United States District Court, D. Delaware
ERIC BLATTMAN, individually and as an assignee of certain former members of E2.0 LLC, LAMB FAMILY LLC, and DAVID STAUDINGER, Plaintiffs/Counterclaim-Defendants,
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,
ERIC BLATTMAN, individually and as an assignee of certain former members of E2.0 LLC, LAMB FAMILY LLC, and DAVID STAUDINGER, Defendants/Counterclaim-Plaintiffs.
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,
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.
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
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
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"). (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.
2016, Defendants answered the complaint and asserted
counterclaims, later amended, for securities fraud, common
law fraud, breach of contract, recoupment, and attorneys'
fees. (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.
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).
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).
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
¶¶ 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 ...