                                        COURT OF CHANCERY
                                               OF THE
                                        STATE OF DELAWARE

TAMIKA R. MONTGOMERY-REEVES                                             Leonard Williams Justice Center
         VICE CHANCELLOR                                                 500 N. King Street, Suite 11400
                                                                        Wilmington, Delaware 19801-3734



                               Date Submitted: December 7, 2017
                                Date Decided: March 29, 2018

        Kevin R. Shannon, Esquire                            John M. Seaman, Esquire
        Christopher N. Kelly, Esquire                        E. Wade Houston, Esquire
        Andrew H. Sauder, Esquire                            Abrams & Bayliss LLP
        Potter Anderson & Corroon LLP                        20 Montchanin Road, Suite 200
        1313 North Market Street                             Wilmington, Delaware 19807
        Hercules Plaza, 6th Floor
        Wilmington, Delaware 19801

              RE: Plaze, Inc. & Apollo Aerosol Industries LLC v. Chris K. Callas et al.
                  Civil Action No. 2017-0432-TMR

    Dear Counsel:

             This letter opinion addresses Defendants’ Motion to Dismiss under Court of

    Chancery Rule 12(b)(6). For the reasons set forth below, the Motion is DENIED.

    I.       Background
             All facts are drawn from the Verified Complaint for Injunctive and Other

    Relief (the “Complaint”) and the documents incorporated therein. At this stage of

    the proceedings, I must take all of Plaintiffs’ well-pled facts as true and draw all

    reasonable inferences in their favor. 1



    1
             The Complaint alleges that Defendants shredded a large quantity of documents in
             the month leading up to their departure and had their third-party IT vendor purge
             their company emails before their departure. Compl. ¶¶ 41-42. Plaintiffs explained
Plaze v. Callas
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Page 2 of 19

      Plaintiff Plaze, Inc. (“Plaze” or the “Buyer”) is a “full-service specialty

contract manufacturer of automotive, household, insecticide, and pesticide

aerosols.” 2 Plaze is the sole member of Plaintiff Apollo Aerosol Industries LLC

(“Apollo” or the “Company”). 3 In 2015, Plaze acquired Apollo from Defendants (or

the “Sellers”) for $100,000,000 pursuant to a stock purchase agreement (the

“SPA”). 4

      The parties signed the SPA on November 24, 2015, and the transaction closed

on December 15, 2015. 5 The SPA sets out a mechanism for post-closing adjustments

to the purchase price, as well as a limitation on the Sellers’ post-closing

indemnification liability. The SPA contains representations and warranties by

Defendants on behalf of Apollo that are at issue in this litigation.6 These include

representations and warranties about the financial records of Apollo, Apollo’s




      that the Complaint is based primarily on the company emails they were able to
      recover after the purge. Id. ¶ 42; Oral Arg. Tr. 51-52.
2
      Compl. ¶ 9.
3
      Id. ¶ 10.
4
      Id. ¶ 2.
5
      Id. ¶ 23.
6
      Id. ¶¶ 63-66; Id. at Ex. 1, at 20-35.
Plaze v. Callas
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compliance with certain laws and contracts, and Apollo’s product liability exposure.

Indemnification is the sole remedy for a breach of a representation or warranty under

the SPA. 7 The SPA also contains several restrictive covenants relevant to this

litigation, including non-compete, non-solicit, and confidentiality provisions. 8 The

parties agreed that specific performance, an injunction, or other equitable relief are

necessary to enforce these provisions of the SPA. 9

      After the closing, Defendants Chris Callas10 and Maria Callas continued to

work at Apollo, but the relationship soured. On March 28, 2016, Apollo and Chris

Callas entered into a mutual separation and settlement agreement (the “Separation

Agreement”) effective March 31, 2016. 11 The Separation Agreement included a

severance amount, a repurchase of LLC units, and a settlement of the purchase price

under the SPA, as well as additional representations, warranties, and restrictive

covenants applicable to Chris Callas.


7
      Id. at Ex. 1, § 6.7.
8
      Id. ¶¶ 25-33; Id. at Ex. 1, at 53-55.
9
      Id. at Ex. 1, at 61-62.
10
      At closing, Defendant Chris Callas entered into an employment agreement with
      Plaintiffs to continue working as CEO of Apollo. Id. ¶ 24.
11
      Id. ¶ 35; Id. at Ex. 2. Maria Callas also departed Apollo on March 31, 2016. Id. ¶
      35.
Plaze v. Callas
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Page 4 of 19

      The heart of the Complaint is Plaintiffs’ contention that after the Callases

departed Apollo they started a competing business and attempted to solicit

employees from Apollo.        Plaintiffs also contend that several breaches of

representations and warranties, for which Defendants owe them indemnification,

came to light during the survival period.

      On June 7, 2017, Plaintiffs filed the Complaint seeking to enjoin the

competitive behavior of Defendants and compel payment of the indemnification and

tax adjustment amounts. Defendants moved to partially dismiss the Complaint on

July 7, 2017, and the Court heard oral argument on the Partial Motion to Dismiss on

December 7, 2017.

II.   Analysis
      The Complaint contains nine counts, eight of which Defendants move to

dismiss. 12 These eight counts fall into two broad categories: (1) breaches of

restrictive covenants, for which Plaintiffs seek specific performance or injunctive

relief, and (2) breaches of representations and warranties, for which Plaintiffs seek

indemnification. Counts I through IV allege breaches of restrictive covenants.

Counts V through VIII allege breaches of representations and warranties. In support


12
      Defendants have not moved to dismiss Court IX, which alleges a breach of Section
      6.8 of the SPA related to the tax adjustment amount. Id. ¶¶ 132-36.
Plaze v. Callas
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of their motion to dismiss, Defendants first argue that the subsequent Separation

Agreement between Plaintiffs and Defendant Chris Callas settled all claims in

Counts V through VIII for breaches of representations and warranties. Second,

Defendants argue that the allegations in the Complaint fail to state a claim under

Court of Chancery Rule 12(b)(6) as to Counts I through IV and part of Count VIII.

I address each argument in turn.

      A.     Standard of Review
      When considering a motion to dismiss for failure to state a claim under Court

of Chancery Rule 12(b)(6), a court must accept all well-pled factual allegations in

the complaint as true, accept even vague allegations in the complaint as well-pled if

they provide the defendant notice of the claim, “draw all reasonable inferences in

favor of the non-moving party,” and deny the motion unless the plaintiff could not

recover “under any reasonably conceivable set of circumstances susceptible of

proof.”13

      All the claims in this case hinge on the Court’s interpretation of the parties’

contracts. “Delaware adheres to the ‘objective’ theory of contracts, i.e., a contract’s

construction should be that which would be understood by an objective, reasonable



13
      Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002).
Plaze v. Callas
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third party.” 14 “When interpreting a contract, this Court ‘will give priority to the

parties’ intentions as reflected in the four corners of the agreement,’ construing the

agreement as a whole and giving effect to all its provisions.” 15 “In giving sensible

life to a real-world contract, courts must read the specific provisions of the contract

in light of the entire contract.”16

       B.     The Separation Agreement Does Not Release Any Indemnification
              Claims for the Breaches of the Representations and Warranties
              Alleged in Counts V through VIII as a Matter of Law
       Defendants contend that a provision in the Separation Agreement, when read

in the context of, and in conjunction with, the SPA, released any indemnification

claims against Defendants arising from the SPA as a matter of law. Defendants point

to Section 6.3(f) of the SPA and Paragraph 4 of the Separation Agreement to support

this contention.

       Section 6.3 of the SPA governs “Sellers’ Indemnification” and lays out a

comprehensive indemnification scheme. 17 Section 6.3(f) of the SPA states: “[a]ll


14
       Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010).
15
       Salamone v. Gorman, 106 A.3d 354, 367-68 (Del. 2014) (quoting GMG Capital
       Invs., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 779 (Del. 2012)).
16
       Chi. Bridge & Iron Co. N.V. v. Westinghouse Elec. Co., 166 A.3d 912, 913-14 (Del.
       2017).
17
       Id. at Ex. 1, at 41.
Plaze v. Callas
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Page 7 of 19

indemnification payments under this Section 6.3 shall be deemed adjustments to the

Final Purchase Price.” 18 Paragraph 4 of the Separation Agreement states:

             Employee, in his capacity as a Seller (as defined in the
             Purchase Agreement) and Representative (as defined in
             the Purchase Agreement), and Plaze hereby agree that the
             Final Purchase Price (as defined in the Purchase
             Agreement) and the related purchase price adjustment
             under Section 2.4 of the Purchase Agreement (“the Final
             Purchase Price Adjustment”) are each set forth on Annex
             C attached hereto and that such Final Purchase Price and
             the Final Purchase Price Adjustment shall be final,
             conclusive, and binding on the parties to the Purchase
             Agreement. 19

      Defendants argue that Paragraph 4 of the Separation Agreement settled all

indemnification payments under Section 6.3 because any indemnification payment

must adjust the Final Purchase Price due to Section 6.3(f) of the SPA. But the Final

Purchase Price and Final Purchase Price Adjustment in the Separation Agreement

were “final, conclusive, and binding” on the parties, which would make any

indemnification adjustment required under Section 6.3(f) impossible. Thus, any

indemnification claims must have been settled by the Separation Agreement.




18
      Id. at Ex. 1, at 42.
19
      Id. at Ex. 2, at 2.
Plaze v. Callas
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      In response, Plaintiffs first argue that Defendants’ interpretation of Section

6.3(f) of the SPA is incorrect. Plaintiffs point to the United States Supreme Court

case Arrowsmith v. Commissioner 20 as evidence that Section 6.3(f) merely relates to

the parties’ intended tax treatment of any indemnification payments. Next, Plaintiffs

argue that it would be absurd to read the Separation Agreement to nullify the

complex eighteen-month indemnification provisions of the SPA in the way

Defendants suggest. Plaintiffs point to the fact that Paragraph 4 of the Separation

Agreement explicitly mentions Section 2.4 of the SPA, which governs the Post-

Closing Adjustment to the Final Purchase Price, but the Separation Agreement does

not mention anything about indemnification or Section 6.3 of the SPA. 21 The

Separation Agreement’s final paragraph states: “For the avoidance of doubt, nothing

contained in this Agreement shall limit, modify, or otherwise affect any party’s

obligations under the [SPA] . . . .” 22 Thus, Plaintiffs contend nothing in the

Separation Agreement evidences the intent of the parties to gut the indemnification

provisions of the SPA.



20
      344 U.S. 6 (1952).
21
      Compl. Ex. 2, at 2.
22
       Id. at Ex. 2, at 4.
Plaze v. Callas
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Page 9 of 19

      In light of Plaintiffs’ arguments, Defendants, at best, offer another possibly

reasonable interpretation of the contract. While this may entitle them to discovery

related to the parties’ intentions, it does not entitle them to dismissal as a matter of

law at this stage.

      Defendants argue in the alternative that, at the very least, the Separation

Agreement released Plaintiffs’ claims for breach of the financial statement

representations and warranties because Section 2.4 includes working capital

adjustments, and accounts receivable and accounts payable are both part of the

working capital calculation. I agree with Plaintiffs that this argument “conflates the

SPA’s post-closing working capital adjustment process—i.e., the process for

determining a ‘final, conclusive, and binding’ Final Purchase Price as set forth in

Section 2.4 of the SPA—with the parties’ right to seek indemnification for breach

of representations, warranties, and covenants under Article VI of the SPA.”23 The

Motion to Dismiss Counts V through VIII therefore is DENIED.

      C.     Plaintiffs Have Pled Sufficient Facts to State a Claim for Breach of
             the Non-Compete and Non-Solicit Provisions of the SPA
      The Complaint contains well-pled facts that state a reasonably conceivable

claim that Defendants violated Sections 6.16(b) and 6.16(c) of the SPA, which


23
      Pls.’ Opp’n Br. 23.
Plaze v. Callas
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contain the restrictive covenants that prohibit competition and solicitation by

Defendants post-closing.

      Section 6.16(b) is the restrictive covenant prohibiting post-closing

competition. It states:

             Each Seller covenants that during the period commencing
             on the date hereof and ending on the third anniversary of
             the date hereof (the “Restricted Period”), other than at the
             request or direction of Buyer, such Seller shall not, directly
             or indirectly, invest or own any interest in, manage,
             control, participate in (whether as an operator, consultant,
             director, employee, agent, representative or otherwise),
             consult with, render services for or otherwise engage in
             any business or entity that competes with the Company
             Group’s businesses as conducted or actively planned to be
             conducted on the date hereof within any geographic
             location in which the Company Group operates or actively
             plans to operate on the date hereof (it being understood
             that such geographic area currently comprises the United
             States); provided, however, that nothing in this Section
             6.16(b) shall prevent a Seller from being a passive owner
             of not more than 5% of the outstanding equity securities
             of any publicly traded entity, so long as such Seller has no
             active participation in the business of such entity. 24

      Section 6.16(c) is the restrictive covenant prohibiting post-closing solicitation

of Apollo employees. It states:

             Each Seller covenants that during the Restricted Period,
             other than at the request or direction of Buyer, such Seller
             shall not, directly or indirectly, (i) (x) induce or attempt to

24
      Compl. Ex. 1, at 55.
Plaze v. Callas
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             induce any employee or independent contractor of the
             Company or any Subsidiary who is employed or engaged
             by the Buyer Group to leave the employ of the Buyer
             Group, or in any way knowingly interfere adversely with
             the relationship between the Buyer Group and any
             employee thereof or (y) actually hire any employee or
             independent contractor that is or was, at any time within
             six months of such proposed hiring, employed by the
             Buyer Group; (ii) solicit or induce or attempt to solicit or
             induce any customer, supplier, licensor, licensee or lessor
             of the Company or any Subsidiary (each a “Business
             Relation”) to cease or refrain from doing business with, or
             otherwise modify adversely the business done with, the
             Company or the Subsidiaries; or (iii) in any way
             knowingly interfere with the relationship (or prospective
             relationship) between any Business Relation and the
             Buyer Group. It shall not be a violation of Section
             6.16(c)(i)(x) if a Seller makes good faith generalized
             solicitations for employees (not specifically targeted at
             employees of the Company Group) through
             advertisements or search firms. 25

      Plaintiffs have pled the following facts pertaining to Defendants’ violations

of the non-compete and the non-solicitation agreements. “[I]n early January 2016,

Chris Callas, on information and belief, asked another Apollo employee to research

whether the company names ‘First Brands’ and ‘Best Brands’ were already in use.”26

“Then, in a series of emails throughout January, February, and March 2016, Chris



25
      Id.
26
      Id. ¶ 37.
Plaze v. Callas
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Callas emailed with multiple financial advisors about acquiring new companies

and/or opening investment credit lines, noting, for example, ‘the truth is I am

interest[ed] to buy another company.’” 27 “In addition, in email correspondence

throughout February and March 2016, Chris Callas indicated an intention to

purchase tanks and/or concrete pads for heptane tanks at some point in the future.”28

Then, days before his departure from Apollo, “[o]n March 16, 2016 . . . [Chris

Callas] directed an Apollo employee to circulate technical calculations for a heptane

concrete pad in order ‘to talk the same language[,]’ cautioning ‘send it from your

cell phone and don’t cc me[.]’” 29

      “[I]n the summer of 2016, Chris Callas—through non-party and former

Apollo Vice President Richard Wilkinson (‘Wilkinson’)—bid on used aerosol

equipment auctioned off by another chemical company.” 30 “Shortly thereafter,

Wilkinson began working for SPL, which . . ., in June 2016, registered as a foreign

profit corporation in Georgia, with its principal office in Thomaston, Georgia—one




27
      Id. ¶ 38 (alteration in original).
28
      Id. ¶ 39
29
      Id. (final two alterations in original).
30
      Id. ¶ 47.
Plaze v. Callas
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mile from the site of a former Apollo manufacturing plant which [Defendants],

through their holding company (AMC Upson), owned at that time.” 31 “On October

5, 2016, SPL’s webpage began indicating that it had a manufacturing plant in

Thomaston, Georgia. Shortly thereafter, SPL began leasing equipment for its

Thomaston plant.” 32

       “In late February and early March 2017, [Defendants]—through AMC

Upson—sold the former Apollo manufacturing plant in Thomaston to SPL.” 33

Defendants “financed part of SPL’s purchase.”34 “Shortly after that sale, Wilkinson,

on behalf of his employer, SPL, contacted a major supplier of aerosol propellant

tanks about purchasing two 10,000-gallon aerosol tanks.” 35

      Over the “Easter holiday in April 2017, Chris Callas invited SPL’s Chief

Executive Officer, Zachary Colander (‘Colander’), to his home. Chris Callas also

invited Wilkinson and two current Apollo employees, as well as another Apollo




31
      Id. ¶ 48.
32
      Id. ¶ 49.
33
      Id. ¶ 50.
34
      Id.
35
      Id. ¶ 52.
Plaze v. Callas
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customer, who all attended.”36 “At the Easter dinner, Chris Callas introduced

Colander to a current Apollo executive as his ‘very dear friend Zach,’ and, when

discussing SPL’s business with Apollo’s employees, Chris Callas referred to SPL as

‘we,’ further indicating his involvement with SPL.” 37 “At the same dinner, Colander

told an Apollo employee about SPL’s plans for the Thomaston site, including that

SPL plans to ‘run’ aerosols and to fill ‘anything our customers want.’” 38 “Chris

Callas [also] told a current Apollo employee to ‘listen to [SPL CEO] Colander,’ and

that if Colander wants the employee to be his president, then the employee should

be his president—even going so far as to shout out salary figures in front of the

employee’s family.” 39

      All of these allegations taken as true make it reasonably conceivable that (1)

Defendants, directly or indirectly, invested or owned an interest in, managed,

controlled, participated in, consulted with, rendered services for or otherwise

engaged in a business or entity that that was competing with Apollo; and (2)




36
      Id. ¶ 53.
37
      Id. ¶ 54.
38
      Id. ¶ 55.
39
      Id. ¶ 57 (final alteration in original).
Plaze v. Callas
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Defendants directly or indirectly attempted to induce an employee of Apollo to leave

Apollo. Thus, Plaintiffs have stated a claim that Defendants violated Section 6.16(b)

and (c) of the SPA, and the Motion to Dismiss as to Counts I and II is DENIED.

      D.     Plaintiffs Have Pled Sufficient Facts to State a Claim Against Chris
             Callas for Breach of the Confidentiality Covenants in the SPA and
             Separation Agreement
      The Complaint contains well-pled facts that state a reasonably conceivable

claim that Chris Callas breached Section 6.16(a) of the SPA and Paragraph 5 of the

Separation Agreement. The relevant language of Section 6.16(a) states:

             Upon the request of Buyer at any time after the date hereof,
             each Seller shall deliver promptly to Buyer or destroy all
             tangible embodiments (and all copies) of the Confidential
             Information which are in such Seller’s possession or under
             such Seller’s control and provide confirmation thereof in
             writing.40

The relevant language of Paragraph 5 of the Separation Agreement states:

“Employee represents, warrants, and covenants that: . . . (v) Employee has returned,

or will prior to the Separation Date, return, to the Company all Confidential

Information (it being understood that upon execution of this Agreement this

representation shall constitute Employee’s affirmative confirmation thereof . . . .” 41


40
      Id. at Ex. 1, at 53-54.
41
      Id. at Ex. 2, at 2.
Plaze v. Callas
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          Plaintiffs allege that “[o]n the same day Chris Callas signed the Separation

Agreement, he asked an Apollo employee to send him an investor presentation from

Apollo’s files that, upon information and belief, contained Apollo’s Confidential

Information.” 42 It is reasonable to infer that Chris Callas has not returned all the

Confidential Information in his possession, and thus, Plaintiffs have shown that it is

reasonably conceivable that Defendants violated Section 6.16(a) of the SPA and

Paragraph 5 of the Separation Agreement. The Motion to Dismiss as to Count III

against Chris Callas and Count IV is therefore DENIED.

          E.     Plaintiffs Have Pled Sufficient Facts to State a Claim Against
                 Maria Callas for Breach of the Confidentiality Covenant in the
                 SPA
          The Complaint contains well-pled facts that state a reasonably conceivable

claim that Maria Callas breached Section 6.16(a) of the SPA, which contains the

restrictive covenant regarding confidentiality. The pertinent contract language

states:

                 Each Seller covenants that, from and after the Closing,
                 such Seller shall, and shall cause each of such Seller’s
                 Affiliates and representatives to, not disclose, and shall
                 treat and hold as strictly confidential, all Confidential
                 Information and, except as otherwise expressly permitted
                 by this Agreement, refrain from using any Confidential
                 Information (other than for the benefit of the Buyer Group

42
          Id. ¶ 45.
Plaze v. Callas
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             as an employee or consultant thereof after the Closing
             Date). 43

      Plaintiffs have not pled that Maria Callas disclosed any Confidential

Information. Plaintiffs have pled, however, that in late March 2016 “Maria Callas

emailed from her Apollo business email account to a personal email account a host

of Apollo documents containing, among other items, information related to Apollo’s

accounts receivable and accounts payable.”44 Plaintiffs also pled that shortly before

her separation from Apollo, “Maria Callas instructed an Apollo IT manager to send

her a critical set of documents containing Apollo’s Confidential Information.”45

Taking these facts as true, and considering them in the context of all the facts

Plaintiffs have pled, it is, just barely, reasonably conceivable that Maria Callas has

used this Confidential Information in violation Section 6.16(a) of the SPA. Plaintiffs

have therefore stated a claim for the breach of this restrictive covenant as to Maria

Callas, and the Motion to Dismiss as to Count III against Maria Callas is DENIED.




43
      Id. at Ex. 1, at 53-54.
44
      Id. ¶ 40.
45
      Id. ¶ 43.
Plaze v. Callas
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      F.     Plaintiffs Have Pled Sufficient Facts to State a Claim Against
             Defendants for Breach of the Legal Compliance Representation
             and Warranty
      Defendants only challenge the sufficiency of the allegations related to the

alleged breaches of representations and warranties in one paragraph of the

Complaint. The paragraph, however, contains well-pled facts that state a reasonably

conceivable claim that Defendants breached Section 3.16 of the SPA. Section 3.16

contains Defendants’ representations and warranties on behalf of Apollo regarding

Apollo’s compliance with laws. Section 3.16(a) states:

             (a) Except as set forth on Schedule 3.16(a), the Company
             Group has complied and is in compliance, in each case, in
             all material respects, with all applicable laws and no
             written notices have been received by and no claims have
             been filed against the Company Group alleging a violation
             of any such laws. Neither the Company nor any Subsidiary
             has received any written notice of any violation or any
             alleged violation of any law. No officer, director,
             employee, independent contractor, consultant, advisor or
             agent of the Company Group has been or is authorized to
             make or receive, and none of the Company Group’s
             officers, directors, managers, employees or, to the
             Knowledge of the Company, consultants, advisors or
             agents have made or received, any bribe, kickback
             payment or other illegal payment at any time with respect
             to the business of the Company Group.46




46
      Id. at Ex. 1, at 33.
Plaze v. Callas
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       Plaintiffs plead that “Chris Callas caused Apollo to enter into a fictitious long

term lease arrangement with a longtime associate, pursuant to which Apollo paid

over $300,000 for copiers that were never delivered to Apollo.” 47 The Complaint

further alleges that “Chris Callas profited personally from the sham arrangement by

receiving all or most of the money Apollo paid for the copiers.” 48 Plaintiffs argue

that this arrangement constituted a “bribe, kickback payment or other illegal

payment,” in violation of Section 3.16 of the SPA. Because the Court must deny a

motion to dismiss unless the plaintiff would not be entitled to recover under any

reasonably conceivable set of circumstances susceptible of proof, the Motion to

Dismiss as to this claim must be DENIED.

III.   Conclusion
       For the foregoing reasons the Motion to Dismiss is DENIED.

       IT IS SO ORDERED.

                                               Sincerely,

                                               /s/Tamika Montgomery-Reeves

                                               Vice Chancellor



47
       Id. ¶ 81.
48
       Id.
