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Glick v. KF Pecksland LLC

Court of Chancery of Delaware

November 17, 2017

KF PECKSLAND LLC, a Delaware limited liability company, THE BLEACHERS CORPORATION, a Delaware corporation, and SAMUEL KLEIN Defendants.

          Date Submitted: August 10, 2017

          Kenneth J. Nachbar, Zi-Xiang Shen, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Attorneys for Plaintiffs.

          P. Clarkson Collins, Jr., Albert J. Carroll, MORRIS JAMES LLP, Wilmington, Delaware; Attorneys for Defendants.


          BOUCHARD, C.

         In this post-trial decision, the Court finds that Samuel Klein fraudulently induced Tim and Renee Glick into investing most of their life savings in a company he used as his personal checking account on the promise that they would obtain an ownership interest in another company called The Bleachers Corporation. Not long after the Glicks entrusted Klein with their savings, Bleachers became defunct.

         Klein lived lavishly and portrayed himself to the Glicks as a highly successful businessman. He perpetrated the fraud by befriending the Glicks and gaining their confidence before offering them the "once-in-a-lifetime opportunity" to invest in a "white hot" Bleachers. He pitched the investment as a favor he was doing for the Glicks out of friendship so that Tim, a homebuilder in Jackson, Wyoming, could earn some easy money and have "skin in the game" to invest in a real estate joint venture with Klein, which never materialized. The Glicks were not sophisticated investors, as was readily apparent to Klein, and they expressed reservations about investing their savings in Bleachers. To close the deal, Klein promised to personally buy back their shares if things did not work out.

         When the relationship ruptured, Klein reneged on his promise to buy back the shares, which the record shows he never intended to keep. This lawsuit followed. For the reasons explained below, the Glicks have met their burden under Wyoming law to prove fraudulent inducement and are entitled to damages for the amount they invested with Klein ($433, 000) plus costs.

         I. BACKGROUND

         The facts recited in this opinion are my findings based on over 100 trial exhibits, deposition testimony, and live testimony from three fact witnesses who testified at trial: Tim and Renee Glick[1] and Samuel Klein. I accord the evidence the weight and credibility I find it deserves.

         A. The Parties

         Plaintiffs Tim and Renee Glick are married and reside together in Jackson, Wyoming, with their three children.[2] Tim owns and operates a business that designs and constructs custom homes, named Dynamic Custom Homes ("Dynamic").[3]Renee is a stay-at-home mom who does some photography and makes gelato.[4] Tim attended Montana State University on a partial skiing scholarship, graduating in 1995.[5] Renee graduated from the University of Massachusetts in 1999.[6]

         Defendant Samuel Klein, who is in his early sixties, is a resident of Greenwich, Connecticut.[7] Klein does not have a college degree, but has a background in real estate and commercial property development, and portrays himself as a sophisticated and wealthy businessman.[8] Before 2010, Klein primarily engaged in property development and management, focusing on hotels and healthcare facilities.[9] He once pled guilty to a criminal misdemeanor for failing to maintain adequate nursing staff at a nursing home he operated, which resulted in restrictions being placed on his ability to operate nursing homes in New York.[10]

         Defendant The Bleachers Corporation ("Bleachers") is a Delaware corporation that was formed in 2010.[11] Bleachers ceased to operate as of February 2017 and is now defunct.[12] Defendant KF Pecksland LLC ("KF Pecksland") is a Delaware limited liability company that Klein created to hold Bleachers shares.[13]Klein admits he used KF Pecksland as his personal checking account.[14]

         B. The Early Years of Bleachers

         In 2010, Klein established Bleachers with the goal of streaming real-time video of sporting events using operated and stationary high-definition cameras.[15] Klein claims he started the company with an initial investment of approximately $3 million.[16] Over the next two and a half years, Bleachers beta tested its streaming technology at two private schools in Greenwich[17] and hired employees who had experience in sports technology from another sports startup.[18] Bleachers' business model evolved over time to focus on installing fixed cameras at private and boarding schools, where there is a high level of participation in sports and the students' families tend to be wealthy and do not live nearby.[19] Bleachers initially offered its service as a "live streaming subscription on either a monthly or an annual basis."[20]Bleachers ended 2013 with a shareholders' deficit of approximately $2, 600, 000.[21]

         C. Klein Hires Tim to Build a Home in Jackson, Wyoming

         Klein and Tim first met in 2008, when Tim bid on a vacation home construction project for Klein.[22] In 2013, Klein called Tim to discuss building a home on a different piece of property in Jackson, Wyoming.[23] In or around October 2014, Dynamic entered into a contract with Klein's company, Sleeping Indian III ("Sleeping Indian"), for Dynamic to serve as the general contractor to build a 8, 100 square foot custom home for Klein.[24] The contract anticipated a maximum price of roughly $5.8 million, with price overruns to be borne by Dynamic.[25] Construction began in October 2014. Klein flew out to Jackson on a private jet with his daughters for a ground breaking ceremony on the property and photographed the event with a $22, 000 camera he had just purchased.[26]

         D. Klein Befriends the Glicks and Discusses Bleachers

         In November 2014, Klein flew out to Jackson, again on a private jet, with several family members.[27] Renee prepared some gelato for Klein for his arrival.[28]Klein invited Tim to ski with his family at Grand Targhee, a Wyoming ski resort, and hired Tommy Moe, the former U.S. Olympian skier, as a guide for the ski trip.[29]

         Throughout late 2014, Klein and Tim spoke several times a week via text, email, and on the phone.[30] Tim soon considered himself to be Klein's good friend, speaking with him "maybe three or four times each week" and discussing "almost anything that guy friends talk about, "[31] including business, cars, their personal lives, and Tim's business model and how it could be improved.[32]

         In December 2014, Klein invited Tim and Renee to a large party at a house he was renting in Jackson at the high-end Amangani Resort.[33] This was the first time Renee met Klein. She brought two flavors of her gelato at Klein's request.[34] During the party, Klein showed some of the guests videos Bleachers had taken.[35]

         After the party, the Glicks, Klein, and his girlfriend went to dinner.[36] They discussed potential business opportunities for the Glicks.[37] Klein flattered Renee, telling her that her gelato was better than any he had ever tasted in Italy and that she should commercialize it.[38] They also discussed Bleachers, which Klein had identified to Tim as the "source of his current income."[39] Klein described Bleachers as "a new and upcoming business, that it was just skyrocketing, " and told the Glicks "schools were lining up to -- to be a part of Bleachers."[40] The discussion piqued the Glicks' interest in Bleachers.[41]

         E. Tim and Klein Begin Exploring Business Opportunities Together

         In late 2014 through early 2015, Tim and Klein spoke about the possibility of working together on a real estate joint venture, considering it a natural fit with Tim's building experience and Klein's work on real estate projects.[42] Klein and Tim began to discuss the terms of a joint venture more concretely in February 2015, and explored a speculative housing project, i.e., purchasing a lot to build on and starting construction before finding a buyer.[43]

         In preparation for the potential venture, Klein "walked Tim through hours of how construction financing works, "[44] and Tim looked into recent purchases made by other builders as well as available lots in Teton County.[45] In response to Tim's analysis of the potential properties, Klein was consistently positive about Tim's knowledge of the local market.[46] Both parties testified at trial that they were committed to the project, [47] but Klein's trial testimony was inconsistent with his deposition, where he testified that, by January or February 2015, he "just didn't trust the guy [Tim]" and "wanted to start working Tim out of the project" of constructing his home.[48]

         In early March 2015, Klein and Tim put in a "low-ball offer" on a piece of property, which was rejected.[49] Once Klein and Tim began working on their potential joint venture, Klein told Tim he needed to have "skin in the game, "[50] but Tim did not have the capital to invest in such a venture.[51]

         F. Klein Directs Tim to Inflate Withdrawals on Sleeping Indian's Loan Account with the Bank of Jackson Hole

         Sleeping Indian, the entity that owned the property on which Tim was building a house for Klein, obtained a loan from the Bank of Jackson Hole to finance the construction.[52] In February 2015, while Tim and Klein were discussing their potential real estate joint venture, Klein directed Tim to inflate the progress of the construction of Klein's Jackson residence in order to secure the release of additional funds from the bank, which went to Klein for his personal use.[53] Specifically, Klein directed Tim to inflate the degree of completion on the project in the certifications submitted to the bank (while submitting accurate certifications to the homeowner's representative to conceal the overstatements) and to transfer the inflated amounts to KF Pecksland, Klein's company, or to Annie Klein, Klein's daughter, immediately after Dynamic received the draws from the bank.[54]

         Apart from enriching Klein, this scheme hurt Tim by reducing the amount of funds available from the bank for the actual costs of construction, placing Tim at Klein's mercy to make good on the difference. Bank records confirm that the total amount of excess funds that Dynamic transferred to KF Pecksland was $2, 423, 608.[55]Tim credibly testified that he did not "pocket any of the inflated amount."[56]

         G. Bleachers' Performance Going into 2015

         In 2014, in an effort to generate higher revenues, Bleachers modified its business model from a subscription service with revenues coming from users (i.e., parents and students) to a school-pay model selling its services directly to schools.[57] The company also secured additional funding and hired additional employees.[58]Despite these initiatives, Bleachers generated only $135, 528 in revenue and suffered a net loss of $2, 493, 700 for the year ended December 31, 2014.[59] It was apparent going into 2015 that Bleachers would need more capital to survive.[60]

         H. Klein and the Glicks Discuss an Investment in Bleachers

         In early 2015, Klein began to discuss having the Glicks invest in Bleachers.[61] Klein told the Glicks that Bleachers was "successful" and "white-hot, " and that he was offering the opportunity to invest "as a favor" to them so that they could use the profits from Bleachers to "invest into the real estate venture together with [him]."[62]Klein led Tim to believe that Bleachers was making money and was responsible for Klein's income and lavish lifestyle.[63]

         In April 2015, Klein told Tim about an opportunity Bleachers had to stream coverage of sports teams for Division III colleges[64] and about "vast" opportunities it had in Australia.[65] Klein also told the Glicks that the Australian market was "untouched" and promising for Bleachers.[66] During this period, Klein was speaking regularly with Richard Stokes, the chairman of the Australian Boarding School Association ("ABSA").[67]

         Despite the optimism Klein expressed to the Glicks about Bleachers' prospects, the Glicks voiced reservations about investing in it, particularly since the amount Klein was asking for-$250, 000-was most of their life savings.[68] To reassure them, Klein told Tim that they would "make millions" and that he would "personally guarantee" their investment:

Q. And what did Mr. Klein say in response?
A. He - he said, "Don't worry about this Tim. You're going to make millions. This thing is taking off like a - like a rocket. You're going to make so much money on that" - that he personally guaranteed me - he knew it was such a good deal that he personally guaranteed me that he would buy back our initial investment in Bleachers if anything went wrong.
Q. Did Mr. Klein say that once, or more than once?
A. No. He said it multiple times to me.[69]
Klein once again repeated this personal guarantee during a call when Tim again expressed reservations about making the investment:
Q. Do you have any particular recollection of any specific time that Mr. Klein told you that he would buy back your initial investment if something were to go wrong?
A. I do. One specific day, before we made our initial investment into Bleachers, I was driving down the access road of Spring Creek Ranch, down from Mr. Klein's construction site. And I was speaking to Mr. Klein. And I told him that, you know, I was really nervous about this. And once again, he said, "Tim, don't worry about this. This is a no-brainer. It's a once-in-a-lifetime opportunity. Invest your money. I will personally guarantee that you will not lose money, and I will buy back your stock if anything is to happen."[70]

         Renee did not hear Klein say that he would guarantee their investment, but she confirmed that Tim told her about the guarantee at the time.[71]

         I. The Glicks Make Their First Investment in Bleachers

         On April 10, 2015, Klein sent an e-mail to Tim offering to sell an option to purchase 1% of the outstanding shares of "Kf bleachers stock."[72] After seeing Klein's email, Tim asked whether there was a "cliff note or 'for dummies' version of this document" because he and Renee "don't ready [sic] many of these types of documents or any for that matter."[73] Klein offered to speak to the Glicks and walk them through the agreement.[74]

         The next day, Klein sent Tim a chart displaying Bleachers' capitalization as of April 1, 2015.[75] On April 13 and 14, Klein sent Tim e-mails suggesting that Morris Offit, whom Klein represented as a successful and savvy investor, was interested in investing and helping develop Bleachers.[76]

         On April 14, 2015, Tim and Renee received a Purchase and Sale Agreement (the "First Purchase Agreement"). It provided that KF Pecksland would sell 688.184 shares of Class A Common Stock of Bleachers to the Glicks for $250, 000.[77] Klein testified that he asked for $250, 000 because he was not looking "to do hand-holding" for a lower investment.[78]

         The Glicks signed the First Purchase Agreement the same day they received it.[79] In a cover email to which the executed document was attached, Tim said to Klein: "Thank you Sam, I greatly appreciate it."[80] Tim read the agreement before signing it but testified that he "didn't understand" it.[81] Renee did not read the agreement.[82] Later that day, Klein sent Tim an email stating that he had "assigned my right in the stock to you and renee."[83] The Glicks wire transferred $250, 000 to KF Pecksland three days later, on April 17.[84]

         In deciding to invest in Bleachers, the Glicks took the information Klein provided them to heart and conducted limited research: they did not consult with an attorney, did not receive financial statements or ask for information regarding the valuation of Bleachers, and did not seek advice from their personal financial advisor at Morgan Stanley.[85] Tim briefly discussed the investment with his father, a retired commodities trader, and "might have" done internet research on Bleachers, but otherwise took Klein at his word.[86]

         J. Klein and the Glicks Discuss the Joint Venture and Making a Second Investment in Bleachers

         On April 21, 2015, Klein sent an e-mail to update Tim on Bleachers' efforts to enter the Division III college sports market, stating that "[I] thought I had a productive day . . . 400 schools!!"[87] Tim responded that "[t]hats great!!!"[88]

         Throughout April and early May, Klein continued to tell Tim about opportunities Bleachers had in Australia, saying that Australia was a natural market for Bleachers because Australia is "a sports-crazy nation, " that "nobody was doing this" in Australia, that it was a "wonderful market without competition, " and that he and Bleachers were "going to Australia."[89]

         On May 3, 2015, after visiting a potential office space for their joint venture, Tim went with Klein to Greenwich.[90] Klein arranged the trip so that Tim could examine the site of a potential demolition project for Morris Offit, whom Klein portrayed as a good friend and previously identified as a potential investor in Bleachers.[91] During the trip, Tim visited a lot Offit was purchasing next to his home with an old house on it that Offit wanted to demolish.[92]

         On May 4, 2015, Klein took Tim out to dinner in Greenwich in a Ferrari.[93]Klein told Tim while driving in the car that the Glicks' initial investment in Bleachers had doubled in value.[94] Tim was excited, explaining: "how many times in your life can you double your money, $250, 000, in two, two and a half weeks."[95] Klein also talked about other investors and told Tim that Offit "was going to invest $150 million into Bleachers."[96] Tim thought he had "gotten on the rocket."[97]

         On May 5, 2015, while standing in Klein's kitchen in Greenwich, Klein told Tim that a relative of his had to sell his Bleachers shares to make a down payment on a house.[98] Klein offered to sell the shares to Tim, again "as a friend, " telling him: "'Tim, here's another opportunity if you want it. I'm offering it to you. Otherwise, I would buy it, buy the stocks.'"[99] The amount of the investment was $183, 000. Klein told Tim that he "needed to give him an answer immediately."[100] Klein reiterated that Offit was planning to invest $150 million, telling Tim that the Glicks would have to invest "immediately, prior to Offit investing his $150 million, because if Offit invested his $150 million first" then Tim would be unable to purchase at the current valuation.[101]

         Tim thought he would be purchasing Bleachers shares from Klein's relative, but he ended up purchasing an interest in KF Pecksland from Klein himself.[102] Klein's reference to a relative buying a house was a fabrication. As Klein admitted in his deposition, the money went to Klein, who "had bills to pay."[103]

         On May 6, 2015, Tim's last day in Greenwich, Klein forwarded Tim an e-mail stating that Offit wanted Klein to "send Bleachers material" to a banker at Goldman Sachs and to a man with a daughter at the "Hill School in Princeton" who "loves the idea of Bleachers."[104]

         On May 9, 2015, after learning that she and Tim were getting another chance to invest in Bleachers and that they already had doubled their initial investment, Renee sent a message to Klein, saying "[y]ou are too kind! Thank you!!!!!! Thanks for returning my husband also."[105] The next day, Klein texted Renee: "Happy mommies day Renee, your man is a good man."[106] In truth, Klein harbored doubts about Tim at this point in time.[107]

         K. The Glicks Make a Second Investment

         Klein imposed a May 13 deadline for the Glicks to make their second investment, [108] telling them it "was imperative" that the deadline be met or they "could be messing something up for him and for Bleachers."[109] The Glicks "were liquidating the rest of everything [they] owned" to meet the deadline but were running into problems with their broker.[110] Realizing they would not make the deadline, Renee texted Klein in a panic at 2:45 p.m. on May 13:

         It's Renee……

I'm freaking out. Tim is freaking out. We……are freaking out.
…..if only there were a few more hours in the day…..and….we didn't have the time-difference of 2 hrs. We'll be lucky if neither of us puke tonight….or sleep.[111]

         Klein replied that he would call the Glicks, stating that "[i]t's quite serious . and I'm stunned at what occurred."[112] Renee continued to text with Klein, noting how they had requested the money but that since it was "diversified" and "nearly all of our stock" it was taking additional time to transfer.[113]

         At night on May 13, Klein called Tim and Renee, who spoke to Klein together on a speakerphone. Renee recalled that Klein started "berating" and "scolding" the Glicks, saying that the "wire transfer not going through was a really big deal" and "very serious." [114] Tim similarly recalled that Klein yelled at the Glicks for several minutes about how they "screwed everything up" before he said that he would be able to buy them an extra day.[115]

         At some point during the call, Renee asked Klein whether or not the Glicks should still transfer the $183, 000 to Klein, or if it should be rerouted back to them.[116]Klein immediately changed his tone. He suddenly started stressing how the Glicks would "make millions of dollars" and that they "were going to need a financial planner" to help them manage their new-found wealth.[117] He reiterated that Offit was "scheduled to invest $150 million" in Bleachers and said that he was "going to help take Bleachers public on the stock exchange."[118]

         After the call, Klein texted the Glicks the name of Quincy Cotton, whom Klein represented to be a financial planner and estate attorney who "was going to set up [the Glicks'] future estate and money safety stuff."[119] Renee asked if Cotton would work with them "even though we aren't 'high net worth individuals' YET?"[120] Klein replied "you are and she will."[121]

         On May 14, 2015, before reviewing any documents for the transaction, the Glicks wired $183, 000 to Klein, whom Tim still considered a "very good friend."[122] Klein then sent Tim an e-mail with the subject line "183k for conversion to stock which will be issued in both renee and timothy glick names."[123]

         L. Continued Discussions Regarding Bleachers Before the Glicks Sign the Second Purchase Agreement

         In May 2015, Klein updated the Glicks on Bleachers' attempted entry into Australia, reiterating that its opportunities were "vast" and "huge."[124] On May 20, 2015, Klein sent Tim an e-mail implying that Bleachers had signed several schools in Australia: "We are going! Got 6 schools to start."[125] Tim replied "So cool!"[126]

         On May 31, 2015, Klein sent Tim another e-mail stating that he just got off Skype "with [the] aussies" and had "3 schools now with 2000 students per school minimum and will have 3 others this week."[127] Tim replied "Nice work rain maker."[128] Klein responded that it was "funny you [Tim] know more than Ceo haha."[129]

         Klein's representations in the e-mails that Bleachers had signed up multiple schools in Australia were false.[130] Bleachers ultimately signed up only one Australian school (Methodist Ladies' College), and only for a beta test.[131] Klein blamed Richard Stokes, his contact at the ABSA, for providing him with inaccurate information that he had conveyed to Tim.[132] As of May 2015, Bleachers did not even have the technological capability to provide its service in Australia.[133]

         On May 26, 2015, Klein sent an e-mail to Tim reflecting the "economics" of the Glicks' total investment but, instead of reflecting a direct purchase of shares in Bleachers, it depicted that the Glicks would receive "ownership of KF Pecksland Equivalent to [a] New Share amount."[134] Tim responded that the "numbers seem to make sense to me… at least the amount Renee and I have to put in and the purchase price."[135] Klein replied that "its correct…I'll have [my attorney] lipari issue the shares."[136] Klein's attorney, Joseph Lipari, was a shareholder and a board member of Bleachers at the time.[137]

         On June 1, 2015, Klein sent Tim several documents, namely a Purchase and Sale Agreement (the "Second Purchase Agreement"), an Amended and Restated Limited Liability Company Agreement of KF Pecksland LLC, and an Assignment.[138] The Assignment reflects that Klein assigned to the Glicks a 15.731% interest in KF Pecksland in exchange for $433, 000, i.e., the total amount that the Glicks had invested with him in two installments.[139] The Second Purchase

         Agreement recites that Klein was the 100% owner of KF Pecksland.[140] The same day they received the documents, the Glicks signed and returned them to Klein.[141]

         According to Klein, the documents for the first round of the Glicks' investment were incorrect and needed to be restructured to reflect that the Glicks were purchasing an interest in KF Pecksland, the only asset of which was Bleachers stock, and not a direct interest in Bleachers.[142] There were no negotiations or discussions concerning the Second Purchase Agreement.[143]

         On the evening of June 1, 2015, Tim texted Klein to inquire about the status of Offit's investment in Bleachers: "Renee was wondering if offit closed. I didn't think that was happening for another week or two."[144] Klein replied "[n]ot yet" and that he would let Tim "know the same day it happens."[145] Offit ultimately invested only $650, 000 in Bleachers-a small fraction of what Klein had represented he would invest.[146]

         M. The Relationship Between the Glicks and Klein Collapses

On June 3, 2015, Renee texted Klein:
Hey there!
So, I was just talking to Tim and……he was all stressed out. But I wanted to make sure that you knew that the money you have of ours is everyyyyyyything we had……plus some. I just wanted to make that clear….:-). (No pressure). LOL![147]

         Renee testified that the text was prompted by the fact that Klein had defaulted on payments he owed Tim for constructing his Jackson residence and that Klein had all of the Glicks' "personal money."[148] Renee's text prompted Klein to call Tim and yell at him because he thought that it was "extremely inappropriate" for Renee to reach out to him.[149]

         In mid-2015, Klein and Tim formed an entity for their joint venture, which they named Bond Realty Group.[150] In early June 2015, Klein and Tim signed an office lease for Bond Realty Group, and explored potential projects in the Jackson area.[151]

         In August 2015, Tim's relationship with Klein ruptured after Tim billed Klein $80, 000 for a deposit for stone to be used to build Klein's Jackson residence.[152] At the time, Klein had stopped making payments on the house and was $880, 000 behind in his payments, and Tim did not have funds to purchase the materials.[153] When he spoke to Klein about the matter, Klein threatened to sue him "with his high-priced

         New York lawyers."[154]

         On August 27, 2015, Klein's lawyer sent two letters to Tim. One letter set forth certain requirements Klein was demanding as a condition to permit Tim to complete the construction of his home.[155] The other letter formally terminated their real estate joint venture.[156] Believing he could not defend himself because Klein "had all [his] money, " Tim signed and returned both letters to Klein's lawyer on August 28.[157]

         The evening before, on August 27, 2015, Tim texted Klein and asked him if he had "a timeline on when my bleachers stock would be sold."[158] Klein replied that the Glicks' stock "would be purchased at the - next event."[159] Later, on December 23, Klein told Tim during a phone conversation that he would buy out the Glicks' interests by the end of January 2016, at which point he also would make Tim whole on the construction payments for his Jackson residence.[160]

         N. Additional Transactions Involving KF Pecksland

         At various times between October 2015 and April 2016, Klein sold interests in KF Pecksland to four other investors for approximately $1.2 million.[161] In March 2017, some of these investors sued Klein for fraud in connection with his sale of interests in KF Pecksland to them.[162]

         In 2014 and 2015, Klein undertook a series of transactions that culminated in obligating KF Pecksland to pay $6 million to Payton Lane Nursing Home, Inc. ("Payton Lane"), an entity Klein owned, in exchange for a mortgage on the home Tim was building for Klein in Jackson.[163] The mortgage was "junior and subordinate to" Klein's construction loan in favor of Bank of Jackson Hole.[164] Klein claimed at trial that he was working to unwind this transaction because KF Pecksland could not afford to pay the promissory note.[165]

         O. Tim Stops Working on Klein's Jackson Residence and Bleachers Shuts Down

         On April 4, 2016, Dynamic sent Sleeping Indian a notice that it was terminating their contract and stopping construction on Klein's Jackson residence.[166] Since the summer of 2016, the Glicks and Klein have been engaged in litigation in Wyoming relating to construction of the Jackson residence and in Connecticut relating to cash payments Klein made to Tim.[167] As of February 2017, Bleachers ceased operations.[168] Its stock is worthless.


         On April 28, 2016, the Glicks filed an action against Bleachers and KF Pecksland to inspect books and records.[169] KF Pecksland offered to produce certain documents and represented that certain categories of documents did not exist, including a "statement regarding the status of the business and financial condition of KF Pecksland" and a "current balance sheet for the company, [and] any recently filed federal, state, and local income tax returns."[170]

         On August 5, 2016, the Glicks filed their complaint in this action against KF Pecksland, Bleachers, and Klein, asserting three claims.[171] Count I asserts a claim for breach of the First Purchase Agreement against all defendants for failing to deliver $250, 000 worth of Bleachers stock to the Glicks.[172] Count II asserts a claim for breach of fiduciary duty against Klein in connection with his management of KF Pecksland.[173] Count III asserts a claim for fraudulent inducement against Klein and KF Pecksland.[174] On April 19, 2017, the parties stipulated to dismiss Bleachers from the action without prejudice.[175]

         On April 21, 2017, KF Pecksland and Klein filed a motion in limine seeking to exclude certain documents and testimony.[176] The Court denied the motion in limine, but permitted the parties to assert any evidentiary objections in their post-trial briefs, with the understanding that any objections not presented in the post-trial briefs would be waived.[177] Evidentiary objections that were asserted in Klein's post-trial brief are resolved in a separate order filed with this memorandum opinion.

         Trial was held on April 26, 2017. During the post-trial argument, the Glicks abandoned Count I of their complaint because the relief they sought-the issuance of $250, 000 worth of Bleachers shares-was pointless given that Bleachers was defunct and its shares worthless.[178]

         III. ANALYSIS

         This case is a classic "he said-she said" dispute where issues of credibility are paramount. Thus, before analyzing the claims, I address the credibility of the witnesses who testified at trial. In reaching my conclusions about credibility, I accord particular weight to the consistency of the witnesses' testimony with the written record and their prior statements, and to my observations of their demeanor as they testified. As a general matter, both of the Glicks were highly credible but Klein was not at all credible.

         Throughout the case, but particularly during his cross examination, Klein was evasive and would claim faulty recollection or delay answering until he was confronted with a document or prior statement. For instance, in response to a simple question about whether he had signed documents under oath without reading them, Klein sought to evade the question before being confronted with his deposition testimony where he admitted doing so.[179] Similarly, in response to a question about whether he had ever stolen money from a business partner, Klein denied doing so, and then responded that "[y]ou're going to point me to something that shows that I did steal money from a business partner. So I'm just waiting."[180]

         Klein admitted in his trial testimony that he had been sanctioned by then-Vice Chancellor Strine in a previous case. To my astonishment, however, he denied ever seeing the transcript of the hearing in which he was sanctioned and at one point denied knowing what the sanction was for, saying he "thought [it was] for not showing up."[181]

         Klein flip-flopped in his testimony about misusing the proceeds from his construction loan account with the Bank of Jackson Hole. In his deposition, Klein falsely denied that KF Pecksland ever received cash from Dynamic.[182] At trial, he admitted he directed that money be transferred from Dynamic to KF Pecksland each month beginning in February 2015.[183] Klein also denied at trial ever "misapply[ing] proceeds from bank loans before, " but had admitted doing so in deposition testimony from the same action in front of then-Vice Chancellor Strine.[184]

         In contrast to Klein, the Glicks were forthcoming in their testimony at trial, and their demeanor on the stand suggested that they were answering honestly. Tim acknowledged his wrongdoing with respect to inflating the draws on the construction loan account[185] and was sincere in his retelling of each of his interactions with Klein and how he discussed many of those events with Renee in real time. Although Renee's personal knowledge of the relevant events was more limited than Tim's, she testified clearly as to what she observed, did not observe, and did not adequately recall.[186]

         The Glicks' version of events also better comported with the written record, whereas many of Klein's statements were inconsistent with documentary evidence, his deposition testimony, or both. For example, although Klein denied at his deposition pressuring the Glicks[187] or setting a hard May 13, 2015 deadline for them to make the $183, 000 investment, [188] Klein was forced to admit at trial that he did set such a deadline, [189] and text messages[190] between the parties show that Klein definitely pressured the Glicks. This supports the Glicks' testimony that Klein told them, among other things, that they were "putting Bleachers in great danger" by failing to meet the deadline.[191] Similarly, as noted above, Klein testified during discovery that KF Pecksland never received cash from Dynamic, only to admit at trial that this was false after being confronted with emails from the bank documenting the transfers to KF Pecksland.

         In sum, in the instances discussed above and many others, Klein's evasive and inconsistent responses gave me the distinct sense that there was little chance of getting a straight answer from him and that he was willing to say whatever was convenient at the moment without regard for the truth. Tim and Renee, on the other hand, were both very credible witnesses.

         A. The Fraudulent Inducement Claim

         The Glicks' primary claim is that Klein fraudulently induced them to invest $433, 000 in Bleachers by making certain false and fraudulent statements. In briefing the issue of fraud, both parties focused on Wyoming law, which I will apply.[192]

         Under Wyoming law, three elements must be established by clear and convincing evidence to prove a claim of fraudulent inducement:

A plaintiff alleging fraudulent inducement carries the burden of showing by clear and convincing evidence that 1) the defendant made a false representation intending to induce action by the plaintiff; 2) the plaintiff reasonably believed the representation to be true; and 3) the plaintiff suffered damages in relying on the false representation.[193]

Clear and convincing evidence requires a showing of "the kind of proof which would persuade a trier of fact that the truth of the contention is highly probable."[194]

         To satisfy the first element of a fraudulent inducement claim, a plaintiff must provide sufficient evidence that the defendant made a false factual statement[195] relating to a material fact[196] with either "knowledge of its falsity, " or "aware[ness] that he did not have a basis for making the statement" to induce action.[197] To satisfy the second element, a plaintiff must prove that its belief in, and reliance on, the defendant's representation was reasonable under the facts presented.[198] To satisfy the third element, a plaintiff must show that its reliance on the misrepresentation was the cause of the harm.

         The Glicks contend that Klein made essentially seven false or fraudulent statements to induce their investment in Bleachers:

1. That Bleachers was "white hot";
2. That Bleachers had a huge opportunity in the Australian market;
3. That Bleachers had a huge opportunity to provide services to Division III schools;
4. That Klein was so sure that the investment in Bleachers would be successful that he would personally guarantee the investment and repurchase the Glicks' shares if Bleachers was not successful;
5. That Bleachers did not need the money, and that Klein was permitting the Glicks to participate in Bleachers as a friend;
6. That the value of Bleachers had doubled between the Glicks' first investment in Bleachers and their second, follow-on investment; and
7. That a very sophisticated investor, Morris Offit, was going to invest $150 million in Bleachers.[199]

         The first three statements fail to satisfy the first element of a fraudulent inducement claim because they do not constitute false statements of fact. Rather, the assertions that Bleachers was "white hot" or had "huge opportunities" in Australia or in the Division III college market amount to expressions of intention, hope, or opinion about future matters that are not actionable under Wyoming law.[200]

         The fourth and fifth statements go together. The sixth and seventh statements occurred after the Glicks made their first investment of $250, 000, and thus are relevant only to their decision to make the second investment of $183, 000. I discuss each of these statements below.

         1. The Personal Guarantee

         The Glicks contend that Klein represented to Tim that: he was so confident about Bleachers' prospects that he would personally guarantee them that they would not lose money, he would repurchase their shares if anything went wrong, and he was offering the investment essentially as a "favor" to his friends so that Tim would have "skin in the game" to participate in a joint venture with Klein. Klein vehemently denies making any such statements, although he admits to telling Tim that he needed to have "skin in the game" for the real estate venture that never materialized.[201] The issue boils down to one of credibility and the parties' conduct.

         I find it highly probable that Klein made the personal guarantee representations to Tim as Tim testified.[202] Tim was a very credible witness and I credit his specific testimony on this issue, which is corroborated by Renee's testimony that Tim told her about the personal guarantee at the time. Tim's testimony is further corroborated by the fact that when he invoked the guarantee in August 2015, Klein did not take issue with Tim's request to be bought out, which one would expect if Klein had never promised to do so. To the contrary, consistent with having made the representation, Klein said that the Glicks' shares "would be purchased at the - at the next event."[203] A few months later, in December 2015, Klein again did not challenge the notion that he had a responsibility to repurchase the Glicks' shares, but instead told Tim that he would buy out the Glicks shortly after the year-end.[204] Klein was not a credible witness and I do not credit his denial of the personal guarantee.

         The personal guarantee representation was clearly material to the Glicks and induced their investment because it was made to assuage their stated reservations and nervousness about investing most of their life savings in Bleachers. Both of the Glicks testified credibly about how important the guarantee was to their decision to invest with Klein.[205]

Although the general rule under Wyoming law "is that fraud ordinarily cannot be founded upon a representation which is promissory in nature, " there is an exception that applies when a person makes such a representation with no intention of performing the promise:
This general rule, however, is subject to an exception to the effect that if the representation, although promissory in nature, is made with no intention of performing it or with a present intention not to perform, it may then serve as a foundation for an action in fraud; one of the justifications for the exception being that there does exist a ...

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