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Blattman v. Siebel

United States District Court, D. Delaware

March 31, 2017

ERIC BLATTMAN, individually and as an assignee of certain former members of E2.0 LLC, LAMB FAMILY LLC, and DAVID STAUDINGER, Plaintiffs/Counterclaim-Defendants,
v.
THOMAS M. SIEBEL, DAVID SCHMAIER, JOHN DOE 1, and JOHN DOE 2, Defendants/Counterclaim-Plaintiffs. C3, INC. d/b/a C3 IoT, Plaintiff/ Counterclaim-Defendant,
v.
ERIC BLATTMAN, individually and as an assignee of certain former members of E2.0 LLC, LAMB FAMILY LLC, and DAVID STAUDINGER, Defendants/Counterclaim-Plaintiffs.

          Joanne P. Pinckney, Esquire and Seton C. Mangine, Esquire of Pinckney, Weidinger, Urban and Joyce LLC, Greenville, Delaware. Counsel for Eric Blattman, Lamb Family LLC, and David Staudinger. Of Counsel: Timothy F. Butler, Esquire, David J. McCarthy, Esquire, and Thomas B. Noonan, Esquire of Tibbetts, Keating & Butler, LLC, New York, New York, and Stephen D. Raber, Esquire, Jonathan M. Landy, Esquire, and John McNichols, Esquire of Williams & Connolly LLP, Washington, D.C.

          Kenneth J. Nachbar, Esquire and Lauren K. Neil, Esquire of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware. Counsel for C3, Inc. Of Counsel: Michael B. Carlinsky, Esquire, Joseph Milowic III, Esquire, John H. Chun, Esquire, and Clinton Dockery, Esquire of Quinn Emanuel Urquhart & Sullivan, LLP, New York, New York.

          MEMORANDUM OPINION

          Sleet, Judge.

         I. INTRODUCTION

         Eric Blattman, Lamb Family LLC, and David Staudinger owned interests in Efficiency 2.0 LLC ("E2.0") before its merger with C3, LLC, now C3, Inc. ("C3"). (D.I. 28 ¶ 41). Thomas Siebel ("Siebel") and David Schmaier ("Schmaier") are the Chief Executive Officer and Chief Operating Officer of C3, respectively. This case consolidates two actions that are essentially mirror opposites: Civ. No. 15-530-GMS, referred to as the "Blattman Action, " and Civ. No. 16-750-GMS, referred to as the "C3 Action." The plaintiffs and claims in one case are essentially the defendants and counterclaims in the other case. The only pertinent difference between the two actions is that officers of C3 (Siebel and Schmaier) are the defendants/counterclaim-plaintiffs in the Blattman Action, but C3 alone is the plaintiff/counterclaim-defendant in the C3 Action.

         Pending before the court is a motion filed by C3 to dismiss the counterclaims in the C3 Action. (D.I. 125). Also pending before the court is a motion filed by Eric Blattman, Lamb Family LLC, and David Staudinger to amend/correct their complaint in the Blattman Action. (D.I. 127). The court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1331 (federal question jurisdiction), 15 U.S.C. § 78aa (jurisdiction for violations of the Exchange Act), and 28 U.S.C. § 1332 (diversity of citizenship). For the following reasons, the motion to dismiss is granted in part and denied in part, and the motion to amend is granted.

         II. BACKGROUND

         A. Procedural History

         The parties have reached this point through a tortured procedural history, which the court reduces to the following essential facts. On October 28, 2014, Eric Blattman, Lamb Family LLC, and David Staudinger (the "Plaintiffs") sued Siebel and Schmaier (the "Defendants") in the U.S. District Court for the Southern District of New York for securities fraud and common law fraud based on events related to the merger transaction in which C3 acquired E2.0 (the "Blattman Action").[1] (D.I.I). C3 was not named as a party in that action. (Id.). Plaintiffs amended the complaint on March 27, 2015 to add a breach of contract claim based on Defendants failure to cause C3 to fund E2.0's three-year budget, thereby hindering E2.0's ability to achieve an earnout provided for in the merger agreement. (D.I. 28 ¶ 158). On June 16, 2015, the New York court granted Defendants' motion to transfer the Blattman Action to this court based on the forum selection clause in the merger agreement. (D.I. 44). On April 12, 2016, this court granted Defendants' motion to dismiss Plaintiffs' breach of contract claim based on an integration clause in the merger agreement, but denied Defendants' motion to dismiss the fraud claims. (D.I. 65).

         In June 2016, Defendants answered the complaint and asserted counterclaims, later amended, for securities fraud, common law fraud, breach of contract, recoupment, and attorneys' fees.[2] (D.I. 69, D.I. 71). Shortly thereafter, C3 moved to intervene in the Blattman Action. (D.I. 79). Nevertheless, on August 25, 2016, before the court could rule on the motion to intervene, C3 initiated its own action against Plaintiffs (the "C3 Action") asserting claims that were identical to Defendants' counterclaims in the Blattman Action. (C3 Action D.I. 1). The court consolidated the Blattman Action and the C3 Action. (D.I. 92).

         On October 22, 2016, Plaintiffs answered C3's complaint and asserted counterclaims for securities fraud, common law fraud, and breach of contract. (D.I. 120). The fraud counterclaims against C3 are identical to the fraud claims against Defendant. (Id.). The breach of contract counterclaims relate to the distribution of "Holdback Units" and the achievement of an earnout. (Id. at ¶¶ 161-67). Specifically, Plaintiffs allege that C3 breached its obligations in the merger agreement to: (1) distribute the Holdback Units by November 1, 2013; (2) not engage in any bad-faith interference with an Earnout achievement, and (3) deliver Earnout Notices at the end of the 2013, 2014, and 2015 fiscal year that properly reported profit and revenue. (Id.). On March 29, 2017, C3 voluntarily dismissed its claims in the C3 Action, leaving only Plaintiffs' counterclaims at issue in that action. (D.I. 180). This procedural development does not change the court's analysis. (D.I. 180).

         B. Factual Background

         On May 1, 2012, E2.0, C3, and Thomas Scaramellino, as Securityholder Representative of E2.0's unitholders, executed a merger agreement pursuant to which C3 acquired Plaintiffs interests in E2.0, and E2.0 merged with a wholly owned subsidiary of C3. (D.I. 28 ¶ 41). Section 1.4 of the merger agreement provided for an earnout under which Plaintiffs could receive over the next three years additional C3 Class C shares purportedly worth $25 million depending on the extent to which the E2.0 subsidiary of C3 attained certain minimum revenue and maximum loss targets (an "Earnout Event"). (Id. at ¶ 43). The same section of the merger agreement provided that, until . March 31, 2015, C3 would not take "any action in bad faith whose purpose is to intentionally minimize or intentionally interfere with the achievement of any Earnout Event." (D.I. 120 ¶ 163). To determine if an Earnout Event occurred, C3 was obligated to deliver within 120 days of the end of the 2013, 2014, and 2015 fiscal year a written "Earnout Notice" specifying E2.0's revenue and profits for that year, and whether any Earnout Units would be paid. (Id. at ¶ 165).

         C3 delivered Earnout Notices for 2013 and 2014, which Plaintiffs allege misrepresented E2.0's revenue and profit. (Id. at ¶ 166). For 2015, C3 failed to deliver any Earnout Notice at all. (Id. at ¶ 167). In addition, Plaintiffs allege that C3 interfered in bad faith with the achievement of an Earnout Event. (Id. at ΒΆΒΆ 163-64). Specifically, C3 deliberately failed to support the E2.0 subsidiary, siphoned its assets for the pursuit of C3's business, and wrongfully manipulated E2.0's earnings. (D.I. 134 at 4-5). For example, in November 2012, C3 terminated the employees and ...


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