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Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP

Court of Chancery of Delaware

July 26, 2017

Great Hill Equity Partners IV, LP, et al.
v.
SIG Growth Equity Fund I, LLLP et al.,

          Date Submitted: June 9, 2017

          Gregory V. Varallo, Esquire Rudolf Koch, Esquire Robert L. Burns, Esquire Richards, Layton & Finger, P.A.

          William B. Chandler, Esquire Ian R. Liston, Esquire Jessica A. Montellese, Esquire Wilson Sonsini Goodrich & Rosati, P.C.

          Lewis H. Lazarus, Esquire Patricia A. Winston, Esquire Meghan A. Adams, Esquire Morris James LLP

          David S. Eagle, Esquire Sean M. Brennecke, Esquire Klehr Harrison Harvey Branzburg LLP

         Dear Counsel:

         This action concerns the acquisition of an e-commerce payments company- Plimus.[1] In September 2011, Plaintiffs Great Hill Equity Partners IV, LP and Great Hill Investors LLC (collectively, "Great Hill") purchased Plimus for $115 million via a merger. Plimus possessed two significant business relationships with third-party payment processors Paymentech, LLC ("Paymentech") and Paypal, Inc. ("Paypal"). Shortly before the merger closed, Plimus's relationship with Paymentech and Paypal ended.[2] Shortly after closing, Plimus's relationship with Paypal also ended.[3] According to the Plaintiffs, the loss of these two business relationships greatly diminished Plimus's value.

         The Plaintiffs brought claims for fraud (and the aiding and abetting thereof), conspiracy, indemnification, and unjust enrichment against multiple Defendants.[4]The Defendants here consist of: Plimus's CEO, Defendant Hagai Tal; Plimus's two founders, Defendants Tomer Herzog and Daniel Kleinberg (the "Founders"); Plimus's former largest stockholder, Defendant SIG Growth Equity Fund I, LLLP ("SIG Fund"), and that stockholder's authorized agent, Defendant SIG Growth Equity Management, LLC ("SIG Management, " and collectively with SIG Fund and Defendants Amir Goldman and Jonathan Klahr, "SIG" or the "SIG Defendants"); Plimus's former Vice President of Financial Strategy and Payment Solutions, Irit Segal Itshayek; and two charity stockholders that received Plimus stock by donation prior to the merger closing (the "Charity Defendants").[5]

         The Plaintiffs essentially allege that certain Defendants conspired to fraudulently withhold material information concerning Plimus's deteriorating relationships with Paymentech and Paypal.[6] As a result, according to the Plaintiffs, they substantially overpaid for Plimus. Also of particular relevance to the motions before me here, the Plaintiffs additionally argue that certain Defendants paid Tal "hush money" to hide his lack of confidence in the future of Plimus during the negotiation process (referred to as the "Side Letter").[7] The Plaintiffs seek damages and, citing fraud, to hold certain stockholders, including the Charity Defendants, jointly and severally liable for damages above and beyond the pro rata share of the merger proceeds those stockholders placed into escrow as a cap on their indemnification obligations for breaches of the Company's representations and warranties.

         Itshayek, Tal, the Founders, the SIG Defendants, and the Charity Defendants have moved for partial summary judgment pursuant to Court of Chancery Rule 56. According to these Defendants, no material dispute exists over certain distinct facts surrounding the Side Letter, Plimus's relationships with Paypal and Paymentech, and the available damages that the Plaintiffs are free to pursue. For the reasons that follow, these motions are denied.

         Summary judgment may only be granted if, "on undisputed facts, the moving party establishes that he is entitled to that judgment as a matter of law."[8] The Court "must view the evidence in the light most favorable to the non-moving party."[9] The Court must not weigh evidence and instead must "determine whether or not there is any evidence supporting a favorable conclusion to the nonmoving party."[10] Of particular importance here, no right to summary judgment exists; rather, "the court may, in its discretion, deny summary judgment if it decides upon a preliminary examination of the facts presented that it is desirable to inquire into and develop the facts more thoroughly at trial in order to clarify the law or its application."[11] Critically, "[w]hen an ultimate fact to be determined is one of motive, intention or other subjective matter, summary judgment is ordinarily inappropriate."[12]

         As an initial matter, it is clear to me that trial-scheduled mere weeks away- involving all current remaining claims and Defendants in this matter will be necessary regardless of my decision on these motions.[13] Moreover, a substantial portion of the judgment sought by the Defendants here concerns discrete factual findings.[14] However, the complex claims and issues in this matter should not be broken down into isolated "factual silos"[15] for resolution without the chance to develop a full post-trial record, particularly in light of the alleged underlying fraud.[16] As the Plaintiffs contended at Oral Argument, they did not file individual claims for fraud related to Paymentech or to Paypal.[17] Rather, the Plaintiffs allege that the entire acquisition of Plimus was fraudulent.[18] As for the dispute over the degree of potential damages, the language of the merger agreement seems sufficiently ambiguous to me to warrant a trial to determine, among other things, the extent of the Defendants'-particularly the Charity Defendants'-understanding of their potential liability in signing the Letters of Transmittal for Shares of Capital[19] and the extent of any contractual limits on indemnification in the event of fraud.

         In sum, after reviewing the briefing and the supplemental submissions, in the interests of the litigants' and judicial economy-and because a majority of the claims in this matter involve alleged fraud-it seems to me these issues would be better resolved on a post-trial record. The Motions for Partial Summary Judgment are therefore denied. I will consider the summary judgment briefing as ...


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