                                                 EFiled: Jul 22 2014 12:05PM EDT
                                                 Transaction ID 55766261
                                                 Case No. 8442-VCN
   IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE


MPT OF HOBOKEN TRS, LLC, a                :
Delaware Limited Liability Company,       :
MPT OPERATING PARTNERSHIP, L.P.,          :
a Delaware Limited Partnership, and MPT   :
OF HOBOKEN REAL ESTATE, LLC,              :
a Delaware Limited Liability Company,     :
                                          :
           Plaintiffs-                    :
           Counterclaim Defendants,       :
                                          :
     v.                                   :   C.A. No. 8442-VCN
                                          :
HUMC HOLDCO, LLC, a New Jersey            :
Limited Liability Company, and            :
HUMC OPCO, LLC, a Delaware Limited        :
Liability Company,                        :
                                          :
           Defendants-                    :
           Counterclaim Plaintiffs.       :




                MEMORANDUM OPINION AND ORDER


                      Dated Submitted: March 24, 2014
                        Date Decided: July 22, 2014



Michael P. Kelly, Esquire, Andrew S. Dupre, Esquire, and Daniel J. Brown,
Esquire of McCarter & English, LLP, Wilmington, Delaware; and D. Scott Funk,
Esquire and Michael A. Ackal, III, Esquire of Gray Reed & McGraw, P.C.,
Houston, Texas, Attorneys for Plaintiffs-Counterclaim Defendants.
David P. Primack, Esquire of McElroy, Deutsch, Mulvaney & Carpenter, LLP,
Wilmington, Delaware; Louis A. Modugno, Esquire of McElroy, Deutsch,
Mulvaney & Carpenter, LLP, Morristown, New Jersey; and Thomas R. Ajamie,
Esquire, Wallace A. Showman, Esquire, and Courtney Scobie, Esquire of Ajamie
LLP, Houston, Texas, Attorneys for Defendants-Counterclaim Plaintiffs.




NOBLE, Vice Chancellor
      The parties in this litigation formed and financed a Delaware limited liability

company (“LLC”) to acquire and operate the Hoboken University Medical Center

(the “Medical Center”). The present dispute generally involves whether the LLC’s

members breached its operating agreement, a convertible note it issued, or both.

      Plaintiff MPT of Hoboken TRS, LLC (“MPT Hoboken”) and the other

Plaintiffs1 (collectively with MPT Hoboken, the “MPT Entities”) bring claims for

breach of contract, declaratory judgment, and attorneys’ fees against Defendants

HUMC Holdco, LLC (“Holdco”) and HUMC Opco, LLC (“Opco,” and together

with Holdco, the “HUMC Entities”).         In addition, the HUMC Entities assert

counterclaims    for   breach   of   contract,   fraud   in   the   inducement,   and

misappropriation against the MPT Entities.

      The parties have moved for judgment on the pleadings under Court of

Chancery Rule 12(c) as to certain claims and one of the counterclaims. The MPT

Entities seek judgment in their favor that: (i) Opco is required, under the

convertible note, to make tax distributions to MPT Hoboken; and (ii) Holdco

violated Opco’s operating agreement, which vested management authority

exclusively in a manager, by creating a board of directors with purported

managerial rights. Conversely, the HUMC Entities seek dismissal of these claims,

contending that: (i) they have cured any alleged defaults by making the disputed

1
 The other Plaintiffs are MPT Operating Partnership, L.P. (“MPT Operating”) and MPT of
Hoboken Real Estate, LLC (“MPT Real Estate”).
                                          1
tax distributions; and (ii) any purported violation of Opco’s operating agreement is

immaterial.     The HUMC Entities also seek dismissal of the MPT Entities’

allegations that they failed to use commercially reasonable efforts in a state

regulatory approval process.         Finally, the MPT Entities seek dismissal of the

HUMC Entities’ counterclaim for fraud in the inducement as barred by various

contract provisions and for failure to plead fraud with particularity under Rule 9(b).

       For the following reasons, the MPT Entities’ motion is granted in part and

denied in part, and the HUMC Entities’ motion is denied.

                                   I. BACKGROUND2

A. The Parties

       The MPT Entities are Delaware entities, each with its principal place of

business in Birmingham, Alabama. Holdco is a New Jersey LLC with its principal

place of business in Philadelphia, Pennsylvania, and Opco is a Delaware LLC

based in Hoboken, New Jersey.

       MPT Hoboken and Holdco are the sole members of Opco. Currently, MPT

Hoboken owns 9.9% of the membership interests in Opco; Holdco owns the rest.


2
  The Court draws from the generally undisputed allegations of the MPT Entities’ Verified
Complaint (the “Complaint”) and the HUMC Entities’ responses in the Answer and
Counterclaim (the “Answer” and the “Counterclaim,” respectively), unless otherwise noted, for
the relevant background facts.
   The parties did not attach the governing documents to their pleadings. Nonetheless, the Court
may consider those agreements and documents at the pleadings stage because they are integral
to, and thereby incorporated into, the Complaint and the Counterclaim. See In re Santa Fe Pac.
Corp. S’holder Litig., 669 A.2d 59, 69-70 (Del. 1995).
                                               2
B. The Letter Agreement

       MPT Operating and Holdco entered into the Letter Agreement in February

2011 to govern their relationship and the formation of Opco to acquire the Medical

Center (the “Medical Center Transaction”).               Briefly, in the Medical Center

Transaction, MPT Real Estate would acquire the Medical Center real estate and

lease it to MPT Hoboken. MPT Hoboken would then sublease the real estate to

Opco, which would also acquire the Medical Center operating assets.

       The Letter Agreement provided that Opco would be owned 25% by MPT

Hoboken and 75% by Holdco.3 It also contemplated that MPT Hoboken’s 25%

interest could initially be represented in a convertible debt instrument, provided

that “the economic and other terms thereof shall be substantially the same as if an

equity instrument was utilized.”4

C. The Purchase and Sale Agreement and the Lease Agreement

       The parties entered into the Purchase and Sale Agreement in May 2011 to

effect the terms of the Medical Center Transaction.                The Purchase and Sale

Agreement provides, in part:

       Section 14.5 Entire Agreement; Modification. This Agreement,
       including the Exhibits and Schedules attached, and other written
       agreements executed and delivered at the Closing by the parties,
       constitute the entire agreement and understanding of the parties with

3
  Opening Br. in Supp. of Pls.’ Mot. for J. on the Pleadings (“Pls.’ Opening Br.”) Ex. 1 (Letter
Agreement § 1).
4
  Id. Attachment I, ¶ 1.
                                               3
         respect to the subject matter of this Agreement. This Agreement
         supersedes any prior oral or written agreements between the parties
         with respect to the subject matter of this Agreement. It is expressly
         agreed that there are no verbal understandings or agreements which in
         any way change the terms, covenants, and conditions set forth in this
         Agreement, and that no modification of this Agreement and no waiver
         of any of its terms and conditions shall be effective unless it is made
         in writing and duly executed by the parties.5

In November 2011, Opco and MPT Hoboken entered into the Lease Agreement

through which Opco subleased the Medical Center real estate.               The Lease

Agreement provides, in part:

         Entire Agreement; Modifications. This Lease, together with all
         exhibits, schedules and the other documents referred to herein,
         embody and constitute the entire understanding between the parties
         with respect to the transaction contemplated herein, and all prior to
         contemporaneous agreements, understandings, representations and
         statements (oral or written) are merged into this Lease.6

These contract provisions are implicated by the HUMC Entities’ counterclaim for

fraud in the inducement.

D. The Convertible Note

         Also in November 2011, MPT Hoboken and the HUMC Entities executed

the Convertible Promissory Note and Agreement (the “Convertible Note”), the

convertible debt instrument that represented MPT Hoboken’s initial 25% interest

in Opco. Attached to the Convertible Note was a form of the Limited Liability

Company Agreement of HUMC Opco, LLC (the “Opco LLC Agreement”), which

5
    Pls.’ Opening Br. Ex. 2 (Purchase and Sale Agreement § 14.5).
6
    Pls.’ Opening Br. Ex. 4 (Lease Agreement § 37.4).
                                                 4
Holdco and MPT Hoboken would execute upon conversion of the latter’s Opco

debt into equity.

       The Convertible Note provides for MPT Hoboken to receive a quarterly

“Interest Payment,”7 which is defined as the greater of the “Interest Rate” or the

“Distribution Payment.”8 The Distribution Payment is defined as

       a payment equal to any distributions by the Company [i.e., Opco] of
       cash or the Fair Market Value [of] any securities or other property that
       the Holder [i.e., MPT Hoboken] would have received if the Holder
       held the number [of] Units representing the Full Conversion
       Percentage for each Payment Period. The Distribution Payment shall
       be recomputed for each subsequent Payment Period and subject to
       appropriate adjustment for any partial conversion by the Holder.9

The Full Conversion Percentage is effectively 25%, subject to adjustment to offset

any partial debt-to-equity conversion by MPT Hoboken.10 The Convertible Note

also provides that MPT Hoboken “shall not have the status as a member of the

Company by reason of the issuance or holding of this Note until the Units are

issued upon a Conversion.”11

E. Opco Makes Certain Tax Distributions to Holdco

       In November 2011, Opco booked a “Gain on Bargain Purchase” and a

corresponding “Tax Distribution Payable.” Opco then made a tax distribution to

Holdco, its sole member at the time, against the Tax Distribution Payable. The
7
  Pls.’ Opening Br. Ex. 3 (Convertible Note § 3(a)).
8
  Id. § 1(f).
9
  Id. § 1(b).
10
   Id. § 1(e).
11
   Id. § 10.
                                                5
MPT Entities contend that, under the terms of the Convertible Note, this tax

distribution qualifies as a Distribution Payment (and was for an amount greater

than the Interest Rate) such that MPT Hoboken was entitled to receive, as an

Interest Payment, an amount equal to the tax distribution that it would have

received if it were a 25% member of Opco.

F. The Opco LLC Agreement

         MPT Hoboken converted a portion of its Opco debt under the Convertible

Note into a 9.9% membership interest in Opco in March 2012. At that time, MPT

Hoboken and Holdco executed the Opco LLC Agreement.

         Opco is a manager-managed LLC. The Opco LLC Agreement provides that

the “General Manager” (and in certain circumstances, the “Special Manager”) is to

manage the business and operations of Opco.12 The General Manager of Opco is

Holdco. The Special Manager, which may assume certain powers (including the

power to replace the General Manager) in the event of a “Major Default,” is MPT

Hoboken or its designee.13

         Under the Opco LLC Agreement, Opco must distribute “Distributable Cash

Flow” to its members pro rata with their membership interests.         If there is

sufficient Distributable Cash Flow, Opco must also make “Tax Distributions” to its

members. The Opco LLC Agreement defines Tax Distributions as “cash in an

12
     Pls.’ Opening Br. Ex. 5 (Opco LLC Agreement §§ 3.1, 3.2).
13
     Id. § 1.
                                                6
amount sufficient for each Member to pay its federal, state and local income tax

payments resulting from its Membership Interest in the Company.” 14

G. The Board of Directors and the Bylaws

       Section 3.16 of the Opco LLC Agreement permitted Opco to form “advisory

committees,” provided that those committees did not have any governance or other

managerial rights.15 Any document or instrument regarding the formation of an

advisory committee for Opco is subject to MPT Hoboken’s prior review and

written approval, which is not to be unreasonably withheld.

       Recently, as alleged by the MPT Entities, Holdco caused Opco to establish

the Board of Directors (the “Board”), which adopted the Bylaws granting to the

Board purported managerial rights over Opco. The Bylaws provide that, “[e]xcept

as otherwise provided in the Organizing Documents [i.e., the Opco LLC

Agreement] or these Bylaws, the business of the Company shall be managed by its

Board of Directors.”16 MPT Hoboken allegedly did not review or give its written

approval of the instruments establishing the Board or the Bylaws.


14
   Id. § 5.3.
15
   Id. § 3.16 (“The Members acknowledge that the General Manager intends to establish and
maintain certain advisory committees for the Facility as may be required pursuant to the
certificate of need approval issued to the Company by the Department of Health and Senior
Services of the State of New Jersey, including, without limitation, a board of trustees and a
community advisory group. All of such committees shall be advisory in nature only, and shall
not have any governance rights or other managerial rights or authority with respect to the
Company.”).
16
   Pls.’ Opening Br. Ex. 6 (Bylaws § 4.01) (“The Board is the governing body of the Company
with duties and responsibilities that include providing resources to ensure the delivery and
                                             7
       As alleged by the HUMC Entities, the Board is currently comprised of eight

members: three designees of Holdco, the mayor of Hoboken, New Jersey (or the

mayor’s designee), two designees of the City Council, the president of the Medical

Staff, and the Chairman of the Medical Center’s Community Advisory Group. The

Holdco designees have three votes each, and the other designees have one vote

each. Thus, the Holdco designees represent nine of the Board’s fourteen votes.

The Bylaws further provide that the Board must give Holdco at least thirty days’

notice before any proposed act becomes final and effective, and that Holdco

“reserves all rights and authority to (a) approve, modify, reject or return to the

Board for further evaluation any action taken by the Board, and (b) to compel the

Board to take action at the direction of the Member.”17

       The Board arrangement was allegedly required to receive approval of the

New Jersey Department of Health and Senior Services (“DHSS”).18 It was also

described in Opco’s initial Certificate of Need application to DHSS. The HUMC

Entities assert that changing this arrangement now would cause Opco to violate the

terms of its DHSS application and other accreditation requirements.19


maintaining of quality patient care, patient safety, the charge, control and management of the
property, business, affairs and financial management of the Company, the establishment of
policy, promotion of performance improvement, quality review and utilization risk,
management/safety, medical staff credentialing, and the provision of organizational management
and planning.”).
17
   Id.
18
   Countercl. ¶ 59.
19
   Id.
                                              8
H. MPT Hoboken’s Notice to Convert the Remainder of its Opco Debt into Equity

       In May 2012, MPT Hoboken notified the HUMC Entities that it intended to

convert the remainder of its Opco debt under the Convertible Note into equity. To

increase its ownership interest in Opco from 9.9% to 25%, MPT Hoboken required

DHSS approval.          Accordingly, Opco submitted a new Certificate of Need

application.     Under the Convertible Note, the parties were required to use

“commercially reasonable efforts” to secure DHSS approval.20

       DHSS requested that Opco answer a follow-up questionnaire.                         These

additional questions allegedly related to whether MPT Hoboken, as the Special

Manager, would have any managerial or operational control over Opco in the event

of a Major Default.21 MPT Hoboken and the HUMC Entities were unable to

submit mutually-agreeable responses to the DHSS questionnaire by the deadline,

which meant that MPT Hoboken did not receive the approval necessary to convert

its Opco debt into equity.

I. Recent Developments outside the Pleadings

       The MPT Entities filed the Complaint in March 2013. Several days later, in

April 2013, Opco apparently paid an amount equal to 25% of its earlier Tax

20
   Convertible Note § 4(d) (“Following the Initial Conversion and notice by the Holder to the
Company and HUMC of any subsequent Conversion, the Parties shall use commercially
reasonable efforts to secure the approval, as soon as reasonably practicable, of the Hospital’s
Regulators for the issuance of the remaining Units to which the Holder shall be entitled to
acquire hereunder pursuant to such Conversion . . . including, without limitation, the approval by
DHSS of any change to the Hospital’s licenses, permits or certificate of need.”).
21
   Countercl. ¶¶ 39-40.
                                                9
Distributions to MPT Hoboken. This and similar tax distribution payments in

October and November 2013 were allegedly made “under protest with a complete

reservation of rights,”22 as the HUMC Entities have sued to recover them in the

Counterclaim. According to an affidavit from a purported member of the Opco

Board, “[a]s a result of these payments, MPT Hoboken has now received 25% of

the total tax distributions paid by Opco as of [January 14, 2014].”23

       MPT Hoboken also notified the HUMC Entities in December 2013 of its

intent to convert the rest of its Opco debt under the Convertible Note into Opco

equity.24 Since then, the parties have apparently restarted the Certificate of Need

application process with DHSS.

                                      II. ANALYSIS

A. The Procedural Standard of Review

       The procedural standard of review for a motion for judgment on the

pleadings under Rule 12(c) is similar to that for a motion to dismiss under

Rule 12(b)(6).25 The Court accepts the non-moving party’s well-pled allegations

as true and views all reasonable inferences in the non-moving party’s favor.

A party’s Rule 12(c) motion for affirmative relief “may be granted only when no

material issue of fact exists and the movant is entitled to judgment as a matter of

22
   Id. ¶ 24.
23
   Lawler Aff. ¶ 3.
24
   Id. ¶ 5.
25
   See, e.g., McMillan v. Intercargo Corp., 768 A.2d 492, 500 (Del. Ch. 2000).
                                               10
law.”26 Conversely, a motion to dismiss a claim under Rule 12(c) should be denied

unless the non-moving party “could not recover under any reasonably conceivable

set of circumstances susceptible of proof.”27

B. Contract Interpretation under Delaware Law

       “[J]udgment on the pleadings . . . is a proper framework for enforcing

unambiguous contracts because there is no need to resolve material disputes of

fact.”28 Here, the relevant contracts are all governed by Delaware law,29 which

“adheres to the objective theory of contract interpretation.”30 “When the language

of a contract is plain and unambiguous, binding effect should be given to its

evident meaning.”31 “A dispute over a contract term does not, on its own, render

that term ambiguous.”32 “[A] contract is ambiguous only when the provisions in

controversy are reasonably or fairly susceptible of different interpretations or may



26
   Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199, 1205
(Del. 1993).
27
   Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del.
2011); see also Wallace ex rel. Cencom Cable Income P’rs II, Inc., L.P. v. Wood, 752 A.2d
1175, 1179-80 (Del. Ch. 1999) (“To award judgment on the pleadings in favor of the defendants,
[the Court] must find that plaintiffs have either utterly failed to plead facts supporting an element
of the claim or that under no reasonable interpretation of the facts alleged in the Complaint
(including reasonable inferences) could plaintiff state a claim for which relief might be
granted.”).
28
   Lillis v. AT&T Corp., 904 A.2d 325, 329-30 (Del. Ch. 2006) (citations omitted).
29
   See Letter Agreement § 8; Purchase and Sale Agreement § 13.1; Convertible Note § 12(a);
Lease Agreement § 37.11; Opco LLC Agreement § 13.1.
30
   Sassano v. CIBC World Markets Corp., 948 A.2d 453, 462 (Del. Ch. 2008).
31
   Allied Capital Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006).
32
   Barton v. Club Ventures Invs. LLC, 2013 WL 6072249, at *5 (Del. Ch. Nov. 19, 2013) (citing
City Investing Co. Liquidating Trust v. Continental Cas. Co., 624 A.2d 1191, 1198 (Del. 1993)).
                                                 11
have two or more different meanings.”33 “When the provisions in controversy are

fairly susceptible of different interpretations[,] . . . the interpreting court must look

beyond the language of the contract to ascertain the parties’ intentions.”34

C. Whether a Tax Distribution Qualifies as a Distribution Payment

       1. The MPT Entities’ Motion

       The MPT Entities have moved for judgment on the pleadings that the term

“any distributions” in the definition of Distribution Payment in the Convertible

Note includes Tax Distributions as defined in the Opco LLC Agreement. They

contend that this is the only reasonable interpretation of the term “any,” 35 and they

submit that it would be inappropriate for the Court to rewrite the Convertible Note

for “any” not to include Tax Distributions.36 In opposition, the HUMC Entities

contend that, in light of the other terms of the Convertible Note and the Opco LLC

Agreement, the undefined “any distributions” can only be interpreted as not

including Tax Distributions.37

       The Court concludes that the term “any distribution” in the Convertible Note

is ambiguous because it is reasonably susceptible to at least two different

meanings. It is reasonable to interpret “any” as an all-encompassing term, much


33
   Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992).
34
   Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997).
35
   Pls.’ Opening Br. 15-17.
36
   Reply Br. in Supp. of Pls.’ Mot. for J. on the Pleadings (“Pls.’ Reply Br.”) 3-6.
37
   Defs.-Counterpls.’ Br. in Opp’n to Pl.-Counterdefs.’ Mot. for J. on the Pleadings (“Defs.’
Answering Br.”) 3-6.
                                             12
like “all.”38      From this perspective, proffered by the MPT Entities, “any

distributions” would include Tax Distributions.                 But, it is also reasonable to

interpret “any distributions,” in light of the other terms of the Convertible Note and

the Opco LLC Agreement,39 not to include Tax Distributions because the latter

were to compensate Opco members for income taxes solely due to their status as

members. That is, it is reasonable to construe the documents such that MPT

Hoboken is only entitled to Tax Distributions based on income tax liability

attributable to its membership interest in Opco, not for its debt that was convertible

into a membership interest. From this other perspective, as advocated by the

HUMC Entities, MPT Hoboken would not be entitled to pro rata payments of the

Tax Distributions made by Opco to Holdco for taxes based on Holdco’s

membership interest.

       One interpretation may be more plausible than the other; however, at this

stage, neither is unreasonable. Because “any distributions” is ambiguous, there is

an issue of material fact as to the meaning of Distribution Payments in the

Convertible Note. The pleadings do not present conclusive evidence of the parties’

38
   See Great Hill Equity P’rs IV, LP v. SIG Growth Equity Fund I, LLLP, 80 A.3d 155, 158 (Del.
Ch. 2013) (“[T]he only reasonable interpretation of the statute [8 Del. C. § 259(a)] . . . is that all
means all as to the enumerated categories, and that this includes all privileges, including the
attorney-client privilege.”).
39
   See E.I. du Pont de Nemours & Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985)
(“In upholding the intentions of the parties, a court must construe the agreement as a whole,
giving effect to all provisions therein. Moreover, the meaning which arises from a particular
portion of an agreement cannot control the meaning of the entire agreement where such inference
runs counter to the agreement’s overall scheme or plan.”) (internal citations omitted).
                                                 13
intent. Thus, the MPT Entities’ motion for judgment on the pleadings as to the

interpretation of this term is denied.

       2. The HUMC Entities’ Motion

       Separate from the issue of the proper interpretation of “any distributions,”

the HUMC Entities seek to dismiss the MPT Entities’ claims that they are in

default of the Convertible Note and other agreements for failing to make Tax

Distributions to MPT Hoboken. They assert, based on the affidavit submitted

outside the pleadings, that they have made the disputed distributions.40 The MPT

Entities, in response, contend that the submission of the affidavit should, under

Rule 12(c), convert this motion for judgment on the pleadings into one for

summary judgment under Rule 56, which would mean that they should have the

opportunity to conduct discovery. They seek limited discovery of certain issues

implicated by the affidavit, including whether all possible payments were timely

made and whether they are entitled to interest for any late payments.41 The HUMC

Entities, for their part, insist that no discovery is necessary because the MPT




40
   Defs.-Counterpls.’ Opening Br. in Supp. of their Mot. for J. on the Pleadings (“Defs.’ Opening
Br.”) 10-11.
41
   Answering Br. in Opp’n to Defs.-Counterpls.’ Mot. for J. on the Pleadings. (“Pls.’ Answer
Br.”) 5-10. Counsel for the MPT Entities submitted an affidavit under Rule 56(f) to this effect.
Funk Aff. ¶ 2. At oral argument, counsel recognized that it is likely that discovery would
confirm that all possible payments were made. That said, counsel still seeks the opportunity to
verify that issue in discovery. Tr. of Oral Arg. Cross Mots. for J. on the Pleadings (“Tr. of Oral
Arg.”) 26, 40.
                                               14
Entities already have that kind of financial information under the Opco LLC

Agreement.42

       This Court “generally will not grant relief if the substance of a dispute

disappears due to the occurrence of certain events following the filing of an

action.”43 The Court recognizes that the purported payments by Opco, as asserted

in the affidavit, could have rendered moot much of the MPT Entities’ allegations

related to Opco’s failure to pay.44 Nonetheless, it is procedurally improper, under

Rule 12(c), for the Court to rely on this affidavit—a document extraneous to the

pleadings—without first providing to the MPT Entities the opportunity to conduct

limited discovery into whether MPT Hoboken was timely and fully paid by

Opco.45     That the MPT Entities may already have access to certain financial

information under the Opco LLC Agreement does not change the Court’s

conclusion on this procedural issue.

       The HUMC Entities’ motion to dismiss these claims is denied.




42
   Defs.-Counterpls.’ Reply Br. in Supp. of their Mot. for J. on the Pleadings (“Defs.’ Reply Br.”)
3-7.
43
   Multi-Fineline Electronix, Inc. v. WBL Corp. Ltd., 2007 WL 431050, at *8 (Del. Ch. Feb. 2,
2007).
44
   The Court does not express a view on whether a payment made “under protest” cures a default.
45
   Ct. Ch. R. 12(c) (“If, on a motion for judgment on the pleadings, matters outside the pleadings
are presented to and not excluded by the Court, the motion shall be treated as one for summary
judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable
opportunity to present all material made pertinent to such a motion by Rule 56.”).
                                                15
D. Whether the Board and Bylaws Conflict with the Opco LLC Agreement

       The parties have cross-moved for judgment on the pleadings as to the MPT

Entities’ breach of contract and declaratory judgment claims that the Board and the

Bylaws violate the terms of the Opco LLC Agreement and the Convertible Note.

The MPT Entities seek judgment in their favor; the HUMC Entities seek to dismiss

the claims.

       It is axiomatic under Delaware law that a Delaware LLC is governed by its

operating agreement.46 Under the Opco LLC Agreement, Opco is to be managed

by the General Manager (or, in certain circumstances, the Special Manager).

Because the Bylaws may provide certain management authority to the Board, they

may violate the Opco LLC Agreement.

       1. The MPT Entities’ Motion

       The MPT Entities contend that the HUMC Entities’ unilateral changes to the

management structure of Opco, by endowing the Board with management

authority beyond that of an advisory committee, are per se violations of the Opco

LLC Agreement.47 In response, the HUMC Entities insist that the Board is merely

advisory because Holdco, the General Manager, retains full management authority




46
   See, e.g., Fisk Ventures, LLC v. Segal, 2008 WL 1961156, at *8 (Del. Ch. May 7, 2008), aff’d,
984 A.2d 124 (Del. 2009) (TABLE); see also 6 Del. C. § 18-402.
47
   Pls.’ Opening Br. 23-27.
                                              16
over Opco under the Bylaws. Thus, they argue, there is no functional distinction

between the Opco LLC Agreement and the Bylaws.48

         The Bylaws facially conflict with the Opco LLC Agreement: the latter vests

exclusive management authority in the General Manager (Holdco), while the

former vests certain managerial rights in the Board. That said, the Opco LLC

Agreement expressly permits advisory committees under Section 3.16, so the facial

conflict is not dispositive of this issue. Rather, the issue is whether the Board

qualifies as an advisory committee.

         In this context, the imprecise term “advisory committee” in the Opco LLC

Agreement is ambiguous because it is reasonably susceptible to two

interpretations.49 The Board structure could fall within one reasonable meaning of

advisory committee in that Holdco, as the General Manager, maintains its

management authority of Opco under the Bylaws through its majority voting

representation on the Board and its power to modify and compel any action of the

Board. But, a governance structure requiring Holdco to compel the Board to act

(or to modify the Board’s actions) could be outside the bounds of what a

reasonable interpretation of advisory committee would permit.

         The pleadings and the incorporated documents do not contain dispositive

evidence of the parties’ intent in agreeing to the “advisory committee” term of the

48
     Defs.’ Answering Br. 10-13.
49
     See Rhone-Poulenc Basic Chems. Co., 616 A.2d at 1196.
                                              17
Opco LLC Agreement. Thus, there is an issue of material fact—the meaning of

advisory committee—which precludes granting the MPT Entities’ Rule 12(c)

motion for judgment in their favor.50

       2. The HUMC Entities’ Motion

       The HUMC Entities assert that, because Holdco’s three representatives

control nine of fourteen votes on the Board, and because Holdco retains final

approval of the Board’s acts under the Bylaws, Holdco still exclusively manages

Opco. Hence, they submit, there is no conflict with the Opco LLC Agreement.51

Moreover, the HUMC Entities argue that this claim is not ripe because the MPT

Entities have not alleged any current or imminent harm due to the existence of the

Board or the Bylaws.52 The MPT Entities, in response, argue that this declaratory

judgment claim is ripe because there is a present dispute over the management of

Opco; they also contend that the Board and its purported authority under the

Bylaws are per se violations of the Opco LLC Agreement.53

       This Court has the authority under 6 Del. C. § 18-110(a) to “hear and

determine . . . the right of any person to become or continue to be a manager of a


50
   Because the HUMC Entities deny that the MPT Entities did not approve the Board and the
Bylaws, Answer ¶ 33, there is a dispute of material fact that would preclude granting the MPT
Entities’ Rule 12(c) motion as to whether Holdco’s allegedly unilateral creation of the Board and
the Bylaws was a breach of Section 3.16 of the Opco LLC Agreement for failure to obtain MPT
Hoboken’s prior written approval.
51
   Defs.’ Opening Br. 13.
52
   Defs.’ Reply Br. 10-14; Defs.’ Opening Br. 13-15.
53
   Pls.’ Answering Br. 12-16.
                                               18
limited liability company.”54 To exercise its statutory authority55 to hear a claim

seeking a declaratory judgment, the Court must find four elements:

       (1) It must be a controversy involving the rights or other legal
       relations of the party seeking declaratory relief; (2) it must be a
       controversy in which the claim of right or other legal interest is
       asserted against one who has an interest in contesting the claim; (3)
       the controversy must be between parties whose interests are real and
       adverse; (4) the issue involved in the controversy must be ripe for
       judicial determination.56

The dispute here over whether the Bylaws grant to the Board managerial rights

beyond that of an advisory committee places a cloud over the management of Opco

as a Delaware LLC. For example, the Bylaws do not appear to contemplate how

Opco is to be governed in the event that MPT Hoboken exercises its power, under

certain circumstances, to remove Holdco as the General Manager of Opco.57 The

risk of future harm to the MPT Entities is sufficient to warrant resolution of this

claim now.58

       Based on the allegations of the parties, the Court concludes that this dispute

is ripe for judicial determination. But, for the reasons set forth earlier, an issue of
54
   See also Feeley v. NHAOCG, LLC, 2012 WL 966944, at *5 (Del. Ch. Mar. 20, 2012) (“Section
18-110 of the LLC Act grants this Court in rem jurisdiction to determine who validly holds
office as a manager of a Delaware limited liability company.”).
55
   See 10 Del. C. § 6501.
56
   XL Specialty Ins. Co. v. WMI Liquidating Trust,— A.3d —, 2014 WL 2199889, at *5 (Del.
May 28, 2014) (quoting Stroud v. Milliken Enters., Inc., 552 A.2d 476, 479 (Del. 1989));
57
   Purchase and Sale Agreement § 3.8.
58
   See KLM Royal Dutch Airlines v. Checchi, 698 A.2d 380, 382 (Del. Ch. 1997) (“Determining
whether the parties’ dispute is ready for decision requires consideration of, inter alia, the present
effects of the challenged conduct versus the future harm to be suffered by the plaintiff if
resolution is delayed, the likelihood of a change in the factual circumstances, and the legal issues
involved.”).
                                                 19
material fact—the meaning of “advisory committee”—precludes granting the

HUMC Entities’ Rule 12(c) motion to dismiss.

E. Whether the HUMC Entities Failed to Use Commercially Reasonable Efforts

       The MPT Entities claim that, in violation of the Convertible Note, the

HUMC Entities failed to use commercially reasonable efforts to secure DHSS

approval of MPT Hoboken’s conversion of its remaining Opco debt into a

membership interest.          They assert claims for breach of contract and for a

declaratory judgment. Specifically, the MPT Entities allege in the Complaint that

the HUMC Entities failed to use commercially reasonable efforts by:

       a.      Insisting on mischaracterizing the management rights of MPT
               Hoboken, or lack thereof, under the LLC Agreement to DHSS;

       b.      Refusing to clarify the management rights of MPT Hoboken, or
               lack thereof, by amending the LLC Agreement . . . ; and

       c.      Refusing to allow MPT Hoboken to meet with or have any
               direct contact with DHSS . . . to clarify and explain the
               management rights of MPT Hoboken, or lack thereof.59

The HUMC Entities deny these allegations60 and separately assert, in the

Counterclaim, that MPT Hoboken sought to submit “false and misleading” answers

to DHSS in violation of the Opco LLC Agreement.61             As a result of their

disagreements over how to answer various questions posed by DHSS, the parties



59
   See, e.g., Compl. ¶ 27.
60
   See, e.g., Answer ¶ 27.
61
   See, e.g., Countercl. ¶¶ 42-43.
                                           20
missed the deadline and thereby failed to obtain the approval necessary for MPT

Hoboken to convert its Opco debt into equity.

       The HUMC Entities seek dismissal of these claims, contending that the MPT

Entities’ allegations were rendered moot or are not ripe in light of the new

application process with DHSS, which MPT Hoboken initiated in December

2013.62 In opposition, the MPT Entities maintain that their claims relate to the

earlier, unsuccessful application—not the ongoing approval process—and thus are

neither moot nor unripe.63

       “According to the mootness doctrine, although there may have been a

justiciable controversy at the time the litigation was commenced, the action will be

dismissed if that controversy ceases to exist.”64 The recently-initiated approval

process does not moot the MPT Entities’ claims because they relate to the prior

application; the controversy continues to exist. In other words, that the parties are

currently seeking DHSS approval does not prevent the MPT Entities from seeking

damages or a declaratory judgment for the HUMC Entities’ purportedly failing to

use commercially reasonable efforts in the separate, unsuccessful approval process.




62
   Defs.’ Reply Br. 7-9; Defs.’ Opening Br. 11-13; Lawler Aff. ¶ 5.
63
   Pls.’ Answering Br. 10-12.
64
   Gen. Motors Corp. v. New Castle Cty., 701 A.2d 819, 823 (Del. 1997) (recognizing that this
general rule has exceptions, including “situations that are capable of repetition but evade review
or matters of public importance”).
                                               21
        For this Court to issue a declaratory judgment, the dispute must be ripe.65 A

challenge to the current regulatory approval process with DHSS would not be ripe

because any decision by the Court would be an advisory opinion on the parties’

conduct during an ongoing approval process.66 But, again, the Court’s “common

sense assessment” of this issue is that the MPT Entities’ interest in seeking relief

related to the prior approval process outweighs the possible benefit of postponing

judicial review to allow the matter to develop with greater clarity.67                          The

declaratory judgment aspect of this claim is not contingent on future developments;

it is ripe.

        The HUMC Entities’ Rule 12(c) motion to dismiss these claims is denied.68

F. Whether the HUMC Entities Properly Alleged Fraud in the Inducement

        In the Counterclaim, the HUMC Entities assert a claim for fraud in the

inducement. Specifically, the HUMC Entities allege that, “[i]n the course of

negotiating the HUMC transaction, MPT [i.e., the MPT Entities] represented to

Opco and Holdco that MPT did not intend to finance any transactions with Prime


65
   XL Specialty Ins. Co., 2014 WL 2199889, at *5.
66
   See Multi-Fineline Electronix, Inc., 2007 WL 431050, at *8 (quoting Energy P’rs, Ltd. v.
Stone Energy Corp., 2006 WL 2947483, at *7 (Del. Ch. Oct. 11, 2006)) (“Generally speaking, an
action is not ripe for adjudication when it is ‘contingent . . . [and requires] the occurrence of
some future event before the action’s factual predicate is complete.’”).
67
   See XL Specialty Ins. Co., 2014 WL 2199889, at *6.
68
   Separately, the Court notes that it may make sense to defer the resolution of this claim until the
conclusion of the current application process, if for no other reason than to permit the parties
(and thus the Court) to come to a more informed understanding of what commercially reasonable
efforts in this context would require.
                                                 22
[Healthcare Services, Inc. (“Prime”)] in New Jersey.”69 This representation was

“knowingly or recklessly false and misleading” because the MPT Entities allegedly

“intended to and did work with Prime in its attempted acquisition of Christ

Hospital” in Jersey City, New Jersey.70 According to the MPT Entities, they

reasonably relied on this representation when deciding to enter into the Medical

Center Transaction, and they have suffered damages as a result of this fraud.71

       The MPT Entities seek judgment on the pleadings on this counterclaim on

two grounds: (i) as barred by purported anti-reliance clauses in the Purchase and

Sale Agreement and the Lease Agreement; and (ii) for failure to plead fraud with

particularity under Court of Chancery Rule 9(b).72 In opposing this motion, the

HUMC Entities assert that the integration clauses in the relevant agreements do not

sufficiently disclaim reliance on representations outside the agreements to be

deemed anti-reliance provisions.73 Moreover, to the extent that their claim was not

alleged with particularity, the HUMC Entities stated in their answering brief that

they “will move to amend their Counterclaim” to include an allegation reflecting

additional information that they provided as an interrogatory answer.74




69
   Countercl. ¶ 13. Prime is a private company that operates hospitals and medical facilities.
70
   Id. ¶ 65.
71
   Id. ¶¶ 66-67.
72
   Pls.’ Reply Br. 6-13; Pls.’ Opening Br. 17-22;
73
   Defs.’ Answering Br. 6-9.
74
   Id. 10.
                                                23
       Rule 9(b) requires that “the circumstances constituting fraud . . . shall be

stated with particularity.” This particularity pleading standard governs claims for

fraud in the inducement.75 “The factual circumstances that must be stated with

particularity refer to the time, place, and contents of the false representations; the

facts misrepresented; the identity of the person(s) making the misrepresentation;

and what that person(s) gained from making the misrepresentation.”76                  More

succinctly, this standard requires some “detail about what was actually said, who

said it, where, [and] when.”77

       The HUMC Entities’ conclusory allegations plainly do not satisfy the

pleading standard of Rule 9(b). Among other reasons, the allegations do not state

with particularity what misrepresentation was made, who made it, to whom it was

made, and when and where it was made.

       The HUMC Entities’ stated intention to amend their Counterclaim does not

cure this pleading deficiency. A motion to amend a pleading in response to a

motion for judgment on the pleadings under Rule 12(c) is governed by

Rule 15(a).78 Rule 15(a) provides that leave of the Court to amend a pleading shall


75
   See, e.g., Anvil Hldg. Corp. v. Iron Acq. Co., Inc., 2013 WL 2249655, at *4-6 (Del. Ch.
May 17, 2013).
76
   Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168, 207-08 (Del. Ch. 2006),
aff’d sub nom., Trenwick Am. Litig. Trust v. Billett, 931 A.2d 438 (Del. 2007) (TABLE).
77
   See Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d 126, 142 (Del. Ch. 2009).
78
   The parties debated at oral argument whether a motion to amend a pleading in response to a
Rule 12(c) motion is governed by Rule 15(a) or Rule 15(aaa). Tr. of Oral Arg. 54-56, 69, 73.
Under the current Chancery Court Rules, Rule 15(aaa) does not reference Rule 12(c). But see
                                             24
be “freely given when justice so requires.” “A court will not grant a motion to

amend, however, if the amendment would be futile. An amendment is futile if it

would not survive a motion to dismiss . . . .”79

       Assuming, without deciding, that the HUMC Entities’ request is

procedurally proper, the Court concludes that leave to amend should not be given

because the amendment would be futile. The to-be-alleged interrogatory response

states, in its entirety:

       The representation set forth in Paragraph 13 of the Counterclaim
       Complaint was made to Mr. Garipalli during one or two meetings with
       MPT personnel, which included Emmett McLean, Rosa Hooper, and
       Steve King. The meeting or meetings took place in the second half of
       2010, at the very outset of the relationship between Defendants and
       Plaintiffs, before the parties had commenced working on the Bayonne
       Medical Center transaction [which took place before the Medical
       Center Transaction]. The representation was made to Mr. Garipalli by
       Mr. McLean, and/or Ms. Hooper, and/or Mr. King. The witnesses
       were Mr. Garipalli and Mr. McLean, and/or Ms. Hooper, and/or Mr.
       King.80

Any amended pleading based on this additional information would still not satisfy

the particularity pleading standard of Rule 9(b). There would only be an allegation



Braddock v. Zimmerman, 906 A.2d 776, 783 (Del. 2006) (“Rule 15(aaa) was written to
accomplish that objective by requiring plaintiffs, when confronted with a motion to dismiss
pursuant to any of Ch. Ct. R. 12(b)(6), (c) or 23.1, to elect to either: stand on the complaint and
answer the motion; or, to amend or seek leave to amend the complaint before the response to the
motion was due.”); Taubenfeld v. Marriott Int’l, Inc., 2003 WL 22682323, at *2 (Del. Ch.
Oct. 28, 2003) (quoting Rule 15(aaa) as governing a motion to amend in response to a Rule 12(c)
motion).
79
   Cartanza v. LeBeau, 2006 WL 903541, at *2 (Del. Ch. Apr. 3, 2006).
80
   Pls.’ Answering Br. 10 (quoting Defs.-Counterpls.’ Resps. to Pls.’ First Set of Interrogs.
Directed to Defs. at Resp. to ¶ 9).
                                                25
of a general statement made by one of three people at one or two meetings held at

an undisclosed location at some point during a six-month period.                       If the

representation was important enough to the HUMC Entities to rely on it when they

decided to enter into the Medical Center Transaction with the MPT Entities, then it

is not an inappropriate burden to require them to allege more—and with

particularity—to state a claim for fraud under Rule 9(b).

       Accordingly, any motion by the HUMC Entities to amend their pleading is

denied, and the MPT Entities’ Rule 12(c) motion to dismiss this claim is granted.81

                                   III. CONCLUSION

       The MPT Entities are entitled to judgment on the pleadings dismissing the

HUMC Entities’ counterclaim for fraud in the inducement for failure to plead fraud

with particularity under Rule 9(b).          The MPT Entities’ Rule 12(c) motion is

otherwise denied. The HUMC Entities’ Rule 12(c) motion is also denied.

       IT IS SO ORDERED.



                                                             /s/ John W. Noble
                                                              Vice Chancellor




81
  Based on this conclusion, the Court need not determine whether this counterclaim is barred by
the provisions of the Purchase and Sale Agreement or the Lease Agreement.
                                              26
