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LVI Group Investments, LLC v. NCM Group Holdings, LLC

Court of Chancery of Delaware

December 31, 2019

LVI GROUP INVESTMENTS, LLC, Plaintiff,
v.
NCM GROUP HOLDINGS, LLC, SUBHAS KHARA, EVERGREEN PACIFIC PARTNERS, L.P., EVERGREEN PACIFIC PARTNERS GP, LLC, EVERGREEN PACIFIC PARTNERS II, L.P., EVERGREEN PACIFIC PARTNERS II GP, L.P., EVERGREEN PACIFIC PARTNERS II GP, LLC, EVERGREEN PACIFIC PARTNERS MANAGEMENT COMPANY, INC., TIMOTHY BRILLON, MICHAEL NIBARGER, and TIMOTHY BERNARDEZ, Defendants. NCM GROUP HOLDINGS, LLC, Counter-Plaintiff,
v.
LVI GROUP INVESTMENTS, LLC, SCOTT STATE, PAUL CUTRONE, NORTHSTAR GROUP HOLDINGS, LLC, LVI PARENT CORP., BRIAN SIMMONS, ROBERT HOGAN, and CHS PRIVATE EQUITY V, L.P. Counter-Defendants.

          Submitted Date: September 4, 2019

          Rudolf Koch, Matthew W. Murphy, and Matthew D. Perri, of RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; OF COUNSEL: Steven C. Florsheim, Greg Shinall, Daniel A. Shmikler, Michael G. Dickler, and Trevor K. Scheetz, of SPERLING & SLATER, P.C., Chicago, Illinois, Attorneys for Plaintiff/Counter-Defendant LVI Group Investments, LLC.

          Richard D. Heins, and Philip Trainer, Jr., of ASHBY & GEDDES, Wilmington, Delaware; OF COUNSEL: Stephen Novack, Donald A. Tarkington, Andrew D. Campbell, Elizabeth C. Wolicki, and Yvette V. Mishev, of NOVACK AND MACEY LLP, Chicago, Illinois, Attorneys for Defendant/Counter-Plaintiff NCM Group Holdings, LLC, and Defendants Evergreen Pacific Partners, L.P., Evergreen Pacific Partners II, L.P., Evergreen Pacific Partners GP, LLC, Evergreen Pacific Partners II GP, L.P., Evergreen Pacific Partners II GP, LLC, Evergreen Pacific Partners Management Company, Inc., Timothy Brillon, Michael Nibarger, and Timothy Bernardez.

          Peter B. Ladig, of BAYARD P.A., Wilmington, Delaware, Attorneys for Defendant/Counter-Plaintiff NCM Group Holdings, LLC as to Claims Against Brian Simmons, Robert Hogan, and CHS Private Equity V, L.P.

          John A. Sensing, of POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; OF COUNSEL: John J. Quinn, THE LAW OFFICES OF JOHN J. QUINN; Dylan P. Kletter and Kelsey D. Bond, of BROWN RUDNICK LLP, Hartford, Connecticut, Attorneys for Defendant Subhas Khar a.

          Thomas A. Uebler and Kerry M. Porter, of MCCOLLUM D'EMILIO SMITH UEBLER LLC, Wilmington, Delware; OF COUNSEL: Jeffrey H. Bergman of MANDELL MENKES LLC, Chicago, Illinois, Attorneys for Brian Simmons, Robert Hogan, and CHS Private Equity VLP.

          MEMORANDUM OPINION

          GLASSCOCK, VICE CHANCELLOR.

         This is the latest chapter in the complicated legal saga resulting from the creation of a demolition company, NorthStar. The parties and related entities are described in detail below. Sufficient to this introductory exposition is that NorthStar was formed by a combination of two large demolition contractors, which can be identified generally as LVI and NCM. After the merger, the resulting demolition company was known as NorthStar, and the LVI and NCM entities remained as holding companies, containing their respective interests in NorthStar.

         These ownership interests in NorthStar were determined in part by the respective EBITDAs of the component companies. The business of these demolition companies involved long-term-often multi-year-projects. Moreover, payment by the owner of the property being demolished, or the contractor with which LVI and NCM subcontracted, was only partly in cash. The business model, in fact, was for the demolition company to monetize each contract by removing and selling valuable scrap, the value of which was estimated at the beginning of each job. Because of the nature of these businesses, then, accounting was somewhat complex. As described in some detail below, the value of any job in a given accounting period was the result of allocation of costs and revenues incurred and estimated, and gave room for both good-faith error and (as alleged by both parties) fraud in connection with the computing of the interests of LVI and NCM in NorthStar.

         Despite its name, NorthStar, starting soon after formation, had, in fact, a trajectory: downward.[1] LVI and NCM have sued each other and related individuals and entities, alleging the fraud referenced above. Much motion practice has resulted.[2] This Memorandum Opinion addresses four motions for Summary Judgment. The results are below.

         Equity enthusiasts, [3] and students of Anglo-American legal history generally, should they persevere in digesting this Decision, will note that what follows involves tort claims in the context of a contract, and parties pursuing legal issues in way of damages; those readers may wonder why such a clearly legal matter has been imposed on this court of equity. At this action's long-ago conception, the Plaintiff and Counter-Plaintiff contemplated reallocation of their interests in NorthStar, an equitable remedy. Thus, equitable jurisdiction was present, and litigant's efficiency requires that the matter remain in Chancery.

         I. BACKGROUND[4]

         A. Parties and Relevant Non-Parties

         Plaintiff and Counter-Defendant LVI Group Investments, LLC ("LVI" or "LVI LLC") is a Delaware limited liability company.[5] Counter-Defendant LVI Parent Corp. ("LVI Parent") is a Delaware corporation.[6] LVI Parent operated through its subsidiaries and sat at the head of the LVI family of entities until shortly before the Merger, when it created LVI LLC.[7] Where pertinent, I strive to distinguish the LVI entities by referring specifically to "LVI LLC" and "LVI Parent." Otherwise, when referring generally to the pre-merger operations of the LVI family of companies, or to allegations by and against the Plaintiff, I refer simply to "LVI."

         Defendant and Counter-Plaintiff NCM Group Holdings, LLC ("NCM") is a Delaware limited liability company.[8]

         Defendant Subhas Khara was NCM's former President and CEO.[9]

         Defendants Evergreen Pacific Partners, L.P. and Evergreen Pacific Partners II, L.P. (the "EPP Funds") are Delaware limited partnerships.[10] Evergreen Pacific Partners GP, LLC and Evergreen Pacific Partners II GP, LLC (the "EPP GPs") are general partners to the EPP Funds and are Delaware limited liability companies.[11]Evergreen Pacific Partners II GP, L.P. is a Delaware limited partnership.[12] Evergreen Pacific Partners Management Company, Inc. ("EPP Management") is a Delaware corporation.[13] It provides administrative support to the EPP Funds and the EPP GPs.[14] The EPP Funds are significant equity owners in NCM.[15]

         Defendants Timothy Brillon, Michael Nibarger, and Timothy Bernardez are individuals who work with the EPP entities.[16] Brillon is the CFO and CCO of EPP Management and also a member of the EPP GPs.[17] Nibarger is a Vice President and Secretary of EPP Management, co-founder of the EPP Funds, and member of the EPP GPs.[18] Bernardez is a co-President of EPP Management, co-founder of the EPP Funds, and a member of each of the EPP GPs.[19] I refer to the EPP Funds, the EPP GPs, EPP Management, and Brillon, Nibarger, and Bernardez collectively as "EPP."

         CHS Private Equity V L.P. ("CHS") is a Delaware limited partnership.[20]Brian Simmons and Robert Hogan are partners of CHS.[21] I refer to Simmons, Hogan, and CHS collectively as the "CHS Defendants." CHS is one of several private equity owners of LVI.[22]

         Nominal Defendant NorthStar Group Holdings, LLC ("NorthStar") is a Delaware limited liability company.[23] It was the creation of NorthStar by LVI and NCM that was the impetus for this legal action.

         B. Factual Background

         1. LVI and NCM Merge to Form NorthStar

         Prior to their merger, LVI and NCM were two of the United States' largest demolition and remediation companies, operating nationwide.[24] Their business models were similar. Both companies made money through two primary channels: site owners paid to have properties demolished, and the companies then retained and resold salvage materials such as steel, copper, alloys, and equipment from the building sites.[25] Both companies operated through a network of branch offices, each overseen by a branch manager.[26] The branch managers, in turn, received reports from project managers who supervised demolitions at particular sites.[27]

         In 2013, LVI and NCM entered into negotiations regarding a potential business combination.[28] Both parties undertook extensive due diligence.[29] This process culminated on April 23, 2014, when NCM, LVI LLC, LVI Parent, and NorthStar entered an agreement (the "Contribution Agreement"), under which LVI and NCM contributed their assets to form a new company, NorthStar (the "Merger").[30]

         The structure of the Merger was unusual, and that structure is pertinent, at least in part, to this decision. Since 2002, the LVI family of companies operated under LVI Parent.[31] Thus, it was LVI Parent that began negotiating the Merger with NCM, conducted due diligence, and worked with NCM to combine the businesses.[32] Shortly before the Merger, LVI Parent undertook a transformation from parent corporation to contributed asset. On April 7, 2014-16 days before the Merger's consummation-LVI Parent created LVI LLC.[33] LVI Parent then merged with a subsidiary of LVI LLC.[34] As a part of the Contribution Agreement, LVI LLC contributed its subsidiaries (including LVI Parent, now a subsidiary), along with NCM subsidiaries, to form NorthStar.[35] LVI Parent still exists as a subsidiary of NorthStar, and it holds the stock of LVI Services, Inc., which in turn holds all the stock of the other contributed LVI subsidiaries.[36] The parties chose this structure to create a tax-free transaction.[37]

         Although no longer conducting operations following the Merger, LVI and NCM remained in existence as holding companies that owned NorthStar equity.[38] LVI and NCM split NorthStar's equity based largely on their respective pre-merger Earnings Before Interest Taxation Depreciation and Amortization ("EBITDA").[39] Using this measuring stick, LVI obtained 62.5% of the equity, and NCM 37.5% of the equity, in NorthStar.[40]

         2. Terms of the Contribution Agreement

         In the Contribution Agreement, both LVI and NCM warranted certain financial statements regarding their companies (the "Warranted Financial Statements").[41] The Warranted Financial Statements formed the basis for the companies' EBITDA and thereby the divide of the equity ownership in NorthStar.[42]Under §§ 2.4(a) and 3.4(a) of the Contribution Agreement, the Warranted Financial Statements included the audited year-end financial statements for the period ending December 31, 2012, the unaudited year-end financial statements for the period ending December 31, 2013, and the unaudited year-end financial statements for the two months ending February 28, 2014.[43] NCM and LVI represented that the Warranted Financial Statements fairly presented, in all material respects, the financial position of the businesses in accordance with Generally Accepted Accounting Principles ("GAAP").[44] The companies did not make representations or warranties regarding any other financial statements.[45]

         The Contribution Agreement includes a merger clause in § 6.6, providing that it would "constitute the entire Agreement between the Parties pertaining to the subject matter herein and supersede any prior representation, warranty, covenant, or agreement of any Party regarding such subject matter."[46] The Contribution Agreement also includes a non-reliance provision. Under § 5.4(f), the parties agreed they had not "relied on any statements, representations or warranties whatsoever" outside of the Agreement."[47] Therefore, the Warranted Financial Statements attached to the Contribution Agreement formed the only representations on which the parties could successfully sue for contractual remedies, following the Merger.

         The Contribution Agreement provides for specific remedies in case of breach or misrepresentation. Section 5.4(e) limits available remedies to indemnification claims, requests for injunctive relief, and fraud claims against the "Person who committed such fraud."[48] Section 5.1 limits these remedies by imposing time restrictions on the Warranted Financial Statements. Under § 5.l(a)(iii)-(iv), the parties' representations regarding the Warranted Financial Statements would expire on April 23, 2015-one year after the Merger's execution.[49] However, the Contribution Agreement contains a survival clause, allowing the parties to postpone the expiration of the representations and warranties by filing a notice of claim under § 5.1(c):

Notwithstanding the foregoing in this Section 5.1, any representation or warranty in respect of which indemnity may be sought under Section 5.2 below, and the indemnity with respect thereto, will survive the time at which it would otherwise terminate pursuant to this Section 5.1 if notice of the inaccuracy or breach or potential inaccuracy or breach thereof giving rise to such right or potential right of indemnity will have been given to the party against whom such indemnity may be sought prior to such time. . . .[50]

         Finally, in § 5.2(a)-(b), the Contribution Agreement provides for indemnification for NorthStar and the contributed assets in case of a breach or misrepresentation by LVI or NCM:

(a) Indemnification by NCM Holdings. Subject to the other terms of this Article 5, NCM Holdings will indemnify and hold harmless [NorthStar] and each of its Subsidiaries from and against all Losses arising out of, relating to or resulting from (i) any failure of any Surviving NCM Representation to be true or (ii) any breach of any covenant or agreement of NCM Holdings herein.[51]
(b) Indemnification by LVI Holdings. Subject to the other terms of this Article 5, LVI Holdings will indemnify and hold harmless [NorthStar] and each of its Subsidiaries from and against all Losses arising out of, relating to or resulting from (i) any failure of any Surviving LVI Representation to be true or (ii) any breach of any covenant or agreement of LVI Holdings herein.[52]

         3. Post-Merger Litigation

         Just shy of a year after the merger, NCM notified LVI of an indemnification claim based on alleged false representations in its Warranted Financial Statements.[53] The next day, LVI notified NCM of its own indemnification claim.[54] The parties underwent mediation as required by the Contribution Agreement, and when that failed, commenced litigation.[55] Both parties ultimately dropped their indemnification claims and proceed solely on claims for fraud (as well as conspiracy or aiding and abetting, and unjust enrichment claims against EPP).[56] This litigation centers on the alleged fraud by both parties in creating their respective Warranted Financial Statements.

         After extensive discovery, each party narrowed their fraud allegations to a limited number of pre-Merger projects of the other company.[57] LVI's allegations focus on four NCM projects.[58] The parties refer to these as the Apple, Pepco, Sunoco, and DuPont Hickory projects.[59] LVI's expert asserts that based on a review of these projects, NCM misstated its pre-merger EBITDA by approximately $3.4 million for the trailing twelve month period ending December 31, 2013 and approximately $5.2 million for the trailing twelve month period ending February 28, 2014.[60] NCM's allegations, in turn, focus on six LVI projects. The parties refer to these as the Holly Street, Alcoa, HECO, Foothill, Newark, and Lafayette projects.[61] NCM's expert opines that LVI fraudulently misstated its pre-Merger EBITDA by at least $10.9 million.[62]

         For the reader to understand the cross-claims for fraud arising from these unique projects, it is necessary to address the projects in detail, which this Memorandum Opinion does, I am afraid, in wearisome fashion, below.

         Also, because the parties represented that their Warranted Financial Statements complied with GAAP, the allegations involve some basic principles of GAAP, reviewed briefly here. First, GAAP permits the use of the percentage of completion ("POC") method of accounting for contracts.[63] POC allows a business to recognize income during a long project based on the percentage of the project completed, estimated costs of completion, and expected profit margin.[64] Both parties used POC to create financial statements for their various demolition projects.[65] This allowed them to record income for large projects that often took more than a year to complete.[66] NCM and LVI both tracked the progress of their projects through work-in-process ("WIP") schedules.[67]

         Accounting in this fashion requires estimations, which sometimes prove inconsistent with results actually achieved over time. "Fade" is a colloquial term related to POC accounting. Because earnings are recognized as a project progresses, the business does not yet know the project's final results. If the cost of completion is underestimated during the project, then the final earnings will be less than reported on the financial statements, and the project will experience "fade" as the business revises those numbers to reflect the final results. Fade can result from innocent estimation errors, or from intentional overstatement. As both parties note, fade necessarily occurs when a business fraudulently inflates its earnings to report better numbers, then "reverses" those earnings once the project reaches completion and experiences fade.

         Second, GAAP permits recording some legal claims as revenue. Under GAAP, to recognize a claim as revenue, it must be probable that it will be collected.[68] To be "probable of collection," the following conditions must be met at the time the revenue is recognized:

(a) The contract or other evidence provides a legal basis for the claim; or a legal opinion has been obtained, stating that under the circumstances there is a reasonable basis to support the claim.
(b) Additional costs are caused by circumstances that were unforeseen at the contract date and are not the result of deficiencies in contractor's performance.
(c) Costs associated with the claim are identifiable or otherwise determinable and are reasonable in view of the work performed.
(d) The evidence supporting the claim is objective and verifiable, not based on management's feel for the situation or on unsupported representations.[69]

         If the above factors are not met, then under GAAP, the contractor should not record the claim as revenue.[70]

         Third, and finally, under GAAP, a loss must be recognized when it occurs.[71]Delaying the report of a loss on financial statements is a violation of GAAP.[72]

         4. LVI's Claims against NCM, Khara, and EPP

         In its original complaint, LVI sued NCM and its CEO, Subhas Khara.[73] Later, it added NCM's major private equity owner, EPP, as a defendant, including three individuals associated with EPP-Brillon, Nibarger, and Bernardez.[74] NCM has not moved for summary judgment of the underlying fraud allegations. The facts that follow, therefore, focus on the involvement of EPP and Khara, both of whom have moved for summary judgment, arguing-among other things-that the evidence does not support a claim that they knew of or participated in NCM's alleged fraud.

         a. EPP's and Khara's Roles in NCM's Accounting Practices

         EPP and Khara were both involved in accounting practices at NCM from 2011 through the Merger.[75] EPP provided high-level guidance as well as specific instructions. NCM would, on occasion, look to EPP for direction related to creating financial statements.[76] Khara also looked to EPP for instructions regarding financial statements.[77] In addition, EPP actively provided instructions to NCM's CFO, Duane Kerr, and others regarding adjustments to financial statements. For example, on May 12, 2012, Brillon, on behalf of EPP, told Kerr to book inventory adjustments and asked if there was "anywhere else we have room to improve April."[78] On July 4, 2012, Brillon sent Khara a spreadsheet of jobs in which both Brillon and the auditors selected jobs where "the fade that we have recognized in 2012 should be pushed back to 2011."[79] Kerr also discussed with Brillon specific approaches to creating NCM's financial statements and WIP schedules. On July 26, 2013, Kerr wrote to Brillon:

Per our discussions, we have asked our Branch managers to take an aggressive approach to their WIP schedules. This is a departure from the relatively conservative approach that we preach to our managers. Based on this aggressive approach we may have some level of WIP fade as those jobs come to completion. However, we feel that new bookings of several large high margin jobs may help us overcome any margin fade that may occur.[80]

         In addition to consulting on approaches to financial statements, Brillon often asked if the numbers reflected in the financial statements could be improved.[81]

         Beyond general oversight, EPP and Khara were involved in specific accounting decisions as early as 2012. This included providing target numbers for financial statements. On November 29, 2012, after Brillon asked if there were room for improvement in the previous month's financial statements, Khara replied, "We will look at it one more time and finalize it tomorrow - is there a target number?"[82] Brillon responded, "$1.8M if it is doable without being overly optimistic."[83] Khara answered that NCM would "get aggressive on the WIP and should be able to find it in the WIP. However November may be soft due to the squeeze."[84] In December 2012, NCM sent its 2012 year-end and December numbers to EPP, and Brillon noted to Bernardez and Nibarger, "2012 EBITDA is $17.6M vs. last bank forecast of $17.8M."[85] Nibarger responded, "Do we have any room?"[86] Brillon relayed this question to Khara, writing "Any room to improve the Dec numbers or is this what you are comfortable with?"[87] Later that night, NCM sent revised numbers, with the 2012 EBITDA increased by $1.2 million to $18.8 million.[88]

         EPP's and Khara's involvement in 2013 continued to affect the results shown in NCM's financial statements. When NCM reported January 2013 EBITDA at $800, 000, Brillon wrote to Khara, "[Nibarger] would like to see if you could get this closer to $1M."[89] After further adjustments, NCM reported $1, 032 million in EBITDA for January.[90] When the next month's EBITDA initially appeared lower than expected, Kerr described to Khara his methods for adjusting the numbers:

When I finished the [February] WIPs last night I was at EBITDA <850>. I literally went through each branch WIP schedule and squeezed out earnings wherever I could (jobs that had substantial costs left to incur that could take reductions in cost estimate, and that weren't 100% complete or <30% complete. I was literally squeezing out $3k here and $5k there. I added another $250 to Mojave revenue. All this to get to the $398 number that I'm at right now (I scrimped and scratched to pick up $1, 250 - I mean, smoke was billowing out of my office!). As you can see by the revenue number (14MM), there just isn't enough work to generate earnings. I just don't have the jobs left with backlog to squeeze earnings out.[91]

         On March 11, 2013, Brillon notified others at EPP about half a million dollars of fade resulting from 2012 financial statements, and Nibarger responded, "That cannot happen."[92] Brillon noted the fade "is in relation to the $1.5M of found EBITDA ... at the end of December [2012]."[93] Correspondence around this time also shows that Khara instructed branch managers to increase revenue and delay reporting losses to strengthen the financial statements.[94] When NCM reported its March EBITDA, Brillon asked, "Any chance to get this higher?" and Kerr responded, "No. This is after squeezing every last drop out of everything (and then some)."[95]

         On June 27, 2013, Khara emailed Kerr and told him, "At a minimum we have to get at $1.5M [EBITDA] for May."[96] The next day, Kerr emailed Brillon to offer draft financial statements for May, which included "$1.2MM EBITDA."[97] Brillon, copying Nibarger on his response, noted that the forecast for May had been "EBITDAof $2.1M."[98] Nibarger responded, "This cannot stand."[99] Bernardez then instructed Brillon, "Go through the WIP today job by job with [Kerr] and [Khara] to see where we can go up. Let's discuss the revised results on our Monday call."[100]Later that day, Kerr sent revised financial statements, which showed May EBITDA as $2, 004, 773.[101]

         In September 2013, Kerr sent July WIP schedule results to Khara and Brillon, attaching "a list of jobs that had substantial fade on the July WIP. Most of these were due to aggressive WIP cost estimates in Ql . . . There just simply isn't any room on these jobs to be any more optimistic on the cost estimates in July."[102] In October, responding to August financial results, Brillon wrote to Khara, "is [this] the best we show for Aug, this is lower than what we were guiding the lenders to on the last lender call."[103] Khara forwarded this email to Kerr, who sent revised numbers to Brillon less than two hours later with EBITDA increased by $275, 000.[104] Kerr warned that "if the final results on those jobs prove not to be as positive as what we are expecting there will be fade experienced at the tail end of those jobs."[105] Brillon forwarded this correspondence to Nibarger and Bernardez.[106] Two months later, reporting on October's results, Kerr wrote that although the "initial numbers were much lower," NCM "went back to the branch managers to have them go over their WIPs with a fine tooth comb for revenues and cost savings that they may not have considered."[107]

         Khara continued his involvement inNCM's accounting practices into 2014 to the close of the Merger. According to the WIP schedules submitted by branch managers for February 2014, NCM showed a total loss of around $325, 000.[108] Prior to submitting the financial statements, Kerr informed Khara, "February EBITDA of $1.3M is the best I could do. My first cut was only $100k."[109] Khara responded, "Please try to get it up to $1.5-$1.6M with Pepco, Teco, Duke Cape Fear, Apple, Las Vegas Courthouse. Try to pick up $50k from 5-6 large projects - this will help at closing."[110] Kerr responded, "Won't b[e] easy. Will get as close as possible."[111]The next day, Kerr wrote to Khara, "Ok. Got it to . . . EBITDA $1.5M."[112]

         Finally, LVI offers evidence regarding "Blue Cell Manipulations," by which Kerr allegedly tracked the adjustments he made to excel spreadsheets submitted by branch managers by highlighting numbers that he changed.[113] The evidence does not show that Khara or EPP were involved in this practice.[114] LVI suggests, nonetheless, that the pressure-including pressure from EPP personnel and Khara- to overstate NCM EBITDA inspired the adjustments represented by the Blue Cell Manipulations.

         b. EPP's and Khara's Roles in NCM's Financials Regarding the Alleged Fraudulent Projects

         In contrast to the evidence showing involvement in NCM's general accounting practices, evidence showing EPP's and Khara's involvement in NCM's allegedly fraudulent projects-the Apple, Pepco, Sunoco, and DuPont Hickory projects-is limited.[115]

         LVI alleges the Apple project experienced losses post-Merger because of an unreasonably low bid, unreported project delays, and aggressively underreported costs on the WIP schedules.[116] The evidence does not show that EPP or Khara directed or adjusted any financial statements related to the Apple project. Khara was involved in the project at a high level. He instructed that bidding on the project be "aggressive," but he also instructed that it should be "diligent," and "accurate."[117]He was aware of delays in the project's completion, but LVI was made aware of these delays prior to the Merger.[118] Finally, NCM's Regional Manager, Mike Canonica, knew that delays in reporting cost increases for the project on the WIP schedules would result in fade, and he made Khara aware of this issue.[119]

         LVI alleges that NCM's Warranted Financial Statements report inaccurate numbers regarding the Pepco project. No evidence suggests EPP was involved in financial statements related to the project. LVI offers one email sent by Khara that ties him to the project. In that email, Khara ordered the submission of a change order on the project with a "substantial margin on the claim to overcome shortfall in other areas," explaining in a subsequent email that it was "a good time to cover any shortfall in demolition/scrap etc."[120] After the Merger, NCM's project manager for Pepco testified that the project's numbers on the WIP schedules were inaccurate but he did not know who had adjusted them.[121]

         Regarding the Sunoco project, LVI's allegations center on the anticipated sale of a low sulfur gas furnace (the "LSG Unit"), a multi-million-dollar piece of machinery salvaged from the project site. LVI alleges that NCM fraudulently listed the sale of the LSG Unit as revenue to NCM when in fact the LSG Unit had not yet sold. Correspondence between LVI and NCM personnel shows that they discussed, prior to the Merger, treating the LSG Unit's potential sale as revenue on NCM's financial statements, despite the fact that it had not sold.[122] NCM, however, represented to LVI that it had a letter of intent covering the sale, thus justifying reporting the sale as revenue-in fact, the purported existence of an LOI was based on a statement by Khara, apparently unsupported by documentation.[123]

         Khara was involved in the Sunoco project and to some extent in the sale of the LSG Unit. While an early email between NCM personnel suggested the sale of the LSG Unit was "dead," Khara was not included on this email.[124] However, Khara was at least aware of the possibility that the LSG Unit would not be sold: he received two draft financial statements, one contemplating a sale of the LSG Unit, one without the sale included.[125] He also requested that the project manager for Sunoco confirm the WIP schedule numbers if the LSG Unit were not sold, and he then withheld part of the project manager's bonus based on the uncertainty of the sale.[126]As noted above, Khara ultimately told LVI that NCM had a letter of intent to cover the sale, but may have done so without supporting documentation.[127]

         In contrast to Khara's involvement, a single email connects EPP to the Sunoco project. On April 2, 2014, Manish Patel-a member of NCM's accounting group- emailed Brillon NCM's financial statements and reported projected and actual revenue and EBITDA for the month of February 2014.[128] The financial statements attached to this email included numbers related to the Sunoco project, but the email did not discuss the project.[129] In other words, nothing shows that issues regarding the sale of the LSG Unit ever reached EPP.

         LVI also alleges NCM fraudulently inflated earnings on the DuPont Hickory project. Some evidence shows that EPP and Khara were involved in financial statements related to DuPont Hickory. On November 26, 2012, Khara wrote to Bernardez, "Tim - we received the call for the award from DuPont estimated (with scrap) $15MM! Thanks."[130] Next, on October 1, 2013, Brillon wrote to Khara regarding NCM's August's financial results and asked, "Sage, is [this] the best we show for Aug, this is lower than what we were guiding the lenders to on the last lender call."[131] Khara forwarded this email to Kerr, and Kerr responded that he was able to increase EBITDA by, among other things, "Booking ... an additional $50k of income on the Dupont Hickory job."[132]

         5. NCM's Allegations Regarding LVI

         Through discovery, NCM has narrowed its allegations regarding LVI's allegedly fraudulent practices to six projects, referred to as the Holly Street, Alcoa, HECO, Foothill, Newark, and Lafayette projects.[133] Of these projects, Holly Street, Alcoa, and HECO account for around 90% of the dollar value of the alleged fraud.[134]LVI has moved for summary judgement that it is not liable for this alleged fraud. Each project presents a unique set of facts, and so I examine the evidence regarding each of the six projects individually below.

         One demolition term is important before proceeding: when a party demands additional compensation-for example, for performing work outside the original project scope, accruing unexpected costs, or when there is less scrap onsite than represented-the party seeking the additional compensation files a "contract claim." In the industry, these are referred to simply as "claims." To distinguish these claims from the legal claims that may subsequently arise out of them, I refer to these contract claims as "Change Orders."

         a. The Holly Street Project

         NCM alleges LVI committed fraud regarding the Holly Street project because it entered a subcontract knowing it would be unprofitable and then inflated earnings for the project based on a lawsuit it knew was not probable of collection, as required by GAAP. Holly Street involved the abatement, decommissioning, and demolition of a power plant for the City of Austin, Texas.[135] LVI served as subcontractor to the project's general contractor, TRC.[136] Under its September 2011 subcontract, LVI would receive $11.7 million, a figure that included $3 million in cash and $8.7 million in estimated scrap value recovered from the site.[137]

         As the execution of the subcontract approached, LVI expressed doubts that there would be sufficient levels of copper scrap on the demolition site to realize the estimated scrap value. On March 11, 2011-six months prior to executing the subcontract-LVI wrote to TRC that it was "unlikely that there is 950, 000 lbs. of copper remaining at the site."[138] The City of Austin offered to allow LVI to inspect the site for copper, but on June 22, LVI employee Michael Marcheschi warned CEO Scott State and COO John Leonard that if LVI inspected the site, it would be "conceding that [it] could verify [the scrap quantities]; we are going to get one day to find an additional 2.5 in scrap we didn't find in many days there."[139] On June 26, Marcheschi estimated that if LVI based its bid on the presence of $7.4 million of scrap value, then the Holly Street project could see as large as a $2.6 million shortfall in scrap. [140] Around this time, Marcheschi told State, "it was a bad idea to go forward with the contract with TRC."[141] Leonard was initially opposed to the contract as well until he conducted a site visit.[142]

         The next month, July 2011, TRC informed LVI that the City of Austin had indeed overstated the amount of copper at the site by 600, 000 pounds, and TRC interpreted its agreement with LVI as assigning LVI the risk of a scrap shortfall.[143]LVI disagreed and warned TRC that if it signed the general contract with the City of Austin, it was "absent any contract discussions on key provisions with [LVI]."[144]

         During the negotiations of the subcontract that followed, LVI and TRC adjusted the copper estimate in the subcontract downward from the City of Austin's initial representation of 950, 000 pounds to 320, 000 pounds.[145] LVI and TRC entered the subcontract on September 9, 2011.[146] The subcontract included a provision that contemplated the pursuit of "a Change Order based on actual scrap quantities being less than as stated in the Project Bid Documents. . . ."[147] In other words, LVI expected that the subcontract would protect its interests by giving rise to a request for a Change Order.[148] The parties dispute whether the subcontract between TRC and LVI guaranteed a minimum total scrap value.[149]

         Based on scrap shortfall that in fact occurred, as well as other issues that arose, LVI began discussing potential Change Orders with TRC more than a year before Merger discussions began.[150] On October 25, 2012, a project manager at LVI emailed Leonard, informing him that Holly Street was operating at a loss of $1.9 million.[151] This figure, according to the email, excluded "the claim for copper and CuNi" shortfall.[152] With damages from potential claims and Change Orders included, the job showed a profit of $200, 000.[153] Ultimately, LVI sued TRC for $9.6 million for its failure to pursue a Change Order with the site owner (the "TRC Claim").[154] LVI then discounted the claim, booking $4.9 million in revenue in 2013 based on the lawsuit.[155] LVI's auditor, Grant Thornton, concluded in its financial audit that LVI had a basis for its claim sufficient to recognize the revenue.[156]

         In 2017, the court hearing the TRC Claim denied TRC's motion for summary judgment, which TRC based on the argument that LVI had accepted the risk of shortfall because it had inspected the site.[157] In 2018, NorthStar-who by that point owned the litigation asset-settled the claims with TRC and received a payment of approximately $2.3 million.[158]

         b. The Alcoa Project

         NCM alleges LVI committed fraud regarding the Alcoa project because LVI's internal analysis, developed based on settlement offers with the site owner, showed lower gross profits and contract value than it represented in its Warranted Financial Statements. The Alcoa project was a demolition, remediation, and restoration project in Frederick, Maryland.[159] LVI and Alcoa signed the contract for the project on March 2, 2011.[160] Difficulties accrued with the project, including disputes over the scope of the work, additional costs allegedly caused by Alcoa, and interference with scrap recovery.[161]

         In February 2013, LVI informed Alcoa of Change Orders based on these disputes.[162] Beginning in July, LVI and Alcoa negotiated to reduce the scope of the project and the contract value through Change Orders.[163] LVI and Alcoa sent settlement offers based on the de-scope, and LVI developed internal analyses of the project's value and estimated gross profit based on the settlement offers.[164] Both the settlement offers that LVI sent to Alcoa as well as the internal analyses based on these offers indicate that LVI excluded the value of its claims against Alcoa from the settlement negotiations and its internal analyses.[165] In a "Counter offer and scope resolution" sent to Alcoa on October 28, 2013, LVI included an attachment labeled "LVI Counter Offer to Alcoa 8/28 Descope Settlement Offer."[166] In this attachment, it proposed that Alcoa owed a contract value to LVI of $777, 959.40, and it noted, "This number excludes LVI claims."[167] In contrast to this number, LVI developed an internal analysis that incorporated both the de-scoped project value as well as "Potential Claims," which resulted in a calculation that Alcoa owed LVI a contract value of $10, 055, 520.00."[168]

         Ultimately, on October 4, 2013, LVI sued Alcoa, seeking $10.1 million in damages (the "Alcoa Action").[169] In November, reacting to the lawsuit, Alcoa modified the project's scope.[170] LVI's internal analyses based on the settlement offers-discussed above-showed a negative gross profit; by contrast, LVI reported a positive gross profit on its November WIP schedule and year-end 2013 WIP schedule.[171] LVI also calculated the contract value at $22.9 million on its internal analyses, but it reported a contract value of $27.4 million to its financial accountant, Grant Thornton, and on its year-end financial statements.[172]

         LVI personnel testified they were confident in the claim's strength.[173]Ultimately, NorthStar settled the claim with Alcoa post-Merger for a small sum.[174]

         c. The HECO Project

         NCM alleges that LVI knew profits were fading in the HECO project but fraudulently delayed recognizing those losses until after the Merger. The HECO project involved asbestos abatement, demolition, and equipment removal for Hawaiian Electric Company, Inc.[175] LVI entered the contract on December 15, 2011 and began work in 2012, but it left the job in June 2012 due to difficulties with the site owner.[176] LVI then negotiated a Change Order, executed in December 2013, and returned to work on the site.[177] New problems developed soon after LVI's return, and it began to contemplate the need for another Change Order to address new costs.[178]

         LVI personnel sent several emails regarding the HECO project that NCM offers as evidence of fraud. On March 7, 2014, CEO Scott State forwarded an email to COO John Leonard about scrap prices to which he added, "Scrap starting to fade."[179] Leonard wrote back, "I know. Issue at Poletti."[180] Leonard then responded to State's email a second time, adding, "And HECO."[181] On March 11, CFO Paul Cutrone emailed personnel on the HECO project and requested that they "thin down" costs associated with accounts payable and bill payments and "push some to April" in order to "start managing quarter end balances."[182]

         On the date of the Merger, Cutrone emailed Leonard and State, noting, "We have deferred margin erosion on HECO."[183] Cutrone later testified he deferred margin erosion because of the opportunity to recover based on LVI's Change Orders with the site owner.[184] Finally, in May 2014, after the Merger, Joe Catania, the regional manager for the HECO project, asked Leonard if he could begin recording around $1 million total loss for the project, or "post the hit."[185] Leonard emailed back, "What?"[186] He testified his puzzlement stemmed from the fact that he expected the anticipated Change Order to give rise to claims that would keep the project profitable.[187]

         After the Merger, NorthStar's CFO, Jeff Adix, opined that HECO was overstated as of December 31, 2014 because the Change Orders did not properly give rise to revenue recognition under GAAP.[188] Adix also stated, however, that he would not consider HECO overstated as of the date of the Merger due to the project's history of successfully negotiating Change Orders.[189]

         d. The Foothill Project

         NCM alleges that LVI made baseless adjustments to the financial statements on the Foothill project, fraudulently inflating profits. The Foothill project was an abatement, demolition, and site clearing at the Foothill De Anza Educational Center.[190] LVI entered the contract on August 8, 2013.[191] It estimated the total contract value at $5 million, with $2.7 million in scrap value.[192]

         On February 20, 2014, a regional controller emailed LVI's Northern California Branch President, Michael Kinelski, to confirm that the estimated gross profit of $461, 000 reflected in the January 2014 WIP schedule was accurate.[193]Kinelski confirmed the accuracy the following day.[194] The regional controller then provided COO Leonard with the draft January WIP for Foothill on February 24, noting that "[Kinelski] forecasts the job to make 451k GP. As of Dec 2013 we reflectedjob to date [gross profits] of $819k. I'minthe process of finding additional [gross profits] from other Branches so we can adjust the job as of Dec."[195] LVI made upward adjustments to the WIP, and three days later the regional controller sent an email to Kinelski, noting, "We would like to adjust Foothill for Jan as follows," and showing a gross profit for the project of $878, 762.[196] Kinelski responded, "Ok with me."[197] The final January WIP recorded gross profits of $879, 000.[198] The adjustment carried over to February, resulting in a total increase of estimated gross profits from the draft WIP schedule of approximately $418, 000.[199]

         At his deposition, Kinelski testified that he expected the gross profit to be $460, 000, and that he could not identify a basis for the upward adjustment.[200] LVI claims the basis for the adjustment was a potential Change Order on the project.[201]

         e. The Newark Project

         The Newark project involved a partial demolition at the airport in Newark, New Jersey.[202] NCM alleges that LVI fraudulently included revenue for the Newark project based on a claim it knew it could not collect. LVI entered a subcontract in April 2012 with Jervis B. Webb Company for a fixed price of approximately $8.2 million.[203] LVI began to experience operational setbacks soon after the start of the project-prior to the Merger-and it had difficulty estimating its cost of completion.[204]

         LVI increased the Newark project's revenue based on a Change Order it internally viewed as likely unsuccessful.[205] In November 2013, LVI assembled plans to file a Change Order and increased the contract value by $500, 000 based on these plans.[206] The next month, LVI prepared to submit its Change Order for $640, 000.[207] Along with the draft, an LVI employee wrote, "Most of this is going to be disputed and shaky at best."[208] LVI employee Bowman then sent the draft claim to COO Leonard, noting, "As discussed, not a lot of confidence in this should we actually submit but this will get you to the number."[209] Bowman then sent the proposed Change Order to LVI Senior Vice President Frank Aiello, noting, "you can see by the emails attached that there isn't much confidence in any of this sticking."[210]

         Bowman continued to express serious doubts about the Change Order's strength.[211] The $500, 000 revenue remained on the fmancials through the Merger. In July 2014, Bowman told another employee that Newark was overstated by $500, 000 due to the inclusion of the claim.[212] In addition, LVI personnel had been told to refrain from adding monthly costs to the Newark project as they became known, thus "freezing" the margin until after the Merger.[213] In August 2014, following the Merger, LVI circulated a forecast of Newark's results and suggested that it needed to reverse out $500, 000 for the Change Order revenue by decreasing the total contract value.[214] Ultimately, LVI obtained $100, 000 on the Change Order, and after the Merger it revised the contract value down by $400, 000.[215]

         f. The Lafayette Project

         NCM alleges that LVI improperly delayed reporting known costs on the Lafayette project. Lafayette was an interior demolition and hazardous waste removal for historical buildings in the Washington D.C. area.[216] The branch manager for the project, David Rymers, emailed LVI's regional controller, Frank Rapuzzi, in March 2013 to identify issues concerning cost-overruns, estimation difficulties, and timing for recording losses.[217] The same month, Rapuzzi emailed CFO Paul Cutrone to inform him that the project had estimated additional costs of $300, 000 that had not been recorded.[218] In September 2013, Paul Cattan, another LVI regional controller, explained that for August 2013's project results, he utilized Rymers' percent-complete numbers, except in cases where using these numbers created a decrease in revenue for the month, in which case he changed to the prior month's percentage complete, to avoid recording losses.[219] Additionally, the January 2014 job cost report contained edits adding approximately $325, 283 in costs to the Lafayette project and noting the costs were "provided last month but not entered in Dec."[220] Finally, in November 2014-after the Merger-Rymers stated in an email to fellow LVI employees Paul Cattan and Richard Hubbs, "Recall I had a $560k loss for [Lafayette] estimated that I wanted to project at end of 2013 and was told to reverse in dec 2013 and recognize sometime in 2014. [] But to date we have not."[221]

         6. Post-Merger Events

         NorthStar, starting soon after the Merger, performed poorly. Following the formation of the new company, four LVI directors served on NorthStar's seven-member board of managers.[222] LVI's CEO, Scott State, continued on as CEO of NorthStar, while NCM's CEO, Khara, became President and a member of the NorthStar Board of managers.[223] NorthStar experienced a personnel shakeup as it executed planned rearrangements following the Merger.[224] In addition, it closed several NCM branch offices as well as NCM's National Business Center.[225]

         Problems also arose with projects post-close. Losses and write-offs emerged from LVI and NCM legacy projects.[226] In addition, NorthStar entered many new projects that saw costs in excess of expected revenue.[227] A trough in the market price of scrap metal led to additional declines in revenue due to lower-value resales of scrap from demolition projects.[228] As an added trouble, the ongoing litigation between LVI and NCM delayed company audits, which in turn made NorthStar noncompliant with certain lending covenants and damaged its ability to secure bonds.[229] This, in turn, negatively impacted its ability to bid on new jobs.[230]

         LVI and NCM put NorthStar up for sale in October 2016.[231] During the sale process, based on its business performance, NorthStar reduced its financial forecasts several times.[232] As a result, many bidders dropped out, and in June 2017, LVI and NCM sold their equity stakes in NorthStar to JF Lehman for a "zero cash equity return" for either company.[233]

         C. Procedural History

         This case has a long and somewhat tortuous procedural history. I focus only on procedure pertinent to the four motions addressed in this Memorandum Opinion.

         LVI filed its original complaint on March 3, 2016, against NCM and Khara.[234]NCM responded on April 4, 2016 with a counterclaim against LVI and a third-party complaint against Scott State, Paul Cutrone, and NorthStar.[235] NCM amended its counterclaim and third-party complaint, and on August 23, 2016, LVI, State, Cutrone, and NorthStar all moved to dismiss.[236] On March 29, 2017, I granted the motions to dismiss with regard to the derivative claims but denied the motions to dismiss regarding fraud claims.[237]

         On May 3, 2017, LVI filed an amended complaint, adding the EPP entities as a defendants.[238] On May 23, EPP moved to dismiss LVI's amended complaint.[239] I largely denied EPP's motion to dismiss on March 28, 2018.[240] On April 10, 2018, NCM filed a second amended counterclaim, adding LVI Parent as a counter- defendant.[241] Several months later, on June 29, 2018, NCM and LVI each voluntarily dismissed their indemnity claims against the other.[242] NCM, EPP, Khara, LVI, LVI Parent, and Scott State all moved for summary judgment in June and July 2018.[243] I held oral argument on the motions for summary judgment on November 28, 2018.[244]

         Shortly after that argument, on December 6, 2018, NCM filed a third amended counterclaim, adding Brian Simmons, Robert Hogan, and CHS Private Equity V LP as counter-defendants.[245] The CHS counter-defendants moved to dismiss on December 20, 2018.[246] The CHS counter-defendants then moved for summary judgment on May 31, 2019.[247] After briefing completed on these latest motions, I heard oral argument on September 4, 2019 on the CHS counter-defendants motions to dismiss and for summary judgment.[248] What follows is my decision resolving the four motions for summary judgment filed on June 29 and 30, 2018 by NCM, EPP, Khara, LVI, and LVI Parent.[249] My reasoning follows.

         II. ANALYSIS

         Summary judgment may be granted if there is "no genuine issue as to any material fact" and the moving party is "entitled to a judgment as a matter of law."[250] The Court "must view the evidence in the light most favorable to the non-moving party."[251] 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."[252] This requires the non-moving party to "set[] forth specific facts demonstrating that there is a genuine issue for trial."[253] Of special importance in the context of claims for fraud, "[w]hen an ultimate fact to be determined is one of motive, intention or other subjective matter, summary judgment is ordinarily inappropriate."[254] Nonetheless, when evidence of scienter is absent from the record, summary judgment may be appropriate.[255]

         Regarding contracts, summary judgment is unavailable if evidence is required to resolve ambiguities; that is, if the contractual language is "fairly susceptible [to] different interpretation[s]."[256] This does not negate the fact that "the intent of the parties as to its scope and effect are controlling, and the court will attempt to ascertain their intent from the overall language of the document."[257]

         A. LVJ's Motion for Summary Judgment

         LVI has moved for summary judgment on NCM's allegations of fraud and fraudulent inducement. The elements of the two claims are the same:

(1) the defendant made a false representation; (2) the defendant knew the representation was untrue or made the statement with reckless indifference to the truth; (3) the defendant intended for the plaintiff to rely on the representation; (4) the plaintiff justifiably relied on the representation; and (5) the plaintiff suffered causally related damages.[258]

         In the Contribution Agreement, LVI represented that the Warranted Financial Statements disclosed the financial position of its businesses in accordance with GAAP.[259] NCM's allegations of fraud regarding six LVI projects center largely on two GAAP violations: (1) reporting claims or Change Orders as revenue when they were not probable of collection, and (2) delaying reporting losses when the losses were known.[260] To survive this motion for summary judgment, therefore, NCM must offer some evidence from which I may conclude that (1) the Warranted Financial Statements were not GAAP compliant, (2) LVI knew they were not GAAP compliant, and (3) LVI nonetheless intentionally offered them to induce NCM's reliance (in this case, to enter the Merger).

         Each of the six LVI projects presents a unique set of facts and operates as a motion-in-miniature. As noted above, for the purposes of deciding the motion, I view the facts in the light most favorable to NCM, not weighing the evidence but drawing all reasonable inferences in its favor. In discussing the projects and the related allegations of fraud below, I will not repeat a full description of each project, which is provided in the Background section of this Memorandum Opinion in dolorous detail. Based on a review of the projects, I find summary judgment is warranted on the Alcoa project, and it is not warranted for the Holly Street, HECO, Foothill, Newark, and Lafayette projects. My reasoning follows.

         1. The Holly Street Project

         In the Holly Street project, LVI subcontracted the demolition of a power plant in Texas. When a scrap shortfall occurred, LVI sued the general contractor for $9.6 million and-relying on the value of this lawsuit-booked revenue of $4.9 million. LVI's fraud, according to NCM, is that it knew this claim was not probable of collection because it anticipated the scrap shortfall beforehand.

         The parties agree on most of the facts. LVI anticipated a shortfall early on and remained skeptical about the amount of scrap. By July 2011, the site owner admitted scrap was overstated, but the general contractor nonetheless entered a contract with the site owner. LVI negotiated its subcontract to reflect a reduced- and more realistic-amount of scrap on the site and to contemplate a Change Order in the event of what by that point was an anticipated scrap shortfall.[261] When the shortfall occurred, the general contractor refused to pursue a Change Order with the site owner, and LVI sued the general contractor under the subcontract for this failure. At the end of 2013, LVI's financial auditor concluded that LVI had a basis sufficient under GAAP to recognize revenue from the claim.[262]

         The parties disagree on several facts, however, and drawing conclusions in NCM's favor, as I must, I find three disputed facts material, precluding summary judgment here. The parties' disagreements center on the strength of LVI's claim and the contractual protections afforded by the subcontract. First, the parties disagree over whether the subcontract provided LVI with a guaranteed minimum value of scrap. NCM points out that LVI's auditor told it shortly before the Merger that it reviewed the subcontract and did not see "an obligation" of minimum scrap value from the general contractor or the site owner; by contrast, LVI personnel all testified that the subcontract did provide a guarantee minimum scrap.[263] Second, the parties disagree over whether the subcontract gave LVI a firm basis to pursue a Change Order, when the general contractor's agreement with the site owner did not guarantee a Change Order in case of a shortfall. In other words, did LVI enter its subcontract knowing that when the shortfall occurred, the general contractor would be obliged to pursue a Change Order with the site owner without a contractual basis with the site owner on which to rely? Third, the parties dispute whether LVI assumed the risk of a shortfall in the subcontract. While post-merger litigation shows the subcontract did not clearly allocate the risk, this only reinforces the conclusion that at the time it entered the subcontract, LVI did so without a clear contractual right to avoid such a risk.

         These three disputes raise factual issues of whether LVI booked the revenue in good faith or whether it booked the revenue despite a belief that it did not have the contractual or legal protections to vindicate its claim, in order to induce a favorable merger. These disputed facts ultimately go to whether LVI had knowledge of an improper financial statement and nonetheless represented otherwise to NCM.

         While the evidence suggests-and LVI's testimony and the opinion of its auditor corroborates-that there may have been ample basis to support its representations, I cannot as a matter of law disregard the facts tending to prove otherwise. In other words, the inferences from which I conclude that NCM may prove this claim are weak, but sufficient.

         2. The Alcoa Project

         In the Alcoa project, LVI contracted for demolition work at Alcoa's site in Frederick, Maryland. This project was contentious, leading to LVI's claim that Alcoa had violated its contract with LVI in a variety of ways and that Change Orders were due. After LVI sued Alcoa, it showed the project as profitable on its financial statements. By contrast, internal analyses based on settlement offers with Alcoa stated a number that showed the project at a loss. NCM argues this discrepancy shows an intentional inflation of earnings that amounts to fraud. Nonetheless, the undisputed facts show that LVI is entitled to a judgment.

         Following the commencement of its lawsuit against Alcoa seeking $10.1 million, LVI recorded a total contract value on its 2013 year-end financial statements of $27.4 million with $3 million in gross profit.[264] LVI's internal analyses showed a contract value of $22.9 million, with a negative gross profit. The settlement offers sent to Alcoa reflect this lower value, but when stating the "Contract Value Owed to LVI," one of the offers specified that this amount "excludes LVI claims."[265] This suggests that the internal analyses based on these settlement offers also excludes the value of the claims. This conclusion is corroborated by a further internal analysis that adds the reduced project value together with LVI's potential claims and shows a contract balance due from Alcoa of $10, 055, 520.[266] NCM contends this internal analysis cannot support summary judgment because "[t]here is no evidence that the numbers in that document had any basis in fact or any verifiable support."[267]Countering the veracity of the numbers, however, does not create a material dispute that anything other than the exclusion of LVI's claims against Alcoa caused the discrepancy between the year-end financial statements on the one hand, and the settlement offers and the internal analyses based on those offers on the other hand. Even viewing the evidence in the light most favorable to NCM, I find this to be the reasonable conclusion.

         NCM contends that even if the discrepancy is explained by LVI's claim, there remains a question of fact about whether the accounting for the claim was proper. But this does not raise a material fact about whether LVI committed fraud. NCM does not offer any evidence that anyone at LVI doubted the strength of its claim or any evidence that they should have doubted it; in fact, the evidence suggests that LVI personnel, including its General Counsel, believed in the claim's strength.[268] In sum, even viewing the facts in the light most favorable to NCM, there is no evidence presented that suggests an improper inflation of gross profits or contract value. Nor is there evidence presented that suggests reporting the lawsuit as revenue on the year-end financial statements not only violated GAAP, but from which I may infer that LVI knew it violated GAAP and offered it to NCM nonetheless.

         3. The HECO Project

         The HECO project required LVI to demolish a power plant in Hawaii, and the contract price included scrap value estimates that were not fulfilled. NCM offers four email exchanges as evidence of fraud on the HECO project, arguing that LVI understood the project to be a loss but nonetheless deferred the loss until after the Merger. While the evidence is scant, it nonetheless creates an issue of material fact. Resolving that factual issue in favor of NCM, I cannot say, as a matter of law, that fraud is precluded.

         In the first exchange, CEO Scott State wrote to COO John Leonard, "scrap starting to fade"; Leonard wrote back, "I know. Issue at Poletti"; then Leonard responded again, adding, "And HECO."[269] This is not, as NCM argues, an ambiguous exchange. Leonard's first response notes that fading scrap prices are an issue at Poletti. His second email notes that fading scrap prices are also an issue at HECO. NCM's interpretation-that Leonard was signaling not only that HECO fmancials were fading but also that he understood LVI would be operating at a loss with respect to HECO-unreasonably stretches the evidence. I do not find that this evidence implies fraud on the part of LVI. Likewise, in the second email exchange, LVI's CFO, Paul Cutrone, requested that costs be "thinned down" and pushed to April, but this fails to imply fraud.[270] This email related to accounts payable and cash flow, and there is no indication that it affected revenue reporting.

         The final two email exchanges, however, viewing the evidence in the light most favorable to NCM, create issues of material fact, if narrowly, that preclude summary judgment. Cutrone wrote to Leonard and State on the date of the Merger, "We have deferred margin erosion on HECO."[271] Following the Merger, LVI employee Joe Catania asked Leonard if he could "post the hit," meaning record around $1 million total loss for the HECO project that had been deferred.[272] LVI argues that Leonard's one-word response-"What?"-is exculpatory, but I find it insufficient to establish that Leonard expected in good faith that anticipated claims would keep the project profitable.[273] Similarly, Cutrone's later deposition testimony that he deferred margin erosion because of the opportunity to recover based on LVI's claim, on a cold record, is insufficient to resolve a factual dispute over whether LVI knew it had losses on the HECO project and intentionally delayed stating them on the fmancials until after the Merger.

         These latter two exchanges, again narrowly, create an issue of material fact about whether LVI knew about a loss prior to the merger but intentionally delayed reporting it in violation of GAAP. Thus, as a matter of law, I cannot grant summary judgment.

         4. The Foothill Project[274]

         The Foothill project required LVI to demolish a school. NCM argues that LVI intentionally and artificially inflated gross profits for the Foothill project on the January 2014 WIP, which then improperly carried over into the Warranted Financial Statements ending in February 2014. The parties cite to different parts of the record and construe email exchanges in different ways, but the evidence shows a dispute of material fact that precludes summary judgment on the Foothill project.

         The record shows that LVI employee Michael Kinelski received the first draft for the January WIP schedule from a regional controller, and he approved numbers reflecting a gross profit of $460, 000.[275] These numbers were passed on to COO Leonard.[276] Someone at LVI-the record is unclear who-made a significant upward revision to the gross profit in the WIP schedule.[277] The regional controller sent a second draft to Kineslki, writing, "We would like to adjust Foothill for Jan as follows," and this draft stated gross profits of $878, 762.[278] Kinselski approved the numbers, writing back, "Ok with me."[279]

         The disputed material fact is whether there was any basis for the adjustment. LVI states the basis for the adjustment was a Change Order, and it cites to Kinelski's deposition. In the passage LVI cites, Kinelski is discussing emails between himself and the regional controller dated July 16, 2014: "at this time we were well underway with claim at a project called the Blue Cube at Foothill... we were well underway and we had claims with our owner, our customer, as well as a subcontractor. . ."[280]LVI does not offer evidence, however, showing that the Foothill Change Orders discussed in Kinelski's deposition regarding emails sent in July 2014 served as the basis for the adjustment to gross profit in the January and February WIP schedules. It is unclear whether these later emails explain or relate to the adjustments. NCM, in turn, cites to another passage in Kinelski's deposition in which he states he did not know who adjusted the profits from $460, 000 to $878, 000, that he had not expected such a change, and that he was unaware of any changes on the Foothill project that would have given rise to the adjustment.[281]

         In sum, while a factfmder might agree with LVI that the adjustment was part of a healthy give-and-take over numbers, the parties have a dispute of material fact as to whether the adjustment to gross profits for Foothill had any basis to justify it. Resolving this issue in favor of NCM, it is reasonable to infer that LVI knew it was an artificial inflation that could not be achieved, and nonetheless fraudulently stated the inflated figure in its Warranted Financial Statements.

         5. The Newark Project

         The Newark project involved an LVI contract to demolish airport baggage-handling equipment. The undisputed evidence shows that LVI recorded revenue of $500, 000 based on a planned Change Order.[282] LVI personnel on the project saw the claim as shaky, unfounded, and unlikely to stick.[283] They communicated this message, but the revenue nonetheless remained on the financial statements until after the Merger, at which time LVI reversed its value by $400, 000.[284] LVI essentially argues that because the Newark job team "was failing spectacularly," their judgment on the claim's worth was suspect and reasonably omitted from the financial reporting. That is one inference, but the instant motion requires me to consider another; the inference that LVI maintained the revenue despite a clear message from its employees closest to the project that the claim was not as valuable as reported. An issue of material fact remains as to whether LVI intentionally maintained artificially inflated revenue until after the Merger, and thus knew its Warranted Financial Statements violated GAAP.

         6. The Lafayette Project

         LVI undertook the Lafayette project in connection with renovation of historic properties in the District of Columbia. The parties dispute four material facts about whether LVI intentionally misstated its financial statements, thus precluding summary judgment for the Lafayette project. First, LVI employee Rappuzi emailed CFO Paul Cutrone in March 2013 and told him that the project had incurred $300, 000 in unreported costs.[285] The parties dispute whether the Warranted Financial Statements properly reflect these known costs. Second, in August 2013, another LVI employee, Cattan, stated that he was switching accounting methods with the intent to show more revenue.[286] The parties dispute whether this caused the improper reporting of revenue on the financial statements. Third, $325, 000 in costs for December 2013 were not reported until January 2014 without explanation, which affected the 2013 Warranted Financial Statements.[287] Fourth and finally, yet another LVI employee, Rymers, testified that he was instructed to reverse a known loss at the end of 2013 and delay reporting it until 2014. The parties dispute whether Rymers followed these instructions, and thus whether this known loss was intentionally delayed until after the Merger.[288]

         Thus, the parties disagree about whether known costs went unreported, whether LVI personnel intentionally manipulated accounting methods to artificially inflate profits, whether an unexplained delay in reporting over $325, 000 in costs had any basis, and whether LVI improperly and intentionally delayed reporting an additional $560, 000 in costs. LVI's argument that these "minor alleged discrepancies" may not even have been reviewed by LVI senior management does not warrant summary judgment when NCM has offered evidence that could create, at this stage, an inference of intentional improper misstatement of fmancials.

         B. NCM and EPP's Motion for Summary Judgment

         EPP has moved for summary judgment on LVI's claims for fraud, fraudulent inducement, conspiracy to commit or aiding and abetting fraud, and unjust enrichment.[289] NCM joins EPP's motion as it relates to the timeliness of LVI's fraud claims. NCM has not moved for summary judgment on the underlying allegations of fraud against it.

         1. LVI's Fraud Claims are not Time-Barred

         NCM joins with EPP in arguing that LVI's fraud claims are not timely under a plain reading of the Contribution Agreement. At the summary judgment stage, "the intent of the parties as to [a contract's] scope and effect are controlling, and the court will attempt to ascertain their intent from the overall language of the document."[290] Summary judgment is only denied if the contractual language is "fairly susceptible [to] different interpretation[s]," requiring evidence to resolve ambiguities.[291] Moreover, "Contract terms are not ambiguous merely because the parties to the contract disagree."[292]

         NCM and EPP base their argument on § 5.1(c), "Timing of Claim," a provision that relates to the survival of the representations and warranties for the Warranted Financial Statements. That section provides:

Notwithstanding the foregoing in this Section 5.1, any representation or warranty in respect of which indemnity may be sought under Section 5.2 below, and the indemnity with respect thereto, will survive the time at which it would otherwise terminate pursuant to this Section 5.1 if notice of the inaccuracy or breach or potential inaccuracy or breach thereof giving rise to such right or potential right of indemnity will have been given to the party against whom such indemnity may be sought prior to such time (regardless of when the Losses in respect thereof may actually be incurred).[293]

         According to the Defendants, this provision permits the survival of indemnity claims only. Under the Defendants' argument, the provision's express references to indemnity-particularly, "and the indemnity with respect thereto"-mean that the provision only allows the survival of indemnity claims. For all other causes of action, the representations and warranties expire. If the parties wanted other causes of action to survive, the Defendants argue, they would have said so by including a phrase such as "and all other remedies with respect thereto" rather than "and the indemnity with respect thereto."

         LVI, by contrast, argues that this misses the point of § 5.1(c). The provision, it argues, is cumulative: if notice of inaccuracy or breach is timely filed, then the representations and warranties survive, and the related indemnity also survives. If the parties meant for other remedies to expire, they would have said so.

         I do not find the contract ambiguous. Section 5.1(c) concerns the survival of representations and warranties. It defines the scope of the representations and warranties as those "in respect of which indemnity may be sought."[294] It also provides that the indemnity itself will survive with the representations and warranties.[295] I read the provision as doing exactly what it purports to do, and nothing more. The fact that the parties did not mention fraud cannot be read as an intent to cause potential fraud claims to expire. In other words, the warranties have not expired, and if those warranties were fraudulent, a fraud action remains contractually viable.

         The language in the Contribution Agreement's remedies clause treats fraud separately from indemnification. That provision limits remedies to "(i) the indemnification provisions contained in this Article 5, (ii) the provisions of Section 5.6 [specific performance] and (iii) claims for fraud against the Person who committed such fraud."[296] In other words, fraud is not contained by the Contribution Agreement in the same way indemnification and specific performance are, nor does the contract limit fraud claims to the parties to the Agreement. Given this treatment, the explicit extension of the right to indemnification upon notice of a claim is necessary to preserve that right. As such, it does not imply an intent to extinguish fraud claims based on the warranties. Section 5.1 (c) does not imply a positive intent to extinguish the otherwise-broad remedy for fraud and preserves fraud actions based on the representations and warranties thereby preserved.

         In sum, § 5.1(c) operates to preserve the representations and warranties if notice is timely given, and it also preserves the indemnity related to those representations and warranties. I find that the parties did not express the intent, in light of the contract as a whole, to extinguish the fraud cause of action by leaving it out of the survival clause in § 5.1(c). Therefore, summary judgment on this argument is denied.

         2. EPP is Entitled to Summary Judgment for Fraud and Fraudulent Inducement

         "The elements of fraudulent inducement are the same [as] those of common law fraud."[297] As I have described, to demonstrate fraud, a plaintiff must show:

(i) a false representation, (ii) the defendant's knowledge of or belief in its falsity or the defendant's reckless indifference to its truth, (iii) the defendant's intention to induce action based on the representation, (iv) reasonable reliance by the plaintiff on the representation, and (v) causally related damages.[298]

         EPP's motion does not seek summary judgment on the underlying fraud allegations against NCM; rather, EPP argues that summary judgment is warranted because the evidence does not show that it made or caused NCM to make the false representations, and thus LVI cannot show that EPP committed fraud with regard to the Merger.

         LVI's evidence regarding EPP falls generally into two buckets. The first bucket is evidence purporting to show that EPP played a high-level role in NCM's accounting practices and participated in or directed earnings mismanagement. The second bucket is evidence purporting to show that EPP played a role in the Warranted Financial Statements or in the fmancials associated with the four alleged fraudulent projects. To put it plainly, the first bucket is heavy, and the second bucket is light. EPP argues that I should entirely disregard any evidence that does not specifically tie EPP to those four projects or the Warranted Financial Statements. I disagree: the evidence regarding EPP's general role inNCM's accounting practices is circumstantial evidence that is relevant, particularly with respect to the inferences that I must draw at this stage of the proceedings.

         I find that LVI does not meet its burden to put forward evidence on the first prong of fraud, in other words, to show that EPP made a false representation. After I denied EPP's earlier Motion to Dismiss this claim, the parties engaged in extensive discovery, but even after discovery, the record does not contain any evidence showing that EPP-a separate entity from NCM-made or directly caused NCM to make the false representations at ...


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