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Phunware, Inc. v. Excelmind Grp. Ltd.

United States District Court, D. Delaware

July 31, 2015

PHUNWARE, INC., and RAIN ACQUISITION, LLC, Plaintiffs,
v.
EXCELMIND GROUP LIMITED, and EXCELMIND CAPITAL LIMITED, and SEAWOOD RESOURCES, INC., Defendants

Decided July 30, 2015.

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Bradley D. Sorrels, Esquire, Ian R. Liston, Esquire, and Jessica A. Montellese, Esquire of Wilson Sonsini Goodrich & Rosati, P.C. Counsel for Plaintiffs.

J. Clayton Athey, Esquire, and Eric J. Juray, Esquire of Prickett, Jones, and Elliott, P.A. Counsel for Defendants Excelmind Capital Limited and Excelmind Group Limited. Of Howard M. Privette, Esquire and Edward Han, Esquire of Paul Hastings LLP.

William D. Johnston, Esquire and Mary Francis Dugan, Esquire of Young, Conaway, Stargatt & Taylor LLP. Counsel for Defendant Seawood Resources Inc.

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MEMORANDUM OPINION

Sue L. Robinson, United States District Judge.

I. INTRODUCTION

On March 6, 2015, plaintiffs Phunware, Inc. (" Phunware" ) and Rain Acquisition, LLC (" Rain" ) (collectively, " plaintiffs" ) filed this action for damages against Excelmind Group Limited, Excelmind Capital Limited, and Seawood Resources, Inc. (collectively, " defendants" ), alleging breach of a Share Purchase Agreement dated October 7, 2014 (the " SPA" or the " Agreement" ), and other tortious conduct. Presently before the court are Excelmind Group (" Excelmind" ) and Excelmind Capital Limited's (" ECL," and collectively, " ECL defendants" ) motion to dismiss (D.I. 10), ECL defendants'

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motion to assess costs and for a stay pursuant to Federal Rule of Civil Procedure 41(d) (D.I. 12), and Seawood Resources, Inc.'s (" Seawood" ) motion to dismiss (D.I. 23). The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332. For the reasons that follow, the court grants ECL defendants' motions to dismiss, denies ECL defendants' motion to assess costs and for a stay, and grants Seawood's motion to dismiss.

II. BACKGROUND

A. The Parties

Phunware and Rain are Delaware corporations with Phunware's principal place of business in Austin, Texas. (D.I. 2 at ¶ 12) Excelmind and ECL are British Virgin Islands corporations. Seawood is a Philippines corporation with its principal place of business in Makati City, Manila, Philippines. (D.I. 2, ¶ 8; D.I. 24 at 9; D.I. 36 at ¶ 4)

B. Background

1. The SPA

Plaintiffs allege that defendants approached the IG Group[1] about a potential acquisition of the IG Group. (D.I 2 ¶ ¶ 15-16) On July 8, 2014, Seawood Managing Director Marie Grace Vera Cruz (" Vera Cruz" ) and IG Group CEO John Alonte (" Alonte" ) signed a Letter of Intent (" LOI" ) that set forth material terms for the acquisition. ( Id. at ¶ 18) The LOI contained conditions for closing the transaction, a broad " Exclusive Dealing" provision, and a Delaware choice of law provision. (D.I. 31, ex. A at 3-5)

These negotiations ultimately resulted in the SPA, whereby plaintiffs were to purchase all of the outstanding equity in privately-held Excelmind for $6 million and approximately $27 million in Phunware stock. (D.I. 2 at ¶ 2) The SPA, which superseded the LOI, was finalized on October 7, 2014, and contained a drop dead date for the transaction 30 days following the execution of the SPA. ( Id., ex. A at 68, 72; ¶ ¶ 1, 2, 21, 22) The SPA is a contract among Phunware, Rain, Excelmind, and ECL. (D.I. 2 at ¶ 22)

Defendant Seawood, alleged to have a " control relationship" with ECL, was not a party to the SPA. ( Id. at ¶ ¶ 2, 5, 22) Vera Cruz, Seawood's Managing Director, signed the SPA as " Director" of ECL defendants. (D.I. 2, ex. A at 75)

ECL defendants point to the following provisions of the SPA as relevant to the instant dispute: (a) SPA § 9.01, the drop dead date termination provision providing that if closing did not occur within a 30-day window,[2] the " Agreement may be terminated and the Share Purchase abandoned at any time prior to the Closing Date," as long as the terminating party had not failed to fulfill any obligation that was " the cause of, or resulted in, the failure of the Closing Date to occur" (D.I. 2, ex. A at 68-69); (b) SPA § 10.02, stating that delayed or partial exercise of any " right, power, or privilege" under the SPA did not operate as a waiver or preclude further exercise of the right, power, or privilege ( Id. at 71); (c) SPA § 7.01 (I), providing a list of conditions to be met prior to closing, including Phunware's delivery of its financial statements to Excelmind ( Id. at 60-61); (d) SPA § 7.01, stating that a waiver of closing conditions had to be in writing ( Id. at 59-63); and (e) SPA § 10.05, a Delaware choice of law provision ( Id. at 71).

Plaintiffs point to the following provisions of the SPA as relevant: (a) SPA § 7.01, containing a lengthy provision in which the parties sought to ensure one another that there was no " Material Deviation" [3]

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in the companies' finances which might be detrimental to an IPO (D.I. 2, ex. A at 59-63); (b) SPA § 6.09(a), providing that

until the earlier of the Closing and the date of termination of this Agreement pursuant to Section 9.01, neither the Company nor any of its Representatives . . . shall, directly or indirectly, take any of the following actions with any Third Party: (i) solicit, initiate, or agree to any proposals or offers from any Third Party . . . (ii) participate in any discussions or negotiations regarding, or furnish to any Third Party any information with respect to, or otherwise cooperate with, or knowingly facilitate or encourage any effort or attempt by any Third Party to do or seek, a Competing Transaction;

( Id. at 58); and (c) SPA § 9.01, the aforementioned termination provision ( Id. at 68-69).

Plaintiffs did not provide the required audited financial statements by the November 6, 2014 drop dead date. (D.I. 2 at ¶ ¶ 28, 40) Plaintiffs allege, however, that they provided defendants with updated estimated adjusted revenue amounts as they waited for Ernst and Young, Phunware's outside auditors, to provide audited financial statements. Plaintiffs also allege that defendants never suggested that the updated estimates were problematic. (D.I. 2 at ¶ ¶ 28-29) After an in-person meeting on November 12, 2014, Seawood Director and Chairman of Seawood's Investment Committee stated that defendants were " looking forward to a successful conclusion of this transaction." ( Id. ) Phunware provided revenue estimates to defendants on November 14, November 22, and December 4, 2014. ( Id. at ¶ ¶ 30-32) Alonte responded to the November 22, 2014 update by stating that he " was looking forward to getting this deal closed as well." ( Id. at ¶ 31)

Plaintiffs allege that on December 4, 2014, Alonte acknowledged in emails having met with executives of an IG Group competitor, Xurpas, and " discussed the possibility of an alternative transaction." (D.I. 2 at ¶ 5) On December 5, 2014, ECL delivered to Phunware a written notice of termination (" Notice of Termination" ) pursuant to SPA Section 9.01 (b). (D.I. 2 at ¶ ¶ 6, 42) The Notice of Termination[4] expressly referred to Phunware's failure to close prior to the November 6 drop dead date pursuant to SPA § 9.01(b)(i), Phunware's breach of representations and warranties regarding Phunware's financial statements pursuant to SPA § 5.12, and Phunware's failure to satisfy a closing condition pursuant to SPA § 7.01(1). (D.I. 2 \p\p 40, 44, 46)

2. Court of Chancery

On December 16, 2014, plaintiffs filed a complaint in the Delaware Court of Chancery, alleging breach of contract and breach of the covenant of good faith and fair dealing. (D.I. 11, ex. A) Plaintiffs requested specific performance of the SPA and sought expedited relief. (D.I. 30 at 1) The Court of Chancery denied this motion to expedite on the basis that plaintiffs did not have a " sufficiently colorable claim." (D.I. 11, ex. B at 5) On January 5 and 6, 2015, defendants moved to dismiss for failure to state a claim. On February 4, 2015, ECL filed its combined brief in support of its motions to dismiss. On March 6, 2014, plaintiffs voluntarily dismissed the action and, on the same day, filed the pending

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action for damages in this court. (D.I. 13 at 1- 5)

III. STANDARD OF REVIEW

A. Assess Costs and for a Stay

" If a plaintiff who previously dismissed an action in any court files an action based on or including the same claim against the same defendant, the court: (1) may order the plaintiff to pay all or part of the costs of that previous action; and (2) may stay the ...


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