IN THE SUPERlOR COURT OF THE STATE OF DELAWARE

NVENT, LLC,
Plaintiff,
C.A. No. Nl6C-05-l48 EMD CCLD

V.

HORTONWORKS, INC.,

Defendant.

Submitted: October 24, 2016
Decided: February l, 2017

Upon Defendant Hortonworks, Inc. ’s Partial Motion to Dismiss
Counts II, III, and 1 V of the Verifl`ed Complaint
GRANTED in part and DENIED in part
Kurt M. Heyman_. `Esquirc, Saniuel T. Hirzel ll, Esquire_. lleyman Enerio Gattuso & l'Iirzel LLP,
Willningtom Delaware, Neal A. .Iacobs, Esquirc, Richard E. Miller, l`{‘lsquire, and .loshua A.
Gelman, Esquire_. Jacobs haw Group_. Philade]pliia, Pennsy!vania. Arrr)rney.v_fi)r NVem. LLC
Jeremy D. Anderson, Esquire, Kelly A. Del Dotlo, Esquire, Fish & Richardson P.C.,

Wilmington, Delaware, and Gus P. Coldebella, Esquire, Fish & Richardson P.C., Boston,
Massachusetts. Attorneys for Hortonworks, Inc.

DAVIS, J.
I. INTRODUCTION

This breach of contract action is assigned to the Complex Commercial Litigation
Division of the Court. On l\/lay 16, 2016, Plaintiff NVent, LLC (“NVent”) filed its Veriiied
Complaint (the “Complaint”). Through the Complaint, NVent seeks to hold Defendant
Hortonworks, Inc. (“Hortonworks”) accountable for Hortonworks’ misrepresentations regarding
referrals; Hortonworks’ agreement to purchase a minority ownership interest in HVent;
Hortonworks’ agreement to purchase the assets of HVent; and, Hortonworks’ Wrongful and

oppressive conduct in controlling management operations and decisions at HVent.

NVent presents four claims for relief in the Complaint. NVent asserts a claim for a
declaratory judgment, contending that it is not in default under a Term Loan Agreement (the
“Note”) entered into between Hortonworks and NVent (Count I).l NVent alleges it has a
“legitimate interest in the prompt resolution of the issue of whether Hortonworks’ vague and
false accusations are sufficient to establish that an ‘Event of Default,’ as set forth in the Note, has
occurred because NVent will suffer damages if forced to comply with Hortonworks’
unsubstantiated demands.”2 Second, NVent avers a claim for promissory estoppel (Count II).3
NVent contends that Hortonworks made clear and unambiguous promises regarding the Note,
and NVent relied upon those promises to enter the Note.4 Third, NVent makes a
misrepresentation claim (Count III).5 Here, NVent claims that Hortonworks allegedly
misrepresented that it would acquire NVent, and knew, or should have known, at the time of
making the representations, that it would not be able to acquire NVent due to impediments6
Further, Hortonworks misrepresented that it had $40 million in work available for NVent.7
Finally, NVent asserts a Lender Liability claim (Count IV).8 NVent contends that Hortonworks
acted in bad faith in securing the Note, and exercised greater-than-typical control over NVent as
its lender.9 Specifically, NVent alleges that Hortonworks controlled NVent’s daily business
operations and long-term management decisions, and forced NVent to terminate employees.10

On June 13, 2016, Hortonworks filed its Defendant Hortonworks, lnc.’s Opening Brief in

Support of its Partial Motion to Dismiss Counts II, III, and lV of the Verified Complaint (the

 

l See Verif`led Complaint 111 73-78 (hereafter “Pl.’s. Compl.”).
2 1d. 1176.

3 See id. 1111 78_88.

“ Id. 1111 79, 82.

5 See id. 111 89_97.

6 ld. 1111 90_91.

7 ld. 1193.

s See id. 1|1[ 98_110.

9 ld. 11 100.

‘° 1a1111101_103.

“Motion”). Hortonworks also filed its answer and counterclaims NVent filed its Plaintiff`s
Brief in Opposition to Defendant’s Motion to Dismiss (the “Opposition”) on July 15, 2016.
Hortonworks filed its Defendant Hortonworks, Inc.’s Reply Brief in Support of its Motion to
Dismiss Counts 2, 3, and 4 of the Verified Complaint (the “Reply”) on August l, 2016. The
Court heard oral argument on October 24, 2016 on the Motion, the Opposition, and the Reply.
At the end of the hearing, the Court took the Motion under advisement

For the reasons set forth below, the Court will DENY the Motion as to Count Il. The
Court will GRANT the Motion as to Counts III and IV, dismissing these counts without
prejudice to allow NVent an opportunity to amend these two counts within fifteen (15) days from
the date of this Opinion.

11. RELEVANT FACTs“

A. GENERAL BACKGRoUND

Hortonworks is an analytics business, specifically using the Hadoop programming
framework12 Sometime in 2014, Hortonworks sought to grow its business through an initial
public offering due to a growing demand for Hadoop services.13 So, Hortonworks sought out a
start-up enterprise that had the expertise to develop a work force capable of doing Hadoop
servicing work, with an eye towards absorbing the start-up down the road.14 NVent contends it

was that enterprise.

 

ll Un|ess otherwise indicated, the following are the Relevanl Facts as alleged in the Complaint. l"`or purposes o't` the
Motion, the Court must view all well-pleaded facts alleged in the Complaint as true and in a light most favorable to
NVenl. See, e.g., (.'en!. M:.)r!g. (.`0, v, ll'forgcrn rS‘.~‘rm.-'r{v Mw'!g. ("up:`m.f !-fo.ldmg.\' LLC`, 27 A.3d 53 | ‘ 536 {De|. 2()| l};
Doe v. Cec!'w'.v Ac:c:d., LLC, C.A. No. 09C-09-l36 .IRS` 2010 WL 5825343, at *3 (Del. Super. Oct. 2'?, 2010`).

lz Pl.’s Compl.1l 7.

‘3 1a 1111 8-9.

l“1@1. 1111 10_11.

Hortonworks began talks with NVent in the fall of 2014.15 Hortonworks proposed that it
would invest $2.5 million in NVent in exchange for a 19.9% equity ownership in NVent.l(’
Further, Hortonworks promised to provide NVent with approximately $40 million in servicing
work.17 Hortonworks also represented that it would assist NVent secure an additional $2.5
million investment in order for NVent to hire and train consultants to meet Hortonworks’
servicing demands.18 Hortonworks executed a Memorandum of Terms (“l\/Iemorandum”)
reflecting the investment.19 The Memorandum provided that Hortonworks intended to invest
$2.5 million by way of a note to be fixed at 5% interest, which could not be prepaid, and which
would ultimately be converted to a 19.9% equity ownership in NVent.20

Hortonworks allegedly reneged on the Memorandum’s terms, purportedly because
“Hortonworks claimed it could not directly acquire an ownership interest in NVent because such
an acquisition would negatively impact Hortonworks’ valuation for its upcoming IPO.”21
Although the Memorandum was signed, NVent contends that Hortonworks’ actions in
connection with the Memorandum foreshadowed Hortonworks’ future behavior: Hortonworks
would lend NVent money, on Hortonworks’ terms, for the purported purpose of assisting NVent
to gear up and meet Hortonworks’ servicing needs, and with the aim to acquire, in whole or in

part, NVent.22

 

‘5 ld. 11 12.

16 141114-15.

" 1d. 11 16.

‘8 Id. 1111 17_18.

‘9 ld. 11 19.

20 Id. 1[ 20. The Memorandum, attached at Exhibit A to Plaintiff’ s complaint, is not signed by NVent, LLC. Only
Horton’s signature is attached.

2‘ Pl.’s compl. 1111 23_25.

22 1a 11 70.

Hortonworks and NVent continued business. On February 24, 2015, the parties entered
into the Note,23 Hortonworks provided NVent an unsecured $2.5 million loan, at a fixed 4%,
which was not subject to repayment until February 23, 2018.24 NVent alleges Hortonworks
required NVent to accept the Note as a precondition to Hortonworks’ sending the promised $40
million business to NVent.25 NVent relied on this promise, and accepted the loan.26

NVent alleges Hortonworks used the Note to exert control over NVent’s operations and
management to set up its potential acquisition.27 Hortonworks directly controlled who NVent
hired, how the employees were trained, and what work they performed; regularly monitored
NVent’s financial performance; and exerted control over NVent’s management and marketing
efforts.28 NVent contends that, even with this oversight, Hortonworks failed to provide the
repeatedly-promised work.29 For example, Hortonworks provided only 1/10 of the promised
work in the first year of the parties’ relationship30 Hortonworks also allegedly ignored NVent’s
concerns about a lack of business.31 In NVent’s view, Hortonworks would have had no reason to
lend money to NVent unless it was specifically for the purpose of providing services to
Hortonworks’ clients.

The parties’ disagreement seemingly escalated in November 2015 when NVent’s
principals began complaining about the lack of promised Work.32 Will Lowry, an NVent

principal, questioned Hortonworks’ CEO directly.33 In response, Hortonworks’ CEO demanded

 

22 1a 1111 27_28.

22 Id. 11 32.

28 1a 1111 33-36.
29 1a 11 36.

2° ld. 11 37.
3‘1d. 11 38.

22 Id. 111 39_40.
32 1a

NVent terminate Mr. Lowry, and instructed Hortonworks’ sales staff to disengage with NVent
until NVent fired Mr. Lowry.34 If NVent terminated Mr. Lowry, Hortonworks would follow
through with its promise to acquire NVent.35 So, NVent terminated Mr. Lowry.36 Hortonworks
then promised to acquire NVent by Christmas 2015.37

On or about November 6, 2015, Hortonworks’ CEO emailed NVent, stating:

Let’s find a way to get you and your team over to hwks asap and put all this

behind us. . .the hwks team highly values your technical domain and customer

skills and strategic vision. . .let’s put you rob and your key guys on this team and

build a great company! ! !3a

On November 8, 2015, Hortonworks’ CEO asked for NVent’s “most current and up to
date financials as well as a current cap table,” which NVent provided.39 On November 19, 2015,
Horton “reach[ed] out to [NVent] to get the ball rolling on financial diligence in anticipation of
some sort of acquisition between Hortonworks and NVent.”40 Hortonworks orally proposed to
hire all of NVent’s employees and assets, and convert the Note to equity, as long as NVent paid
the difference between NVent’s assets and the Note’s outstanding amount.41 NVent orally
accepted the deal, and began doing its due diligence.42 Hortonworks then delayed the acquisition
due to a purported secondary stock offering.43 Nonetheless, Hortonworks instructed NVent to

terminate certain employees, which NVent did.44 Thereafter, Hortonworks refused to move

forward with the acquisition or send additional work to NVent.45 By April 2016, one of NVent’s

 

34 ld. 111 41_42.

25 1a 1111 43-44.

36 ld. 11 44.

37 1a 11 45.

38 Id. 1[ 46 (typos and grammar in original).

42 ld. 11 511
44 ld. 1111 52_53.
45 ld. 1111 54_55.

two remaining principals terminated his relationship with NVent due to Hortonworks’ failure to
perform as promised.46

On April 15, 2016, Hortonworks sent a letter to NVent alleging NVent breached the
Note.47 The Demand letter accused NVent of committing intentional and incurable breaches
under the express terms of the Note, which allegedly rendered NVent in default because: (a)
Hortonworks “has reason to believe that NVent is in breach of its obligations under the [Vendor
Services Agreement]”;48 and (b) NVent has breached its obligations under Section 4(g) of” the
Note by engaging in business not reasonably related to the NVent’s business.49
B. CoNTRACT PRovIsIoNs

The Motion’s arguments rely heavily on two documents: the parties’ Vendor Services
Agreement (“VSA”) and the Note.50

1. The VSA

NVent argues it did not sign the VSA. The VSA’s preamble states: “This Vendor
Services Agreement is made and entered into as of January 20, 2015 (the “Effective Date”), by
and between Hortonworks, Inc., a Delaware corporation . . . and NVent, LLC, a Delaware
corporation.”5 l But, it was “accepted and agreed” to by NVent Solutions, LLC and signed by

Will Lowry on January 20, 2014 (sic).52 Clearly, the VSA states that it is an agreement between

NVent (as the “Vendor” under the VSA) and Hortonworks.53 However, NVent Solutions, LLC

 

46 1a 11 56.

42 1a 11 57.

48 NVent alleges the VSA does not apply to NVent: non-party NVent Solutions, LLC, a different entity, executed it.
See discussion, infra

49 Pl.’s Compl.1] 58.

50 Attached to Pl.’s. Compl. as Exhibit D and B, respectivelyl

51 Pl.’s Compl. Ex. D at 1.

52 ld. at 5.

53 See id.

is the corporate party executing the VSA.54 At this stage of the proceedings - drawing all

reasonable inferences in NVent’s favor, the Court must accept that NVent never executed the

VSA.

The VSA’s purpose was for NVent to provide work to Hortonworks’ other clients.

Section l .1 states:

The parties may, from time to time, agree upon and execute statements of work in
the form attached to this Agreement (“SOW”). SOWs will be numbered
sequentially. On the terms and conditions set forth in this Agreement, [NVent]
agrees to perform the services described in each executed SOW for
[Hortonworks! and, as part of those Services, to provide the deliverables outlined
in each SOW. 5

The VSA also includes an integration clause, which states:

This Agreement is the final, complete and exclusive agreement of the parties With
respect to the subject matter hereof and supersedes and merges all prior
discussions between the parties. No modification of, or amendment to, this
Agreement nor any waiver of any rights under this Agreement shall be effective
unless in writing and signed by the party to be charged. The terms of this
Agreement will govern all SOWs between the parties. In the event of any conflict

between this Agreement and a S(_)W, the SOW shall control, but only with respect
to the Services set forth therein.55

The VSA also contains a California choice of law provision.57

2. The Note

The Note states: “This [Note], dated as of February 24, 2015, is entered into by and
between NVent, LLC, a Delaware limited liability company (“Borrowcr”), and Hortonworks,
lnc., a Delaware corporation (“Mr_”).58

Further, the parties list several events of default, including:

 

54 Delaware’s Corporation Search shows that NVent, LLC (File number 5507493) and NVent Solutions, LLC (File
Number 5507497) are distinct entities.

55 Pl.’s Compl. Ex D at l.

56 1a at 5.

55 ld.

58 Pl.’s Compl. Ex. B at 1.

d) Borrower fails or neglects to perform, keep, or observe the negative covenants

contained in Paragraphs 4§ g )[.]5q
>l< * >l<
Upon the occurrence of an Event of Default, the indebtedness and other obligations of

Borrower to Lender herein described shall, if Lender shall so elect, become
immediately due and payable.60

Paragraph 4(g) provides “that Borrower will not engage in any business other than the

businesses currently engaged in by Borrower or reasonably related thereto[.]”61

The parties’ choice of law provision states: “This [Note] shall be governed and construed

in accordance with the laws of the State of California.”62

Finally, the parties included an integration clause:

This [Note] and the other documents described or contemplated herein represent
the final agreement between the parties, embody the entire agreement and
understanding between the parties hereto and thereto, supercede (sic) all prior
agreements and understandings relating to the subject matter hereof and thereof
and may not be contradicted by evidence of prior, contemporaneous, or
subsequent oral agreements of the parties. There are no unwritten oral agreement
(sic) between the parties This [Note] may only be amended in writing executed
by both parties hcreto.63

III. LEGAL STANDARD
Upon a motion to dismiss under Civil Rule 12(b)(6), the Court (i) accepts all well-
pleaded factual allegations as true, (ii) accepts even vague allegations as well-pleaded if they
give the opposing party notice of the claim, (iii) draws all reasonable inferences in favor of the

non-moving party, and (iv) only dismisses a case where the plaintiff would not be entitled to

 

52 ld. at 5.
60 ]d
51 Id. at 4.
62 Ia'. at 7.
65 ld.

recover under any reasonably conceivable set of circumstances64 However, the Court must

“ignore conclusory allegations that lack specific supporting factual allegations.”65
IV. DISCUSSION

A. CHolCE oF LAW

Hortonworks argues that Delaware law may apply because there is a false conflict
between California and Delaware law regarding the parties’ contentions The Note and the VSA
include California choice of law provisions At this stage of the proceedings, the Court will use
California law.

B. PRoMlssoRY EsToPPEL (CoUNT II)

To plead promissory estoppel under California law, NVent must allege facts that
demonstrate: (1) Hortonworks made a promise, clear and unambiguous in its terms; (2) NVent
relied on that promise; (3) Nvent’s reliance was reasonable and foreseeable; and (4) NVent was
injured by its reliance.66

NVent’s promissory estoppel argument is premised on the idea that there was no reason
for Hortonworks to loan NVent $2.5 million but for Hortonworks’ promise to provide $40
million in future work, NVent argues: “Simply put, if Hortonworks does not promise to provide
$40 million in work, NVent does not take the loan.”67

Hortonworks alleges that promissory estoppel is inapplicable because of the parties’

integration clauses NVent responds that parol evidence may be allowed in because

Hortonworks’ oral promise of $40 million in work is not part of the parties’ agreements

 

64 See Central Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 227 A.3d 531, 536 (Del. 201 i); D0e v.
Cedars Academy, No. 09c-09-136, 2010 wL 5825343, at *3 (Del. super. oct. 27, 2010).

65 Ramunno v. Crawley, 705 A.2d 1029, 1034 (Del. 1998).

66 Daniels v. select Porzfolio Servicmg, lnc., 246 Cal. App. 41h 1150, 1178, 201 cat Rptr. 3d 390, 416 (2016),
review denied (July 27, 2016).

67 Pl.’s Opp. at 9.

10

ln Aronowicz v. Nalley ’s Inc.,68 the California Court of Appeal upheld a trial court’s
verdict on a plaintiffs’ promissory estoppel claim. In Aronowicz, defendant, a food distributor,
was interested in procuring a line of deli meats sometime.69 Plaintiffs, who had some experience
in manufacturing deli meat, discussed working with defendant70 Plaintiffs incorporated Maj or
Food Products, Inc. (“Maj or”), and discussions with defendant intensified.71

Defendant agreed to become Major’s exclusive distributor as long as plaintiffs met
certain performance indicators72 Defendant’s agreement also stated: “[S]hould we determine
your product line is not as represented or is not compatible with our operation we are free to
terminate our agreement with 30 days.”73

Amidst negotiations plaintiffs leased plant space, procured products for manufacture,
created advertising materials, and installed machinery.74 Plaintiffs were fully operational and
had all appropriate governmental health approvals within the requisite period.75 Defendant’s
regional manager wrote a glowing review to defendant’s horne office.76 Nonetheless, defendant
back out on the deal.77

Plaintiffs sued, alleging, inter alia, promissory estoppel. A jury found for plaintiffs on
their promissory estoppel claim. The Court of Appeal affirmed, holding:

Defendant knew that [plaintiffs] were leaving their previous employment,

investing and pledging their fortunes and securing the investments of others in

substantial amounts to enable themselves to perform under terms of the letters
exchanged between the parties Defendant watched these efforts by plaintif`t`s,

 

66 106 ca1 Rprr. 424 (Cal. Cr. App. 1972).
65 ld. ar 34.

70 1011

71 ld

52 la at 35.

55 ld.

54 1a 3136.

55 la at 36_37.

56 ld. a137.

77 ld-

ll

encouraged thcm, approved the results and went so far as to commence to secure
orders for the products[.]78

NVent alleges that Hortonworks’ behavior shows that it enticed NVent into a contract.
There were several agreements, including the Memorandum and the Note, whereby Hortonworks
purportedly encouraged NVent’s business, causing NVent to make certain corporate decisions
and borrow money. NVent contends that Hortonworks invested in NVent for purposes of
creating a big data servicing practice for Hortonworks’ clients Hortonworks allegedly enticed
NVent to work directly for Hortonworks by promising $40 million in work. l\/loreover, NVent
claims that Hortonworks lent NVent $2.5 million at a fixed, below market rate of 4%.

The Complaint does not present a situation where a neutral lender, like a bank, loaned
NVent money. Rather, the Complaint shows a symbiotic relationship between the parties This
symbiotic relationship allows NVent to pursue its promissory estoppel claim. Given the
allegations in the Complaint, and California law, the Court finds that NVent has pled a claim in
Count ll under Which NVent could be entitled to recover under a reasonably conceivable set of
circumstances
C. MIsREPREsENTATloN (CoUNT III)

NVent alleges misrepresentation NVent’s misrepresentation claim, in its entirety, states:

89. Plaintiff hereby incorporates the averments of the preceding
paragraphs as if fully set forth herein.

90. As set forth above, Hortonworks represented to NVent that it
would acquire NVent and/or its assets

91. At the times it made such representations to NVent, Hortonworks
knew or should have known that it was not able to acquire an
ownership interest in NVent due to, amongst other things,
Hortonworks’ interests in its initial and secondary public offerings,
detrimental accounting ramifications if it went through with the

 

545/a at45.
12

acquisition, and opposition to the acquisition by internal senior
management at Hortonworks

92. Notwithstanding the existence of these impediments to any
acquisition, instead of disclosing the full truth, Hortonworks
obfuscated the true facts and misrepresented to NVent that the
acquisition would take place in the near future.

93. As set forth above, Hortonworks also represented to NVent that it
had $40 million in backlogged work for NVent, $6 to $8 million of
which would be provided within the first year of their relationship

94. At the times it made such misrepresentations to NVent,
Hortonworks knew or should have known that it was not able to
provide the level of work it represented it would provide to NVent.

95. Hortonworks made the above misrepresentations to NVent with the
intent of inducing NVent to rely on the facts misrepresented by
Hortonworks.

96. NVent did rely upon the misrepresentations of Hortonworks and
acted in furtherance of that reliance to its detriment

97. As a result of NVent’s reliance upon the misrepresentations of
Hortonworks, NVent did suffer and continues to suffer damages79

NVent seems unsure as to what type of misrepresentation claim it intends to bring. In
turn, Hortonworks moved to dismiss the claim under various theories The parties’ papers treat
this argument as fraudulent misrepresentation negligent misrepresentation or intentional
misrepresentation Hortonworks treats “misrepresentation” as a fraud claim,80 Further,
Hortonworks argues that misrepresentation must be pled in accordance with Superior Court Civil
Rule 9(b)’s heightened pleading requirement81 NVent’s opposition cites to negligent and
intentional misrepresentation cases82 At oral argument, NVent argued that the complaint could

be either negligent or intentional misrepresentation

 

52 Pl.’s compl. 1111 89-97.
150 Def.’s Mot. at 23-29.
64 See Universal CapimlMgmr., Inc. v. Micro Wor/d, Inc., 2012 wL 1413598, at *2 (Del. super. Feb. 1, 2012).

82 Pl.’s Opp. at 22.
13

1. Intentional/Fraudulent Misrepresentation

Under California law, to establish a claim for fraudulent misrepresentation, the plaintiff

must prove:

(1) the defendant represented to the plaintiff that an important fact was true; (2)

that representation was false; (3) the defendant knew that the representation was

false when the defendant made it, or the defendant made the representation

recklessly and without regard for its truth; (4) the defendant intended that the

plaintiff rely on the representation; (5) the plaintiff reasonably relied on the

representation.' (6) the plaintiff was harmed; and, ('i') the plaintiffs reliance on the

defendant's representation was a substantial factor in causing that harm to the

plaintirr.65
“Each element in a cause of action for fraud must be factually and specifically alleged.”84 ln a
fraud claim against a corporation, a plaintiff must allege the names of the persons who made the
misrepresentations their authority to speak for the corporation, to whom they spoke, what they
said or wrote, and when it was said or written85

NVent’s argument is that the Hortonworks misrepresented it had $40 million worth of
work for NVent. That misrepresentation induced NVent to sign the Note and incur the $2.5
million debt. Hortonworks argues that the contracts’ integration clauses preclude considering the
alleged misrepresentation California’s parol evidence rule, however, allows oral agreements
and discussions to be admitted for the purposes of combating fraud.86

The Court has reviewed Count III of the Complaint. Count III is plead generally and not
with particularity As such, NVent has not adequately pled an intentional/fraudulent

misrepresentation claim. NVent has not alleged who, what, when, where, and the basis for

authority required under California law. The Court understands that “intent” is hard, at this stage

 

:: Perlas v. GMAC Mortg., LLC, 113 Cal. Rptr. 3d 790, 794 (ca\. App. 2010).
1a

65 1a at 794_795.
116 See Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Ass 'n, 291 P.3d 316, 319 (Cal. 2013).

See also CAL. ClV. PROC. § 1856(g) (“This section does not exclude other evidence of the circumstances under
which the agreement was made or to which it relates, . . ., or to explain an extrinsic ambiguity or otherwise interpret
the terms ol"the agreement, or to establish illegality or fra1 td.”).

14

of the case, to allege with particularity, but NVent should be able to assert who made the
representations and under what corporate authority. To the extent this claim is a fraudulent
misrepresentation claim, therefore, it must be dismissed

2. Negligent Misrepresentation

To establish a claim for negligent misrepresentation NVent must plead: (1) defendant
made a representation as to a past or existing material fact; (2) the representation must have been
untrue; (3) regardless of his actual belief the defendant must have made the representation
without any reasonable ground for believing it to be true; (4) the representation must have been
made with the intent to induce plaintiff to rely upon it; (5) plaintiff must have been unaware of
the falsity of the representation, he must have acted in reliance upon the truth of the
representation, and he must have been justified in relying upon the representation; and (6) as a
result of his reliance upon the truth of the representation, plaintiff must have sustained damage.87

There is conflicting authority whether negligent misrepresentation claims must be pled
with specificity. In Small v. Fritz Companies, Inc. , the Supreme Court of California held that “a
complaint for negligent misrepresentation in a holder’s action should be pled with the same
specificity required in a holder’s action for fraud. (We express no view on whether this pleading
requirement would apply in other actions for negligent misrepresentation.).”88 The United States
District Court for the Central District of California has held that negligent misrepresentation
under California law does not require specific, heightened pleading under Federal Rule of Civil
Procedure 9(b).89 The Court is not in a position to reconcile these two approaches to pleading

negligent misrepresentation under California law. Delaware courts have held that negligent

 

65 Friedmen v. Meer & ce., 131 ca1 Rptr. 2d 885, 900_901 (cel. App. 2003).
66 smart v. mae Cempearee, Ine., 65 P.3d 1255, 1266 (cel. 2003).
66 see Pe;ee-.t-ee.- v. Ass-rate indem Ce., 281 F.R.D. 413,4174118(€.0. ca1 2012).

15

misrepresentation is subject to analysis under a Civil Rule 9(b) standard.90 Accordingly, the
Court will default to the pleading requirements for negligent misrepresentation under Delaware
law. So, if NVent’s claim is negligent misrepresentation then it does need to be pled with the
same specificity as a fraudulent misrepresentation.91

At this stage, the Court will allow NVent to clarify which misrepresentation theory it is
pursuing.92 lf NVent is pursing intentional misrepresentation then it must plead that with the
requisite particularity If NVent is pursuing negligent misrepresentation then NVent should
explicitly state that in its amended Complaint, plead with the requisite particularity, and explain
why the Court would have jurisdiction over such a claim.
D. LENDER LlABILITY (CoUNT IV)

Finally, NVent alleges a lender liability claiml In total, NVent’s lender liability claim
states:

98. Plaintiff hereby incorporates the averments of the preceding
paragraphs as if fully set forth herein

99. As set forth in detail above, Hortonworks acted in bad faith in
causing NVent to enter into the Note and then reneging on its
agreements and promises

100. Throughout the relevant time period, Hortonworks exercised
control over NVent well outside and far greater than the typical
lender-debtor relationship

101. Throughout the relevant time period, l-lortonworks actively
participated in NVent beyond the domain of the usual lender.

 

26 see, e.g., H-M We,t;reea LLC v. am.-erp, lne., 832 A.2d 129_. 146_147 met ch. 2003'1.

24 The Coun cautious Nvem 16 review Ven Leke v. seem care csa ree., c.A. Ne. 12c_n4-036, 2013 WL
1087583, at *11-12 (Del. Super. Feb. 15, 2013) and Radin.r Se)'vs., LLC v. Jack Co:'rozr' Cr)nstr., Inc., C.A.No. 09L-
02-046 (JTV), 2009 WL 3273509, at *2_3 (Del. Super. Sept. 30, 2009) before amending the Complaint on Count
III.

92 The Court, exercising its discretion Will allow NVent to amend Courts III and IV. Leave to amend is within the
sound discretion ofthe Court and leave “shall be freely given whenjustice so 1'equires." Super. Ct. Civ. R. l§(a); see
arise Mafl'en v. Alcn~mgnnrd ofDel'mnrvn, Inc., 625 A.2d 258, 263 (Del. 1993). ln the absence ofsul)stantial
prejudice or legal sufficiency, the Court should exercise its discretion in favor of granting leave to antend. M:rl'len,
625 A.2d at 263.

16

102.

103.

104.

105.

106.

107.

108.

109.

110.

Throughout the relevant time period, Hortonworks exercised
control over various aspects of NVent’s daily business operations,
as well as over its long term management decisions

Throughout the relevant time period, Hortonworks determined and
controlled who NVent could employ, how that employee was
trained, the work that employee did, and how NVent could bill its
customers for such work.

Throughout the relevant time period, Hortonworks further so
dominated and controlled NVent to the extent that it forced NVent
to terminate Lowry, one of NVent’s founders and managing
members

Throughout the relevant time period, Hortonworks so dominated
and exerted control over NVent that it sought to control who
NVent did business with and has accused NVent of being in breach
of its obligations to Hortonworks if it performed any services for a
Hortonworks' competitor despite the non-existence of a restrictive
covenant.

Hortonworks was no mere arms-length lender to NVent.

Hortonworks exercised such domination and control over NVent
that it had duties and obligations to NVent far greater than that of a
traditional lender.

Hortonworks breached its duties to NVent by reneging on its
promises and agreements and otherwise acting in bad faith, and by
utilizing the Note to further control NV ent in a manner that
Hortonworks knew, or should have known would greatly harm
NVent.

NVent has been and continues to be harmed by Hortonworks’
breach of its duties to NVent.

As a direct and proximate result of Hortonworks’ tortious conduct,
NVent has suffered damages, and will continue to suffer damages,
in excess of :1;1,000,000.93

 

25 Pl.’s compl 1111 98_110.

17

NVent’s lender liability claim appears to be that Hortonworks involved itself NVent’s business
in such a way that Hortonworks was not a lender but, rather, owed some type of duty to NVent
that, when breached, caused Hortonworks to be tortiously liable to NVent.94

The Court has taken time to review a number of California lender liability cases Lender
liability can arise under California law when the lender participates in the borrower’s business
activities “beyond the domain of the usual money lender.”95 Lender liability typically arises
from financial institutions’ alleged malfeasance and not a dispute between two commercial
entities

For example, in Connor, plaintiffs, homeowners on tracts of lands, suffered serious
damage from cracking caused by ill-designed foundations96 Plaintiffs sought damages from the
parties involved in the tract development, including Defendant Great Western the homebuilder’s
lender.97 The Supreme Court of California noted there was a question of whether Great Western
was liable for its own negligence to the third-party plaintiffs98 The Court stated:

Great Western voluntarily undertook business relationships with [developers] to

develop the Weathersfield tract and to develop a market for the tract houses in

which prospective buyers would be directed to Great Western for their financing

ln undertaking these relationships, Great Western became much more than a

lender content to lend money at interest on the security of real property. It became

an active participant in a home construction enterprise. It had the right to exercise

extensive control of the enterprise. Its financing, which made the enterprise

possible, took on ramifications beyond the domain of the usual money lender. It

received not only interest on its construction loans, but also substantial fees for

making them, a 20 percent capital gain for ‘warehousing’ the land, and protection

from loss of profits in the event individual home buyers sought permanent
financing elsewhere99

 

24 see Pl.’s opp. 3131_32.

25 Cenner v. Great Western sev. & Loan Assn., 447 P.2d 609, 616 (cel. 1968).

26 1a er 611.

97 Id_

26 Id. at 616.

22 ld.,- see else Cerdeni v. Wells Ferge Benk, N.A., c.A. D066351, 2015 WL 1413641 (cel. ct App. Mer. 26,
2015)(asser1cd lender liability claim negligence/negligent misrepresentation]; 1‘11 Key Mgmt., Inc. v. Gateway an_
Bank, C.A. 13233413, 2012 WL 28303'?2 (Cal. Ct. App. June 4, 2012)(asserted lender liability claim for negligence);

18

NVent has “technically” pled facts for a lender liability claim where the lender
(Hortonworks) “actively participates” in financed enterprise (NVent) beyond domain of usual
money lender, NVent fails to articulate what type of lender liability claim it is making. 100 As the
Court reads Count IV, however, NVent appears to be making a “bad faith” fraud-type claim. lf
so, NVent has not plead fraud with the requisite particularity required under Civil Rule 9. If
NVent is making a lender liability claim that Hortonworks negligently lent NVent money, then
NVent needs to clarify Count IV.

At this stage, the Court will allow NVent to clarify which lender liability theory it is
pursuing. lf NVent is pursuing a lender liability “bad faith” or fraud claim, then it must plead
that with the requisite particularity If NVent is pursuing a lender liability negligence claim, then

NVent should explicitly state that in its amended Complaint.

 

Wagmrr v. Benson, 101 Cal. App. 3d 27 (Cal. Ct. App. l980)(asserted lender liability claim for negligence); State-lee
1=. Wel'f.r Fra'go Bank, N.A., 18 Cal. App. 3d 1003 (Cal. Ct. App. I971)(asserted lender liability claim for vicarious
liability);

100 As noted above, supra fn. 99, California lender liability claims do not stand alone as a claim for “lender liability.”
Instcad, lender liability claims involve a lender and some type ot`cause of action other than breach of contract -- e.g.,
lender liability negligenee, lender liability fraud. lender liability vicarious liability, etc. - and are characterized as the
plaintiff’s “lender liability claims.”

19

V. CONCLUSION
For the foregoing reasons, Defendant’s Motion to Dismiss is GRANTED in part and
DENIED in part. The Motion as to Count 11 is DENIED. NVent has adequately alleged
promissory estoppel. The Motion as to Counts 111 and IV is GRANTED. The Court will
provide NVent leave to amend Counts 111 and IV so as to state a claim upon which relief can be

granted. NVent has fifteen (15) days from the date of this Opinion to file any amended

“`\l 1@1

~ric"M.“Da/vi s, judge

Complaint.

IT IS SO ORDERED.

20

