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Flowshare LLC v. Georesults, Inc.

Superior Court of Delaware

July 25, 2018

FLOWSHARE, LLC, a Delaware limited liability company, and ERIC D. FOGLE Plaintiffs/Counterclaim Defendants,
GEORESULTS, INC., a Georgia corporation, THOMAS E. SHIELDS and DAWN SHIELDS, Defendants/Counterclaim Plaintiffs.

          Submitted: April 9, 2018

         Upon Defendant-Counterclaim Plaintiff's Motion to Dismiss Count V of the Counterclaim DENIED

          Stephen B. Brauerman, Esquire, Sara E. Bussiere, Esquire, Bayard, P.A., Wilmington, Delaware, John E. Petite, Esquire, John C. Drake, Esquire, Greensfelder, Hemker and Gale P.C., St. Louis, Missouri, Attorneys for Plaintiffs and Counterclaim Defendants.

          Jeffrey L. Moyer, Esquire, Travis S. Hunter, Esquire, Richards Layton & Finger, Wilmington, Delaware, Stephen P. Fuller, Esquire, CKR LAW, LLP, Johns Creek, Georgia, Attorneys for Defendants and Counterclaim Plaintiffs.

          ERIC M. DAVIS, JUDGE


         This civil action is assigned to the Complex Commercial Litigation Division of the Court. On November 6, 2015, Plaintiff Flowshare, LLC d/b/a ShareTracker ("Flowshare") entered into an Asset Purchase Agreement ("APA") with Defendants GeoResults, Inc. ("GeoResults"), Thomas E. Shields, and Dawn Shields (collectively with Thomas Shields and GeoResults, the "Defendants"). According to the pleadings filed, Plaintiff Eric D. Fogle, CEO and lead negotiator of Flowshare, repeatedly indicated-prior to execution of the APA-that he would personally pay any shortfall in the purchase price. Mr. Fogle's promises were memorialized into an agreement (the "Shortfall Agreement") dated three days after the execution of the APA.

         Flowshare and Mr. Fogle (collectively, "Plaintiffs") filed suit against Defendants, asserting rights under the APA. Defendants answered and filed counterclaims. The Plaintiffs' claims and the Defendants' counterclaims all arise out the APA-performance under the APA or the negotiations surrounding the APA.

         Plaintiffs filed a Motion to Dismiss Count V of the Counterclaim (the "Motion"). Defendants filed their Opposition to Counterclaim Defendants' Motion to Dismiss Count V of the Counterclaim (the "Opposition"). Plaintiffs filed their Reply Brief in Support of Their Motion to Dismiss Count V of the Counterclaim (the "Reply"). After a hearing on the Motion, the Opposition and the Reply, the Court took the Motion under advisement.

         For the reasons set forth below, the Court DENIES the Motion.

         II. RELEVANT FACTS [1]

         In November 2015, the parties were in the process of negotiating an asset purchase agreement whereby Flowshare would purchase GeoResults. On November 6, 2015, Flowshare entered into the APA with GeoResults and the Shieldses.[2] Through the APA, the Shieldses would sell GeoResults to Flowshare. Section 11.09 of the APA provides:

This Agreement (including all Exhibits and the Disclosure Schedules hereto) and all other Transaction Documents contain the entire agreement between the Parties with respect to the subject matter herein and therein and supersede all prior agreements and understandings, oral or written, with respect to such matters."[3]

Mr. Fogle did not sign the APA in an individual capacity. Mr. Fogle only signed the APA in his capacity as the sole manager of Flowshare.[4]

         Mr. Fogle, Flowshare's CEO and lead negotiator, made promises to the Shieldses that he would personally fund additional amounts that Flowshare could not finance under the APA.[5]The Shieldses and Mr. Fogle negotiated the Shortfall Agreement leading up to the execution of the APA.[6] The Shieldses and Mr. Fogle changed language in the Shortfall Agreement and negotiated the amount that Mr. Fogle would cover. Mr. Fogle stated that he had "more than enough money to work with to make you whole."[7] In fact, Mr. Fogle stated that he is "personally on the hook for these obligations, in addition to the companies [he] own[s]."[8]

         On November 4, 2015, prior to executing the APA, Mr. Shields sent Mr. Fogle an email indicating that the Shortfall Agreement should post-date the APA.[9] The parties dated the Shortfall Agreement November 9, 2015 and Mr. Shields sent a draft of the Shortfall Agreement to Mr. Fogle for signature.[10]

         These assurances were made prior to the closing of the APA. The promises were memorialized into the Shortfall Agreement. The Shortfall Agreement is dated November 9, 2015 and requires: (1) payment for $2, 500, 000 to employees of GeoResults; and (2) payment to the Shieldses for the difference between $5, 500, 000 and the final purchase price in the APA and a real estate purchase agreement.[11]

         Mr. Fogle signed the Shortfall Agreement in his individual capacity as well as the sole manager of Flowshare.[12] The Shortfall agreement also states: "This agreement is independent of and in addition to the APA. The obligations of Purchaser in this agreement are the joint and several obligations of Purchaser and Eric Fogle."[13]

         A Telecom Customer was a material customer to the APA based on the revenue GeoResults generated from Telecom Customer. On November 30, 2015, Telecom Customer notified ShareTracker that it was terminating the contract.

         On July 21, 2017, Flowshare initiated this action. On October 20, 2017, Flowshare filed an amended complaint (the "Complaint") alleging: (1) breach of contract; (2) declaratory judgment; (3) fraud in the inducement; and (4) declaratory judgment with respect to the Shortfall Agreement. On November 3, 2017, GeoResults filed their answer, which included counterclaims (the "Counterclaims") for: (1) breach of contract with respect to the APA; (2) breach of contract with respect to the Shortfall Agreement; (3) unjust enrichment; (4) promissory estoppel; and (5) fraud in the inducement.

         On December 22, 2017, Flowshare filed the Motion. On January 31, 2017, GeoResults filed the Opposition. On February 21, 2018, Flowshare filed the Reply.

         On April 9, 2018, the Court held a hearing (the "Hearing") on the Motion, Opposition, and Reply. At the Hearing, Defendants conceded that the fraud claim is pleaded in the alternative to the contractual claim.


         A. The Motion

         In the Motion, Flowshare argues that GeoResults' claim for fraudulent inducement fails. First, Flowshare contends that the APA's integration clause bars any promises of future intent made before the execution of the APA. Second, Flowshare claims that the alleged pre-closing promises are inconsistent with the price term contained in the APA. Finally, Flowshare states that the fraudulent inducement claim is a "bootstrap" claim to the breach of the contract claims.

         In the Reply, Flowshare reiterates that the integration clause precludes the fraudulent inducement claim. Flowshare also argues that GeoResults failed to plead the fraudulent inducement with particularity.

         B. The Opposition

         Defendants argue that the APA's integration clause does not preclude the fraudulent inducement claim because the clause does not foreclose causes of action based on fraud. Further, Defendants contend that the fraudulent inducement claim is sufficiently pleaded under Civil Rule 9. Also, Defendants claim that Mr. Fogle's statements that he was currently able to cover the Shortfall are sufficient to establish fraud.


         A.12(b)(6) Failure to State a Claim Upon Which Relief ...

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