
103
    Additionally, because Count II alleges damages for rescission or rescissory damages, it is not
barred as a “rehash” of the Complaint’s breach of contract damages.
                                               21
       2. Fraud in the Inducement Based on Extra-Contractual Statements

       AIP also argues that ITW’s fraud claims are barred because the SPSA

explicitly disclaims any reliance on extra-contractual representations. According

to AIP, the anti-reliance clause prevents ITW from alleging a prima facie case of

fraud because ITW cannot justifiably rely on statements that it warranted it would

not rely on.

       To establish a claim for fraud, a plaintiff must have acted in justifiable

reliance on the representation.104 Reliance is commonly disclaimed in agreements

between sophisticated parties. 105          An anti-reliance clause must contain clear

language “by which the plaintiff has contractually promised that it did not rely

upon statements outside the contract’s four corners in deciding to sign the

contract.”106 The policy behind enforcing anti-reliance clauses “is that a party

cannot promise . . . that it will not rely on promises and representations outside of

the agreement and then shirk its own bargain in favor of a ‘but we did rely on those

other representations’ fraudulent inducement claim.” 107




104
    See, e.g., ABRY Partners, 891 A.2d at 1050.
105
    See id. at 1057–59 (explaining that anti-reliance clauses are enforceable in Delaware).
106
    See id. at 1059 (quoting Kronenburg v. Katz, 872 A.2d 568, 593 (Del. Ch. 2004)).
107
    See ABRY Partners, 891 A.2d at 1057.
                                                22
      The parties here do not dispute that the SPSA specifically warrants that ITW

will not rely on extra-contractual statements.108        Section 4.8(ii) of the SPSA,

entitled “No Reliance,” provides:

       [ITW] is not relying (for purposes of entering into this Agreement or
       otherwise) upon any advice, counsel or representations (whether
       written or oral) of the Sellers’ Representative, Parent, any Subsidiary
       of Parent or any Seller other than those representations expressly
       made hereunder . . . .

Section 10.12, entitled “Entire Agreement,” provides in pertinent part:

       Each party hereto agrees that, except for the representations and
       warranties contained in this Agreement, none of Buyer, Parent, Parent
       [sic], any of Parent’s Subsidiaries, the Sellers, nor any Seller makes
       any other representations or warranties, and each hereby disclaims any
       other representations or warranties made by itself or employees,
       agents, financial and legal advisors, or other representatives with
       respect to the execution and delivery of the Agreement.

The parties dispute whether the anti-reliance clause applies to effectively bar ITW

from asserting a fraud claim based on statements made by Defendants to ITW

outside the four corners of the SPSA.

      At the outset, the Court notes that “Delaware upholds the freedom of

contract and enforces as a matter of fundamental public policy the voluntary

agreement of sophisticated parties.” 109 In doing so, Delaware courts have upheld




108
   Pl.’s Ans. Br. at 21.
109
   Cornell Glasgow, 2012 WL 2106945, at *8 (quoting Nacco Indus., Inc. v. Applica Inc., 997
A.2d 1, 35–36 (Del. Ch. 2009)).
                                            23
the enforceability of anti-reliance clauses.110 In RAA Management, LLC v. Savage

Sports Holdings, Inc., the plaintiff based its fraud claim on alleged

misrepresentations made during the due diligence process outside of the final

written agreement.111       In response to the defendant’s motion to dismiss, the

plaintiff argued that the court should decline to enforce the anti-reliance clause on

public policy grounds. 112 The Delaware Supreme Court rejected the plaintiff’s

public policy argument, and held that such a fraud claim was barred by the non-

reliance disclaimer in the agreement. 113          Further, RAA Management explicitly

reaffirmed ABRY Partners for the proposition that public policy favors the

enforcement of contractually binding written disclaimers of reliance on

representations outside of a final agreement of sale. 114 In RAA Management, the

Delaware Supreme Court explained that:

       [s]ophisticated parties may not reasonably rely upon representations
       outside of the contract, where the contract—like the [nondisclosure
       agreement] in this case—contains a provision explicitly disclaiming
       reliance upon such outside representations. The Abry Partners court
       distinguished fraud claims based on representations made outside of a
       merger agreement––which can be disclaimed through non-reliance



110
    See, e.g., ABRY Partners, 891 A.2d at 1057–58.
111
    RAA Mgmt., LLC v. Savage Sports Holdings, Inc., 45 A.3d 107, 117 (Del. 2012). Although
RAA Management was decided under New York law, the Delaware Supreme Court conducted a
thorough analysis of the dispute under Delaware law and specifically stated, “the results would
be the same under Delaware law.” Id. at 118.
112
    Id. at 116.
113
    Id. at 117.
114
    Id. at 118–19.
                                              24
       language––with fraud claims based on “false representation[s] of fact
       made within the contract itself”––which cannot be disclaimed. 115

       RAA Management controls the instant dispute. In addition to allegations of

fraud in the inducement based on the SPSA, ITW bases the other half of its fraud

claim on misrepresentations during the course of negotiations before entering into

the SPSA, i.e., outside the four corners of the SPSA. Although ITW alleges

Defendants made misrepresentations before the parties signed the final written

SPSA, by signing the SPSA, ITW warranted that it was not relying on any such

representations made outside the SPSA. Moreover, ITW warranted in the anti-

reliance clause that it is “a sophisticated entity familiar with transactions similar to

those contemplated by [the SPSA].” 116 RAA Management makes clear that the

SPSA’s anti-reliance clause is enforceable to bar ITW’s claim for fraud based on

extra-contractual statements. 117


115
    Id. at 117.
116
    Defs.’ Op. Br., Ex. 1 SPSA § 4.8(iv).
117
    Moreover, in ABRY Partners the Court of Chancery stated that when confronted with such an
argument (as that asserted by ITW), public policy favors enforcement of the anti-reliance clause.
ABRY Partners, 891 A.2d at 1058. As then-Vice Chancellor Strine noted:

       To fail to enforce non-reliance clauses is not to promote a public policy against
       lying. Rather, it is to excuse a lie made by one contracting party in writing––the
       lie that it was relying only on contractual representations and that no other
       representations had been made––to enable it to prove that another party lied orally
       or in a writing outside the contract’s four corners. For the plaintiff in such a
       situation to prove its fraudulent inducement claim, it proves itself not only a liar,
       but a liar in the most inexcusable of commercial circumstances: in a freely
       negotiated written contract. Put colloquially, this is necessarily a ‘Double Liar’
       scenario.


                                                25
       Therefore, Count II for fraud in the inducement must be dismissed to the

extent that ITW alleges a claim of fraud based on any extra-contractual statements

made by AIP because the anti-reliance clause bars ITW from relying on such

statements. 118




Id. Similarly, as then-Vice Chancellor Jacobs noted in Great Lakes Chemical Corp. v.
Pharmacia Corp., “[w]ere this Court to allow [the buyer] to disregard the clear terms of its
disclaimers and to assert its claims of fraud, the carefully negotiated and crafted . . . Agreement
between the parties would . . . not be worth the paper it is written on.” RAA Mgmt., 45 A.3d at
113 (quoting Great Lakes Chem. Corp. v. Pharmacia Corp., 788 A.2d 544, 556 (Del. Ch. 2001)).
118
    After briefing was completed, ITW submitted a letter to the Court discussing TransDigm, Inc.
v. Alcoa Global Fasteners, Inc. in support of its argument that the anti-reliance clause does not
apply because the anti-reliance clause in the SPSA did not disclaim fraud based on concealment
of information. See Pl.’s Mar. 23, 2015 Letter to the Court (Trans. ID. 56954364). In
TransDigm, the Delaware Court of Chancery declined to dismiss a claim for “fraudulent
concealment” despite an anti-reliance clause disclaiming reliance on “fraudulent
misrepresentations.” TransDigm, Inc. v. Alcoa Global Fasteners, Inc., 2013 WL 2326881, at *8
(Del. Ch. 2013). In reaching this decision, the Court of Chancery distinguished between fraud
claims based on false representations and those based on concealment. Id. at *8–10. Here,
ITW’s claims are focused on AIP allegedly misrepresenting––not concealing––the financial
condition of Brooks with respect to the November 2011 sales. See, e.g., Compl. ¶ 28. Because
the Court of Chancery’s analysis in TransDigm focused on fraudulent concealment, the Court
does not find it persuasive on the dispute at issue here. Moreover, the Delaware Supreme Court
made clear in RAA Management that an anti-reliance clause bars a plaintiff from later claiming
fraud based on statements made outside the agreement. See RAA Mgmt., 45 A.3d at 117–19.
Additionally, the U.S. District Court for the District of Delaware has cautioned that the
TransDigm “exception” is limited:

       [the plaintiff] cannot circumvent Abry’s holding by arguing the Defendants
       neglected to inform [the plaintiff] that its representations were false. Every
       misrepresentation, to some extent, involves an omission of the truth, and [the
       plaintiff] cannot re-characterize every misrepresentation as an omission.
       Therefore, simply characterizing something as an “omission” does not render the
       anti-reliance provision a nullity.

Universal Am. Corp. v. Partners Healthcare Solutions Holdings, L.P., 61 F. Supp. 3d. 391, 400
(D. Del. 2014).
                                                26
B. The Individual Defendants

       ITW alleges claims for fraud and fraudulent inducement against the

Individual Defendants.119       Not only does the Complaint fail to mention the

Individual Defendants in Counts I and II, the Complaint fails to plead any fraud

committed by Marvin, Bamatter, or Baroyan.              The requirement that fraud be

pleaded with particularity “serves to discourage the initiation of suits brought

solely for their nuisance value, and safeguards potential defendants from frivolous

accusations of moral turpitude.”120

       ITW warranted in the SPSA that it had been given access to Brooks’ books

and records, facilities, officers, employees, and any other property or documents

that ITW had requested to review.121 ITW further warranted that its decision to

purchase Brooks was not based on any forecast or any “assurance, guarantee, or

representation whatsoever as to the expected or projected success” of Brooks. 122




119
     ITW does not oppose Defendants’ Motion to Dismiss Counts III through V against the
Individual Defendants. Pl.’s Ans. Br. at 26 n.20. Therefore, the Court finds that Counts III
through V are dismissed against the Individual Defendants. The fraud claims against the
Individual Defendants cannot be dismissed based on the bootstrapping doctrine because ITW is
no longer seeking simultaneous claims for breach of contract or indemnification against the
Individual Defendants. However, the anti-reliance clause applies with equal force to the
Individual Defendants because, as discussed, ITW could not rely on statements made by the
Individual Defendants outside the SPSA. Thus, ITW could not have justifiably relied on any
statements made by the Individual Defendants that were outside of the SPSA.
120
    Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199,
1208 (Del. 1993).
121
    Defs.’ Op. Br., Ex. 1 SPSA § 4.8.
122
    Id.
                                            27
          The crux of ITW’s argument is that the Complaint adequately alleges claims

for fraud against the Individual Defendants because the Individual Defendants

allegedly knew that Section 2.8 of the SPSA regarding Brooks’ November 2011

balance sheet was false or that the representations were made with reckless

indifference to the truth. While Superior Court Civil Rule 9(b) provides that

“knowledge . . . may be averred generally,” “where pleading a claim of fraud . . .

that has at its core the charge that the defendant knew something, there must, at

least, be sufficient well-pleaded facts from which it can reasonably be inferred that

this ‘something’ was knowable and that the defendant was in a position to know

it.”123

          Here, the “something” that all the Individual Defendants allegedly knew was

that the November 30, 2011 financial statement was false. The Complaint alleges

the following facts to support this alleged knowledge:

          (1) the Individual Defendants were aware on November 10, 2011, that
          Brooks’ November sales would reach only $13 million; 124

          (2) Marvin knew ITW was worried about the November financial
          results;125

          (3) Marvin refused to allow ITW representatives to have a face-to-
          face meeting with Brooks’ management on December 8, 2011, after
          ITW received the November financial statements. 126 Instead, Marvin
123
    Metro Commc’n Corp. BVI v. Advanced MobileComm Techs., Inc., 854 A.2d 121, 147 (Del.
Ch. 2004) (quoting IOTEX Commc’ns, Inc. v. Defries, 1998 WL 914265, at *4 (Del. Ch. 1998)).
124
    Compl. ¶ 41.
125
    Id. ¶ 31.
126
    Id. ¶ 34.
                                            28
       would only permit Brooks’ management to discuss the November
       results by telephone and Brooks’ management would provide written
       answers to any questions submitted by ITW; 127

       (4) Baroyan pushed the Brooks’ sales teams to “book the hell out of
       everything we possibly can over the next 10–15 days to ease any
       concern ITW is going to have once they see October data;” 128

       (5) Baroyan had daily contact with Brooks’ CEO and CFO to monitor
       Brooks’ progress toward the November $17 million sales goal and he
       directed Brooks to maximize November sales;129 and

       (6) on or about November, 11, 2011, Bamatter asked Brooks’ CEO
       and CFO, in regards to the low October sales, “is there a story that is
       not scary?”130

       None of the aforementioned facts give rise to a reasonable inference that the

Individual Defendants knew about, or were recklessly indifferent to, any alleged

misrepresentations or sham sales contained in the November 2011 financial

statements. Where a plaintiff fails to allege facts that support an inference that

individuals had knowledge of a fraudulent statement, its fraud claim against those

individuals must be dismissed.131




127
    Id.
128
    Id. ¶ 43.
129
    Id. ¶ 44.
130
    Compl. ¶ 42.
131
     Metro Commc’n, 854 A.2d at 146–47 (dismissing fraud claims against individuals where
pleadings did not support a reasonable inference that they had “actual knowledge” of facts that
made report misleading); Anvil Holding Corp. v. Iron Acquisition Co., 2013 WL 2249655, at *7
(Del. Ch. 2013) (denying a motion to dismiss fraud claims where it was “reasonably
conceivable” that the individual defendants had knowledge of false statements made by the
company).
                                              29
       Additionally, the Complaint does not sufficiently allege that the Individual

Defendants participated in the fraud.132              Paragraph 15 of the Complaint

conclusorily states, “Defendants Marvin, Bamatter, and Baroyan were actively

involved in the fraud and were aware of the relevant facts.” Nowhere does ITW

plead any additional facts to support this conclusory statement. To the contrary,

ITW alleges any fraud was committed by Brooks’ employees––not AIP.133

Without more, such a conclusory statement is insufficient to support a reasonable

inference that the Individual Defendants participated in the alleged fraud. 134

       ITW has failed to allege sufficient facts from which it can reasonably be

inferred that the Individual Defendants participated in the alleged fraud or knew

about, or were recklessly indifferent to, any alleged misrepresentations or sham




132
    Corporate executives can be individually liable for the torts they personally commit even if
they were acting in their official capacity. Duffield Assocs., Inc. v. Meridian Architects &
Eng’rs, LLC, 2010 WL 2802409, at *4 n.5 (Del. Super. 2010) (“[A] corporate officer is
individually liable for the torts he personally commits and cannot shield himself behind a
corporation when he [is] an actual participant in the tort.” (quoting Donsco, Inc. v. Casper
Corp., 587 F.2d 602, 606 (3d Cir. 1978) (emphasis added))). “This rule applies to claims of
fraud.” Duffield, 2010 WL 2802409, at *4.
133
    The Complaint identifies Brooks’ management, Hale (CEO) and Somani (Vice President
Global Account Management) as the employees who orchestrated the alleged sham sales to
Ichor. Compl. ¶¶ 46–56.
134
    Browne, 583 A.2d at 953, 955 (explaining that Rule 9(b) requires the circumstances
surrounding the fraud to be pleaded with particularity); Metro Commc’n, 854 A.2d at 147
(explaining that merely holding a managerial position in a company is not sufficient to show a
manager had knowledge of any alleged fraud committed by the company).
                                              30
sales contained in the November 2011 financial statements. 135 Consequently, the

claims against the Individual Defendants must be dismissed.

                                   VI. CONCLUSION

       For the foregoing reasons, AIP’s Motion to Dismiss Count I (fraud) is

GRANTED; AIP’s Motion to Dismiss Count II (fraud in the inducement) is

GRANTED, in part, and DENIED, in part; and the Individual Defendants’

Motion to Dismiss all counts against them in the Complaint is GRANTED.

       IT IS SO ORDERED.

                                                    _____________________________
                                                    Jan R. Jurden, President Judge




135
   Because the Court finds that ITW has failed to plead fraud with the requisite particularity
against the Individual Defendants, the Court will not address the issue of personal jurisdiction.
                                               31
