United States District Court, D. Delaware
JAMES CHANCE RICHIE, SHALEWATER SOLUTIONS, LLC and SHALEAPPS, LLC Plaintiffs,
HILLSTONE ENVIRONMENTAL PARTNERS, LLC, Defendant.
REPORT AND RECOMMENDATION
R. FALLON UNITED STATES MAGISTRATE JUDGE.
before the court in this diversity action is the motion to
dismiss for failure to state a claim filed by defendant
Hillstone Environmental Partners, LLC
("Hillstone"). (D.I. 25) For the following reasons,
I recommend that the court grant the motion to dismiss, and
dismiss the complaint with prejudice.
November 19, 2015, James Chance Richie, Shalewater Solutions,
LLC, and ShaleApps, LLC (collectively,
"plaintiffs") entered into an Asset Purchase
Agreement ("APA") with Hillstone for the sale of a
business that provided environmental management services to
the oil and gas industry (the "Business"). (D.I. 1
at ¶ 8) Pursuant to the APA, Mr. Richie sold Shalewater
Solutions, LLC and ShaleApps, LLC to Hillstone for a fixed
purchase price to be paid on the closing date in 2015.
(Id. at ¶¶ 8-9) The APA further requires
Hillstone to pay plaintiffs Earnout Payments for the calendar
years ending 2016, 2017, and 2018, to be calculated based on
Hillstone's earnings during those years. (Id. at
accordance with the terms of the APA, Hillstone delivered the
2016 and 2017 Earnout Statements to plaintiffs by March 31,
2017 and March 31, 2018, respectively. (Id. at
¶¶ 11-12; D.I. 26, Ex. 1 at §
2.7(a)) The 2016 and 2017 Earnout Statements
represented that Hillstone generated a loss and,
consequently, no Earnout Payment was due in those years.
(D.I. 1 at ¶ 12) Plaintiffs did not review the materials
used in preparing the 2016 and 2017 Earnout Statements, nor
did they challenge the accuracy of the 2016 and 2017 Earnout
Statements within the thirty-day window for delivering an
Earnout Dispute Notice, in accordance with § 2.7(b) of
the APA. (D.I. 26, Ex. 1 at § 2.7(b)) After receiving
more data related to the 2018 Earnout Statement, plaintiffs
began to suspect that there were material misrepresentations
or miscalculations in the 2016 and 2017 Earnout Statements.
(D.I. 1 at ¶ 13) On or about November 2, 2018,
plaintiffs made a formal written request for the underlying
documentation forming the basis of the 2016 and 2017 Earnout
Statements, but Hillstone declined to provide the
documentation. (Id. at ¶ 14)
filed the instant litigation on January 22, 2019 in the
Western District of Texas, asserting a cause of action for
fraud. (D.I. 1 at ¶¶ 18-19) On February 20, 2019,
Hillstone filed a motion to transfer the case to the District
of Delaware, which was granted on April 8, 2019. (D.I. 10;
D.I. 16) The case was subsequently transferred to this court
on April 9, 2019. (D.I. 17)
12(b)(6) permits a party to move to dismiss a complaint for
failure to state a claim upon which relief can be granted.
Fed.R.Civ.P. 12(b)(6). When considering a Rule 12(b)(6)
motion to dismiss, the court must accept as true all factual
allegations in the complaint and view them in the light most
favorable to the plaintiff. Connelly v. Lane Constr.
Corp., 809 F.3d 780, 790-91 (3dCir. 2016).
state a claim upon which relief can be granted pursuant to
Rule 12(b)(6), a complaint must contain a "short and
plain statement of the claim showing that the pleader is
entitled to relief." Fed.R.Civ.P. 8(a)(2). Although
detailed factual allegations are not required, the complaint
must set forth sufficient factual matter, accepted as true,
to "state a claim to relief that is plausible on its
face." Bell Ail. Corp. v. Twombly, 550 U.S.
544, 570 (2007); see also Ashcroft v. Iqbal, 556
U.S. 662, 663 (2009). A claim is facially plausible when the
factual allegations allow the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged. Iqbal, 556 U.S. at 663; Twombly,
550 U.S. at 555-56.
of fraud are subject to the heightened pleading requirements
of Federal Rule of Civil Procedure 9(b). U.S. ex ret
Whatley v. Eastwick Coll., 657 Fed.Appx. 89, 93 (3d Cir.
2016). Under Rule 9(b), a plaintiff must "state with
particularity the circumstances constituting fraud or
mistake." This heightened pleading standard was meant to
"place the defendants on notice of the precise
misconduct with which they are charged, and to safeguard
defendants against spurious charges of... fraudulent
behavior." Seville Indus. Mack Corp. v. Southmost
Mack Corp., 742 F.2d 786, 791 (3d Cir. 1984).
Accordingly, the complaint must provide "all of the
essential factual background that would accompany 'the
first paragraph of any newspaper story'-that is, the
'who, what, when where and how' of the events at
issue." Whatley, 657 Fed.Appx. at 93 (quoting
In re Rockefeller Ctr. Prop., Inc. Sec. Litig., 311
F.3d 198, 215 (3d Cir. 2002)). "The use of boiler plate
and conclusory allegations will not suffice." Kuhn
Constr. Co. v. Ocean & Coastal Consultants, Inc.,
844 F.Supp.2d 519, 530 (D. Del. 2012) (internal quotation
marks and citations omitted).
Nature of the Claim
support of its motion to dismiss, Hillstone contends that
plaintiffs' fraud claim is barred by the express terms of
the APA, which provides a binding procedure for addressing
plaintiffs' allegations of material misrepresentations in
the 2016 and 2017 Earnout Statements. (D.I. 25 at 5)
According to Hillstone, plaintiffs' fraud claim is based
on a violation of Hillstone's contractual duty to provide
Earnout Statements, and Hillstone had no independent legal
duty to deliver the Earnout Statements or to allocate
expenses among affiliates in a particular way. (Id.
at 7-8; D.I. 29 at 4) Hillstone further alleges that