James T. Kowatch v. ACI Learning Holdings, LLC

majority opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

JAMES T. KOWATCH, JAMES N. )

KOWATCH, DONALD SCHEELER, )

BRP2 LLC, and NPVI, LLC, )

)

Plaintiffs, )

)

v. ) C.A. No. 2025-1398-SKR

)

ACI LEARNING HOLDINGS, LLC, )

INFOSEC LEARNING, INC. (f/k/a) )

ISL INTERMEDIATE, LLC, )

BOATHOUSE CAPITAL LP, )

BOATHOUSE CAPITAL )

CONTINUATION FUND LP, )

and CHONG MOUA, )

)

Defendants. )

Submitted: May 22, 2026

Decided: August 13, 2026

MEMORANDUM OPINION AND ORDER

Upon Consideration of

Defendants’ Motion to Dismiss the Complaint:

GRANTED-IN-PART AND DENIED-IN-PART

Allison M. Neff, Esquire, SAUL EWING LLP, Wilmington, DE, Stephen Ma, Esquire, SAUL EWING LLP, Los Angeles, CA. Attorneys for Plaintiffs.

Aaron E. Moore, Esquire, MARSHALL DENNEHEY, P.C., Wilmington, DE, Josh J.T. Byrne, Esquire, MARSHALL DENNEHEY, P.C., Philadelphia, PA, Attorneys for

Defendants.

Rennie, J.1

Sitting as a Vice Chancellor of the Court of Chancery by designation.

I. INTRODUCTION

In December 2023, Plaintiffs sold their cybersecurity company to Defendants

in exchange for cash, two earnouts, and equity in the acquiring company. Because

the value of the earnouts and the equity depended on the acquiring company’s

success, Plaintiffs conducted due diligence. During this process, Defendants

provided a spreadsheet that allegedly misrepresented the company’s earnings.

Further, they failed to disclose that, just weeks before closing, they were notified

that a government program accounting for 40% of the company’s revenue was

“exhausted” and that the company could no longer onboard new participants.

Separately, after closing, Defendants executed a series of transactions

allowing purported insiders to purchase new shares in the acquiring company on

overly favorable terms, which diluted Plaintiffs’ equity.

Plaintiffs sued for fraud and breach of fiduciary duty, and Defendants now

move to dismiss. The results are mixed. Defendants correctly argue that the

misrepresentations were extracontractual; however, only two of the parties’ three

agreements contain anti-reliance language. Because the Share Purchase Agreement

lacks such language, the fraud claims may proceed on that basis. Therefore, as to the

fraud-related claims, the Motion is GRANTED in part and DENIED in part. Because

Plaintiffs fail to sufficiently allege either a direct or derivative claim, the Motion is

GRANTED as to the breach of fiduciary duty claims.

II. BACKGROUND 2

A. The Parties

This case arises out of the December 6, 2023, acquisition of Infosec Learning,

Inc. (“Infosec”), a Colorado-based cybersecurity company,3 by Defendant ACI

Learning Holdings, LLC (“ACI”).4 Prior to the acquisition, Infosec was owned by

Plaintiffs James T. Kowatch; James N. Kowatch; Donald Scheeler; BRP2 LLC; and

NPVI, LLC (collectively, “Plaintiffs”). 5

ACI, the acquirer, is a portfolio company. 6 At the time of the acquisition its

managing member was Defendant Boathouse Capital LP (“Boathouse Capital”).7

Shortly after the transaction, Boathouse Capital was replaced as managing member

by Defendant Boathouse Capital Continuation Fund LP (“Boathouse CCF” and,

together with Boathouse Capital, “Boathouse”). 8 Defendant Chong Moua (“Moua”)

serves as the chair of ACI’s board and is managing partner of both Boathouse

entities.9

The facts are drawn from the well-pled allegations in the Verified Complaint (the “Complaint”) (Docket Item (“D.I.”) 1) [hereinafter “Compl.”], as well as the parties’ Stock Purchase Agreement (the “SPA”) (D.I. 15 Ex. B) [hereinafter “SPA § __”] incorporated therein.

Compl. at ¶¶ 11, 18.

Id. at ¶ 1.

Id. at ¶¶ 5–9.

Id. at ¶ 19.

Id. at ¶ 12.

Id. at ¶ 13.

Id. at ¶ 14.

B. The Acquisition

On December 6, 2023, (the “Closing”) the parties executed a Stock Purchase

Agreement (the “SPA”). 10 In exchange for their equity in Infosec, Plaintiffs received

$9,500,000 in cash at closing and the opportunity to earn up to $6,500,000 across

two earnouts (the “2023 Earnout” and “2024 Earnout”). 11 Concurrently with the

execution of the SPA, Plaintiffs James T. Kowatch and BRP2 LLC (the “Rollover

Plaintiffs”) rolled over a portion of their proceeds into ACI equity valued at

$4,000,000 (the “Rollover Equity”), pursuant to two separate rollover agreements

(the “Kowatch Rollover Agreement” and the “BRP2 Rollover Agreement,” together

the “Rollover Agreements”). 12

Two provisions of the SPA are relevant to the pending motion. Section 5.6 of

the SPA (“Section 5.6”) contains a general release and waiver that Defendants

contend bars Plaintiffs from asserting fraud claims arising out of the negotiation,

execution, or performance of the SPA.13 Section 5.6 also contains a representation

by Plaintiffs that they possessed adequate information to make an informed

investment decision, investigated all facts and claims to their satisfaction, and

Id. at ¶ 2.

Id. at ¶ 20.

Id. at ¶¶ 2, 27–28 (providing details).

SPA § 5.6.

assumed the risk of “unknown or anticipated” claims that, if known at Closing, may

have materially affected their decision to enter the SPA. 14

Additionally, Section 4.7 of the SPA states that the buyers make no express

or implied representations or warranties, including as to the “accuracy or

completeness” of any information furnished regarding ACI or as to ACI’s “future

revenue, profitability, or success[.]”15 Finally, the Rollover Agreements contain

express anti-reliance language, providing that each Rollover seller “relied solely

upon its own investigation and the express representations and warranties” set forth

therein.16

C. The Due Diligence Deceptions

The transaction began in earnest three months prior to Closing, when the

parties executed a Letter of Intent and commenced due diligence. 17 Plaintiffs allege

that, during the due diligence period, Defendants committed two forms of fraud

through both affirmative misrepresentations and material omissions.

First, on October 9, 2023, Moua circulated a financial workbook detailing

ACI’s historical performance over the preceding five years, including its earnings

before interest, taxes, depreciation, and amortization (“EBITDA”) (the “Investment

SPA §§ 5.6(d), (e).

Id. at § 4.7.

See Section 4(m) of each Rollover Agreement.

Compl. ¶¶ 20–22.

Workbook”).18 The Investment Workbook represented that ACI’s 2022 EBITDA

was $14.1 million.19 However, on December 11, 2023, five days after Closing, ACI

issued its October 2023 Financial Statements (the “Financial Statements”). 20 These

financial statements revealed that the Investment Workbook had significantly

overstated ACI’s historical earnings. Specifically, while the Investment Workbook

reflected a 2022 EBITDA of $14.1 million, the Financial Statements revealed the

actual figure was $6.9 million.21 Similarly, ACI’s trailing twelve-month adjusted

EBITDA as of May 2023 was adjusted downward from the $13.9 million

represented in the Investment Workbook to $8.3 million.22 Plaintiffs allege that in

July 2025, Moua explained that certain ACI executives had improperly recorded

prospective business as earned revenue in the Investment Workbook, an error that

was allegedly discovered and corrected by the time the Financial Statements were

issued.23

Second, Plaintiffs alleged fraud by omission regarding a federal program

known as “VET TEC,” which historically accounted for approximately 40% of

Id. at ¶¶ 25, 41.

Id. at ¶ 42.

Id. At oral argument, Defendants’ counsel incorrectly stated that Plaintiffs received the Financial Statements before Closing. Oral Argument Transcript (D.I. 30) at 6:14 and 10:13–18. 21

Id.

Id. at ¶ 43.

Id. at ¶ 58.

ACI’s revenue.24 In August 2023, prior to executing the Letter of Intent, Defendants

learned that the VET TEC program would be discontinued in April 2024.25

Thereafter, in November 2023, immediately preceding the Closing, the federal

government notified Defendants that VET TEC’s funding was exhausted, and

directed ACI to cease onboarding new contracts under the program.26 Defendants

did not disclose these developments.27 Consequently, Plaintiffs remained unaware

of VET TEC’s termination until after Closing.28

D. The Rollover Equity Dispute

In addition to their pre-Closing fraud claims, Plaintiffs allege that Defendants

intentionally diluted the Rollover Equity through a series of post-Closing corporate

restructurings. In early 2024, Defendants executed an internal “continuation vehicle”

transaction that transferred control of ACI from Boathouse Capital to Boathouse

CCF and authorized the issuance of new ACI equity units (the “ACI CV

Transaction”). 29 In April 2024, Defendants provided the Rollover Plaintiffs with a

revised capitalization table and an amended ACI operating agreement.30 These

Id. at ¶ 52.

Id.

Id. at ¶ 53.

Id. at ¶ 52.

Id. at ¶ 29.

Id. at ¶ 32.

documents disclosed that: (i) preferred units senior to the common stock (such as the

Rollover Equity) had been created and were entitled to priority distributions, (ii) an

“equity incentive plan” had been moved into ACI, and (iii) the Rollover Plaintiffs’

stake in ACI had fallen from 3.49% to 2.82%. 31

In November 2024, the Rollover Plaintiffs received a further amended

operating agreement, establishing Class A and Class B preferred stock. 32 These

senior units carried liquidation preferences of approximately $65,000 and $36,000

per-share, respectively, which required complete satisfaction before any

distributions could be made to common stockholders.33

Finally, in July 2025, ACI issued unsecured convertible promissory notes to

Boathouse affiliates (“Convertible Notes”). 34 These notes convert into Class A

preferred units, an event Plaintiffs allege will be highly dilutive to ACI’s minority

members.35

In sum, Plaintiffs allege that Defendants utilized these preferred equity

structures to issue senior securities to Boathouse and its affiliates on preferential

Id. at ¶ 33.

Id. at ¶ 36.

Id.

Id. at ¶ 37.

Id.

terms, systematically diluting the Rollover Plaintiffs’ economic interests and

subordinating their distribution priority. 36

E. Procedural History

Plaintiffs filed their Verified Complaint on December 2, 2025,37 asserting five

causes of action: (“Count I”) common law fraudulent inducement against all

Defendants for misrepresentations and omissions made during due diligence;38

(“Count II”) negligent misrepresentation against Boathouse and Moua for the same

due diligence conduct;39 (“Count III”) breach of fiduciary duty against Boathouse

and Moua for diluting the Rollover Plaintiffs’ ACI shares through the ACI CV

Transaction and subsequent transactions;40 (“Count IV”) aiding and abetting

breaches of fiduciary duty against ACI and Infosec; 41 and (“Count V”) civil

conspiracy to commit both fraud and breach of fiduciary duty against all

defendants. 42

On January 28, 2026, Defendants filed their Motion to Dismiss the Complaint

(the “Motion”).43 Plaintiffs filed their response on February 27, 2026 (the

Id. at ¶ 39.

Id. at ¶ 1.

Id. at ¶¶ 60–69.

Id. at ¶¶ 70–79.

Id. at ¶¶ 80–86.

Id. at ¶¶ 87–92.

Id. at ¶¶ 93–96.

See Motion (D.I. 15) [hereinafter “Mot.”].

“Answering Brief”),44 and Defendants filed their reply on March 13, 2026 (the

“Reply Brief”).45 The Court heard oral argument on May 22, 2026. 46

III. LEGAL STANDARD

When considering a motion to dismiss for failure to state a claim upon which

relief can be granted under Court of Chancery Rule 12(b)(6), this Court applies a

plaintiff-friendly pleading standard. 47 The Court accepts as true all well-pleaded

allegations as true and draws all reasonable inferences in favor of the plaintiff.48

Dismissal is warranted only if the plaintiff would not be entitled to recover “under

any reasonably conceivable set of circumstances.”49

IV. ANALYSIS

The Court proceeds in four parts. First, the Court addresses whether Plaintiffs

adequately stated a claim for fraudulent inducement based on the affirmative

financial misrepresentations in the Investment Workbook. Second, the Court

conducts a parallel fraudulent inducement analysis regarding Defendants’ failure to

disclose the operational status of the VET TEC program. Third, the Court addresses

whether the Complaint adequately alleges a civil conspiracy to commit these

See Answering Brief (D.I. 23) [hereinafter “Ans. Br.”].

See Reply Brief (D.I. 25) [hereinafter “Reply Br.”].

As previously noted, the Court references the oral argument by its transcript (D.I. 30) [hereinafter “Tr. --:--”].

Labyrinth, Inc. v. Urich, 2024 WL 295996, at *7 (Del. Ch. Jan. 26, 2024).

Cent. Mort. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 535 (Del. 2011). 49

Id.

wrongs. Fourth, the Court addresses the Rollover Plaintiffs’ claims for breach of

fiduciary duty arising from post-closing equity dilution.

A. Plaintiffs Allege Fraudulent Inducement by the Investment Workbook

Plaintiffs allege that Defendants fraudulently induced them to execute the

SPA and the Rollover Agreements by supplying an Investment Workbook that

contained “material misrepresentations regarding ACI’s historical revenue and

adjusted EBITDA.”50 Defendants move to dismiss this claim, arguing that the

Investment Workbook constitutes an extra-contractual representation disclaimed by

the transaction documents, and that the allegations fail to satisfy the heightened

pleading standards of Court of Chancery Rule 9(b). 51

To state a claim for common law fraud under Delaware law, a plaintiff must

allege facts plausibly demonstrating five elements:

(1) a false representation, usually one of fact, made by defendant; (2)

the defendant's knowledge or belief that the representation was false, or

was made with reckless indifference to the truth; (3) an intent to induce

the plaintiff to act or to refrain from acting; (4) the plaintiff's action or

inaction taken in justifiable reliance upon the representation; and (5)

damage to the plaintiff as a result of such reliance. 52

Court of Chancery Rule 9(b) imposes a heightened standard for pleading

certain aspects of a fraud claim.53 It requires that “[i]n all averments of fraud ..., the

Compl. ¶ 61.

Mot. pp. 21–22.

In re P3 Health Gp. Hldgs., LLC, 2022 WL 15035833, at *3 (Del. Ch. Oct. 26, 2022). 53

Labyrinth, 2024 WL 295996, at *8 (reciting standard).

circumstances constituting fraud ... shall be stated with particularity. [But,] [m]alice,

intent, knowledge, and other conditions of mind of a person may be averred

generally.”54

1. Plaintiffs Allege the First Three Elements of Fraud

To identify a false representation with the requisite particularity, a plaintiff

must allege “(1) the time, place, and contents of the false representation; (2) the

identity of the person making the representation; and (3) what the person intended

to gain by making the representations.” 55

The allegations concerning the Investment Workbook satisfy Rule 9(b)’s

particularity standard. Plaintiffs allege that on October 9, 2023, Moua emailed the

Investment Workbook to Plaintiffs’ financial advisor to provide historical financial

information data for ACI.56 It specifically represented that ACI’s 2022 EBITDA was

$14.1 million and its trailing twelve-month adjusted EBITDA as of May 2023 was

$13.9 million.57

Plaintiffs have adequately alleged the falsity of these figures by referencing

the corrected financial information issued by ACI just five days after Closing.58

Id. (quoting Ct. Ch. R. 9(b)).

Bamford v. Penfold, L.P., 2020 WL 967942, at *12 (Del. Ch. Feb. 28, 2020) (quoting in full Abry P'rs V, L.P. v. F&W Acq. LLC, 891 A.2d 1032, 1050 (Del. Ch. 2006)).

Compl. ¶ 25.

Id. at ¶ 41.

Defendants have consistently maintained that Closing occurred not on December 6, 2023, but on December 26, 2023. Accordingly, they argue, Plaintiffs received the corrected financials well

ACI’s own October 2023 Financial Statements revealed the Company’s actual 2022

EBITDA was 6.9 million,59 and its May 2023 adjusted EBITDA was $8.3 million.60

The significant magnitude of these discrepancies, paired with the timing of the

corrected disclosures, supports a reasonable inference that Defendants knew the

Investment Workbook was false when disseminated, or recklessly failed to correct

it prior to Closing.61 Plaintiffs have further alleged general intent by asserting that

Defendants utilized these overstated metrics to induce Plaintiffs to accept a non-cash

consideration consisting of unachievable earnout terms and $4 million in Rollover

Equity. 62

2. The SPA Lacks Clear Anti-Reliance Language, but the Rollover

Agreements Bar Reliance

Defendants contend that even if the Complaint satisfies Rule 9(b), the fraud

claims fail as a matter of law because the Investment Workbook is an extracontractual document, and reliance thereon is contractually barred. 63

before Closing, thus undermining their reliance argument. See Tr. 10:15–17. However, the paragraph Defendants cite in support of this contention—Complaint Paragraph 26—represents that Closing was December 6, not December 26. Even setting aside the deference afforded the allegations at this juncture, the SPA itself is dated December 6, 2023. Mot. Ex. B. p. 1. 59

Compl. ¶ 42.

Id. at ¶ 43.

Id. at ¶ 66.

Id. at ¶ 68. Defendants do not dispute scienter for purposes of their Motion. Mot. p. 29. 63

Mot. p. 22.

As an initial matter, Plaintiffs did not dispute in their briefs that the Investment

Workbook is extra-contractual. 64 At oral argument, however, Plaintiffs asserted for

the first time that the Investment Workbook was rendered intra-contractual by virtue

of the SPA’s earnout provisions. 65 This argument was waived. Under long-standing

Delaware law, a party cannot raise an argument at oral argument that it failed to raise

in briefing.66 The Court, therefore, limits its review to the issue presented on the

papers: whether the text of the transaction agreement contains an enforceable

disclaimer of reliance. 67

Ans. Br. p. 10.

Tr. 33:14.

See Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (holding that issues not briefed are deemed waived). In Origis USA LLC v. Great American Insurance Co., the Delaware Supreme Court held that if a trial court discusses the merits of an otherwise-waived argument, such analysis “may be sufficient to fairly present [the issue] to the trial court and enable this Court’s review on appeal.” 345 A.3d 936, 954 n.78 (Del. 2025) (quoting in full Mundy v. Holden, 204 A.3d 83, 87 (Del. 1964)); see also In re Tesla, Inc. Deriv. Litig., 351 A.3d 1005 (TABLE), 2025 WL 3689114, at *10 n.92 (Del. Dec. 19, 2025). Accordingly, the Court must decide whether it can—without the benefit of opposing briefing—resolve the issue. Such a determination could align with the Delaware courts’ long-standing preference for resolving issues on the merits. See, e.g., Keener v. Isken, 58 A.3d 407, 409 (Del. 2013) (holding that a particular rule is “liberally construed because of the policy favoring trials on the merits.”). However, the injudicious application of this discretion could inadvertently incentivize parties to take the strategic risk of withholding positions on issues—like contract interpretation—with which the Court is intimately familiar and regularly resolves as a matter of law. The Court therefore declines to address the substance of Plaintiffs’ new argument. Even if the argument before the Court may be sufficient to resolve the issue, the circumstances under which an issue could be “fairly presented” even when one party is deprived of its opportunity to engage are vanishingly rare.

See Johnson & Johnson v. Fortis Advs. LLC, 352 A.3d 229, 274 (Del. 2026) (noting that the foundational case on reliance—Abry Partners—offers distinct frameworks for intra- and extracontractual fraud).

Because Delaware maintains a strong public policy against fraud, a party

seeking to disclaim reliance on extra-contractual statements must do so in clear,

precise, and unmistakable terms. 68 Indeed, the “core requirement” under Abry

Partners (and its progeny) for a party to waive its extra-contractual fraud claims is

that the agreement must contain an affirmative statement by that party disclaiming

reliance on any representations outside the four corners of the governing contract.69

Defendants concede that the SPA does not “specifically disclaim reliance.”70

Rather, they argue that Sections 4.7 and 5.6 operate together to disclaim reliance,

pointing to language they contend is analogous to provisions enforced in RAA

Management, LLC v. Savage Sports Holdings, Inc.71 Plaintiffs do not address RAA

Management. The Court, upon its own review, finds that case legally and factually

distinguishable.

Section 4.7 of the SPA contains a representation by Defendants stating that

they have not made any extra-contractual representations or warranties “as to the

accuracy or completeness of any information regarding [ACI] furnished to

Johnson & Johnson, 352 A.3d at 273.

Id.

Mot. p. 26.

Id. (citing RAA Mgmt., LLC v. Savage Sports Hldgs, Inc., 45 A.3d 107, 112 (Del. 2012); Prairie Cap. III, L.P. v. Double E Hldg. Corp., 132 A.3d 35, 51 (Del. Ch. 2015)).

[Plaintiffs] . . . or as to the future revenue, profitability or success of [ACI].”72

Notably, this is a representation Defendants made about themselves.

Under Abry, for an anti-reliance provision to be effective, the party claiming

to have relied on a representation must have disclaimed its own reliance on such

representations. 73 In RAA Management, the defendant made a similar representation

to the one in the SPA, but the clause included an explicit acknowledgement from the

plaintiff: “[The plaintiffs] understand and acknowledge that neither [the defendant]

nor [its representative] is making any representation or warranty, express or implied,

as to the accuracy or completeness” of the relevant materials.74 Because Section 4.7

lacks any parallel acknowledgment or disclaimer by Plaintiffs, it constitutes an

unfulfilled attempt by Defendants to unilaterally disclaim Plaintiffs’ reliance.

A review of the surrounding contractual framework confirms that the

omission of a plaintiff-side anti-reliance clause was a function of deliberate drafting.

In Section 4.6 of the SPA, Defendants expressly represented that they entered into

the transaction “solely upon [their] own investigation and the express representations

and warranties of the Company and [Plaintiffs] set forth in this Agreement[.]”75 The

SPA § 4.7.

See Johnson & Johnson, 352 A.3d at 273; FdG Logistics LLC v. A&R Logistics Hldgs., Inc., 131 A.3d 842, 860 (Del. Ch. 2016) (“[T]he disclaimer must come from the point of view of the aggrieved party (or all parties to the contract)[.]”).

RAA Mgmt., 45 A.3d at 110.

SPA § 4.6 (emphasis added).

parties were clearly capable of formulating enforceable anti-reliance provisions, but

Defendants failed to secure a reciprocal representation from Plaintiffs. 76

Section 5.6 is equally ineffective as an anti-reliance defense. In that Section,

Plaintiffs acknowledge that they “investigated to [their] complete satisfaction all

facts and potential claims” arising out of, among other things, any acts during the

negotiation, execution, or performance of the SPA, and that they are “assuming the

risk” that they “will discover . . . claims that were unknown or unanticipated at the

time this Agreement was executed.”77 An assumption of the risk for unknown or

unanticipated claims does not satisfy the demanding standard for anti-reliance

language; it does not clear-sightedly waive claims predicated on a counterparty’s

active, pre-Closing fraudulent concealment.

The Rollover Agreement, however, commands a different result. In both the

Kowatch and BRP2 Rollover Agreements, the respective Rollover Plaintiff

expressly represents that it has relied “solely upon its own investigation and the

express representations [of Defendants] set forth . . . and neither the Parent, the

Buyer nor any other Person has made any representation or warranty, except as

See Paragon Metals Hldgs. LLC v. Smith, --- A.3d ----, 2026 WL 1898766, at *8 (Del. July 1, 2026) (holding that only the “intended beneficiary” of an anti-reliance clause can enforce it); see also Vaughn v. Allstate Prop. & Casualty Ins. Co., 351 A.3d 974 (TABLE), 2025 WL 3563289, at *3 n.12 (Del. Dec. 12, 2025) (quoting Torrent Pharma., Inc. v. Priority Healthcare Distribution, Inc., 2022 WL 3272421, at *9 (Del. Super. Aug. 11, 2022) (“Where one contract section omits a term present in another, the omission is presumed intentional.”)).

SPA § 5.6(e).

expressly set forth herein.” 78 This language explicitly satisfies the requirements of

Abry. Accordingly, because the SPA lacks an effective anti-reliance provision,

Plaintiffs’ core fraud claims regarding the transaction survive. 79 The clear antireliance language in the ancillary Rollover Agreements may limit the scope of

available non-cash damages at a later stage, but it does not warrant threshold

dismissal of the fraud claim in its entirety. Defendant’s Motion to Dismiss Count I

is therefore DENIED.

3. Plaintiffs Adequately Allege Justifiable Reliance on the Investment

Workbook

Because the SPA lacks an effective anti-reliance provision, the Court must

evaluate whether Plaintiffs have adequately alleged that their reliance on the

Investment Workbook was legally justified. To satisfy this element at the pleading

stage, a complaint “must allege facts making it reasonably conceivable that the

plaintiff acted based on the material representation or omission.” 80 This inquiry is

inherently “context-dependent” and fact intensive, rendering it generally unsuitable

See Section 4(o) of the Rollover Agreements, available at D.I. 15 Exhibits C (Kowatch) and D (BRP2).

See Ashall Homes Ltd. v. ROK Ent. Gp. Inc., 992 A.2d 1239, 1250 n.56 (Del. Ch. 2010) (“related contemporaneous documents should be read together” and “writings executed at the same time and relating to the same transaction are construed together as a single contract[.]”). 80

Trifecta Multimedia Hldgs. Inc. v. WCG Clinical Servs. LLC, 318 A.3d 450, 465 (Del. Ch. 2024).

for resolution on a motion to dismiss “unless a fully integrated contract contains an

explicit anti-reliance representation.”81

Defendants argue that Plaintiffs’ reliance was unreasonable as a matter of law

because the Complaint fails to allege that Plaintiffs independently investigated the

financial figures or were actively prevented from doing so. 82 Although Plaintiffs did

not address this point in their briefing, Defendants’ argument fails under the

applicable standard of review. Determining what constitutes “reasonable” reliance

requires a nuanced assessment situating the reliance along the spectrum between

actual knowledge and mere negligence. 83 Such an evaluation merits the benefit of a

developed evidentiary record.84 It is not facially apparent from the four corners of

the Complaint that Plaintiffs were willfully blind to inaccuracies in the Investment

Workbook or that they otherwise failed to conduct adequate due diligence. Further,

the generic acknowledgement in Section 5.6 that Plaintiffs investigated the

transaction to their own satisfaction cannot be leveraged to insulate Defendants from

liability for an alleged active fraud. 85

Id.

Mot. p. 30.

Paragon Metal Hldgs. LLC, 2026 WL 1898766, at *9.

Id.

See id. at *8 (concluding that diligence satisfying a party’s subjective standard of completeness was insufficient to bar that party’s reliance on the intra-contractual warranties in the governing agreement).

Because Defendants do not dispute that the final element of compensable

damages is adequately pled,86 Plaintiffs have stated a viable claim that the

Investment Workbook fraudulently induced them into entering the transaction.

4. Plaintiffs Allege Negligent Misrepresentation in Connection with the

Investment Workbook

Count II asserts a claim for negligent misrepresentation. Under Delaware law,

negligent misrepresentation—frequently characterized as equitable fraud—is

closely related to common law fraud and requires proof of the same underlying

elements with the sole exception that a plaintiff need not demonstrate that the

misstatement was made knowingly or recklessly.87 Because negligent

misrepresentation shares these identical elements with a reduced state of mind

requirement, where a plaintiff has successfully alleged common law fraud, the

parallel negligent misrepresentation claim likewise survives. 88

Accordingly, Plaintiffs’ negligent misrepresentation claim regarding the

Investment Workbook may also proceed past the pleadings.

Mot. p. 30 (“[D]efendants do not rely on that element in seeking dismissal at this stage.”). 87

Dunn v. FastMed Urgent Care, P.C., 2019 WL 4131010, at *12 (Del. Ch. Aug. 30, 2019); see also Fortis Advs. LLC v. Dialog Semiconductor PLC, 2015 WL 401371, at *9 (Del. Ch. Jan. 30, 2015).

Corp. Prop. Assocs. 14 Inc. v. CHR Hldg. Corp., 2008 WL 963048, at *8 (Del. Ch. Apr. 10, 2008).

B. The Failure to Disclose VET TEC’s Status Constitutes Fraud by

Omission

Plaintiffs separately allege that Defendants’ failure to disclose the imminent

termination and defunding of VET TEC is actionable under theories of fraudulent

concealment (Count I) or, in the alternative, negligent misrepresentation (Count II),

as well as conspiracy to commit fraud (Count III).

1. Plaintiffs Allege a Fraudulent Omission

Unlike the alleged affirmative misrepresentations contained in the Investment

Workbook, the allegations concerning the VET TEC program run on a theory of

fraud by omission. Under Delaware law, a defendant is equally culpable of fraud

where it fails to reveal material information that it has an obligation to disclose.89 A

duty to speak arises before the consummation of a business transaction when a party

acquires information that is “necessary to prevent [a] partial or ambiguous statement

of the facts from being misleading.”90 “One such duty to speak arises when the party

learns of subsequently acquired information that the party knows will render a prior

statement untrue or misleading.”91

See Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983).

NetApp, Inc. v. Cinelli, 2023 WL 4925910, at *13 (Del. Ch. Aug. 2, 2023) (citing Restatement (Second) of Torts § 551(2)(b) (1977)).

Wildenberg v. Sign-Zone Hldgs L.P., 350 A.3d 637 (TABLE), 2025 WL 2945823, at *2 (Del. Oct. 17, 2025) (citing In re Wayport, Inc. Litig., 76 A.3d 296, 323 (Del. Ch. 2013)).

The Complaint satisfies this standard. Plaintiffs allege that the federal

government notified Defendants in November 2023—prior to the Closing—that the

VET TEC program had exhausted its funding and instructed ACI to immediately

cease enrolling new participants. 92 Despite the fact that this program historically

accounted for approximately 40% of ACI’s total revenue, Defendants remained

silent. Plaintiffs have adequately pled that Defendants had an affirmative duty to

speak. Defendants had previously supplied historical financial data showing that

VET TEC was an ongoing source of recurring revenue.93 This historical data formed

the baseline for a transaction structure that included two earnouts and a significant

rollover equity component, neither of which accounted for the sudden elimination

of nearly half of the Company’s revenue stream.94

Defendants counter that the Complaint fails to identify any affirmative

contractual representation guaranteeing that the VET TEC program would continue

post-Closing, arguing that they had no duty to disclaim the general principle that

past performance does not guarantee future results.95 This argument is unpersuasive.

Compl. ¶ 52. Plaintiffs also allege that Moua first learned the program would be discontinued in August 2023. Id.

See Ans. Br. pp. 11–12.

Id. at p. 12. That Defendants were allegedly aware of the VET TEC program’s dissolution in August 2023 does not change their obligation to inform Plaintiffs of the November 2023 communication.

Reply Br. p. 9. Defendants further argue that Plaintiffs should have known that VET TEC was winding down, because it “was public knowledge and easily accessible to anyone with a search

Having provided detailed historical revenue metrics to induce Plaintiffs to

accept non-cash consideration, Defendants could not sit idly by once they received

definitive confirmation that 40% of ACI’s revenue stream was about to dry up.

Defendants had a duty to disclose that the Company was about to lose its primary

revenue driver.

2. Plaintiffs Allege the Remaining Elements of Omission-Based Fraud

With respect to the remaining elements of fraud, Defendants do not contest

scienter at this stage, and the element of damages is sufficiently alleged. Defendants

raise a final defense regarding justifiable reliance, asserting that Plaintiffs’ failure to

uncover the status of the VET TEC program during due diligence constitutes a

failure to conduct adequate due diligence.96

Defendants rely on two decisions to argue that the Court should bypass the

fact-specific nature of justifiable reliance and dismiss the omission claims at the

threshold. 97 Both cases are readily distinguishable. In Carey v. Shellburne, Inc., this

Court entered judgment against the plaintiffs only after evaluating a complete

evidentiary record at the conclusion of trial. 98 It offers no guidance on a motion to

dismiss under Rule 12(b)(6). In Harris v. Innovate Biopharmaceuticals, Inc., the

engine” that VET TEC was a pilot program with a fixed end date. Id. at p. 10. The Court does not reach this conclusion at the pleadings stage.

Mot. p. 30.

Reply Br. p. 10.

215 A.2d 450, 507 (Del. Ch. 1965).

Superior Court dismissed a claim where a stockholder argued that he was harmed by

corporate counsel’s delay in providing legal guidance regarding the marketing of his

shares.99 The Court found that the company owed no duty to provide independent

legal advice to a stockholder.100 Here by contrast, Defendants received critical

operational notice regarding a regulatory program that was within their exclusive

possession and control. The fraud claim arising from the VET TEC disclosure

survives.

3. Plaintiffs Allege Negligent Misrepresentation in Connection with VET TEC

As discussed above, negligent misrepresentation requires proof of the same

underlying elements as fraud except that the plaintiff need not demonstrate that the

misrepresentation was made knowingly or recklessly.101 Because the Complaint sets

forth a viable claim for omission-based fraud regarding the VET TEC program, it

satisfies the pleading requirements for the parallel negligent misrepresentation claim

set forth in Count II.

In sum, because the SPA contains no clear or enforceable disclaimer of

reliance by Plaintiffs, the core claims for pre-closing fraud and negligent

misrepresentation are sufficiently pled under Rule 12(b)(6). Accordingly,

Defendant’s Motion to Dismiss is DENIED as to Count I and Count II.

2019 WL 5173782, at *8 (Del. Super. Oct. 15, 2019).

100

Id.

101

See Dunn, 2019 WL 4131010, at *12.

C. Plaintiffs Adequately Allege Civil Conspiracy to Commit Fraud

To state a claim for civil conspiracy, “a plaintiff must allege ‘(1) the existence

of a confederation or combination of two or more persons; (2) that an unlawful act

was done in furtherance of the conspiracy; and (3) that the conspirators caused actual

damage to the plaintiff.’” 102

Defendants move to dismiss Count V on two grounds. First, they argue that

the conspiracy claim must fail because Plaintiffs have failed to state a claim for an

underlying independent tort. 103 Second, they assert that the claim is barred by the

intra-corporate conspiracy doctrine.104 The first argument is unavailing; as

determined above, Plaintiffs have adequately alleged an underlying claim for fraud.

The Court therefore turns to the applicability of the intra-corporate conspiracy

doctrine.

Defendants argue that the alleged conspiracy runs afoul of the intra-corporate

conspiracy doctrine because the individual and entity defendants operate in a

singular commercial capacity as managers, affiliates, and controllers of ACI or as a

wholly owned subsidiary, in the case of Infosec. 105 Defendants further contend that

the Complaint fails to allege collective participation in the alleged fraudulent

102

LVI Gp. Invs., LLC v. NCM Gp. Hldgs., LLC, 2018 WL 1559936, at *14 (Del. Ch. Mar. 28, 2018) (quoting Allied Cap. Corp. v. GC–Sun Hldgs., L.P., 910 A.2d 1020, 1036 (Del. Ch. 2006)). 103

Mot. p. 41.

104

Id.

105

Id. at p. 42.

inducement, pointing out that the factual allegations specifically target only Moua

and certain unidentified ACI representatives. 106 Plaintiffs counter that Infosec, rather

than ACI, serves as the critical independent entity for the conspiracy analysis.107

Despite the sparse briefing of this nuanced issue, the Court concludes that the

allegations are sufficient to survive dismissal. The core of the dispute involves one

individual—Moua—and two distinct entities: ACI and Boathouse. Under the

intra-corporate conspiracy doctrine, a corporation generally cannot conspire with its

own officers or agents when they are acting within the scope of their authority. Thus,

Moua could not conspire with ACI while acting strictly in his capacity as Chairman

of ACI’s Board of Managers, nor could he conspire with Boathouse while acting

purely as its managing partner.108 The determinative question is whether Moua’s

dual roles could conceivably facilitate an actionable conspiracy between himself,

ACI, and Boathouse. 109

This Court has previously recognized that where a single individual

concurrently wears two hats as an agent of two distinct entities, dismissal under the

intra-corporate conspiracy doctrine is appropriate only if it is “beyond dispute” that

106

Reply Br. pp. 15–16.

107

Ans. Br. p. 20.

108

WIA Hldgs. LLC v. Scottish Am. Cap. LLC, 2026 WL 1204494, at *16–17 (Del. Ch. Jan. 20, 2026).

109

See LVI Gp. Invs., LLC, 2018 WL 1559936, at *15.

the individual was operating exclusively as the agent of a single entity.110 Where the

factual allegations suggest that the individual and the separate entity affiliates shared

an obvious distinct economic incentive to participate in the underlying fraud, it

remains reasonably conceivable at the pleading stage that the parties acted pursuant

to an unlawful agreement or common design. 111 Applying these principles and

drawing all reasonable inferences in Plaintiffs’ favor, it is premature to conclude as

a matter of law that the Defendants operated as a single economic actor incapable of

conspiring. Accordingly, the Motion to Dismiss Count V as to conspiracy to commit

fraud is DENIED.112

D. Breach of Fiduciary Duty is Inadequately Pled

Separate from the pre-Closing fraud claims, Plaintiffs allege that Boathouse

and Moua breached their fiduciary duties to the Rollover Plaintiffs by diluting the

Rollover Equity through a series of post-Closing self-dealing transactions (Count

III). 113 Plaintiffs further contend that ACI and Infosec actively aided and abetted

those breaches (Count IV).114

110

Id.

111

Id.

112

The Court again highlights the inadequate briefing of this issue. Defendants outline the black letter law of the intra-corporate conspiracy doctrine, but they do not address how it bars a conspiracy here. Mot. pp. 40–42; Reply Br. pp. 15–16.

113

Compl. ¶¶ 80–86.

114

Id. at ¶¶ 87–92.

1. The Direct Claim Fails

The threshold inquiry is whether the alleged equity dilution states a direct

claim, a derivative claim, or both. Plaintiffs contend that they are pursuing a direct

claim because the Rollover Plaintiffs were “directly and uniquely injured . . . in their

capacity as minority members of ACI.115 Defendants counter that the allegations do

not support an individualized or targeted injury.116 They argue that the newly issued

senior units would proportionally reduce the economic and voting ownership of any

similarly situated holder of common equity, rendering the claims exclusively

derivative. 117

Although direct or derivative standing issues are frequently assessed under the

umbrella of subject matter jurisdiction, this Court may dismiss a purported direct

claim under Court of Chancery Rule 12(b)(6) if the core allegations are “exclusively

derivative in nature[.]” 118 To determine whether a claim is direct or derivative,

Delaware courts apply the analytical framework established in Tooley v. Donaldson,

Lufkin & Jenrette, Inc., which focuses on two pivotal questions: “(1) who suffered

the alleged harm (the corporation or the suing stockholders, individually); and (2)

115

Id. at ¶ 86.

116

Reply Br. p. 11.

117

Id.

118

Re: the Gregory M. Raiff 2000 Tr. v. Jenzabar, Inc., 2026 WL 1861372, at *2 (Del. Ch. June 26, 2026) (denying re-argument of Gregory M. Raiff 2000 Tr. v. Jenzabar, Inc., 2026 WL 992587 (Del. Ch. Apr. 13, 2026)).

who would receive the benefit of any recovery or other remedy (the corporation or

the stockholders, individually)?”119 In resolving this divide, the Court ignores the

stylistic labels appended by the drafter and looks instead to the independent nature

of the wrong alleged. 120

While not addressed by the parties, Siegel v. Cantor Fitzgerald, L.P. is on all

fours with the present dispute. In Siegel, a minority stockholder brought a direct

claim against a majority stockholder following an internal corporate restructuring

that effectively diluted the minority’s voting and economic interest.121 The plaintiff

there argued that the company had overissued senior high-vote shares to the majority

stockholder for manifestly inadequate consideration. 122 In applying Tooley’s first

prong, this Court reiterated that a corporation’s over-issuance of undervalued equity

to a controlling stockholder inflicts an immediate, “threshold harm” upon the

corporate entity itself because the company received inadequate consideration. Any

subsequent harm to the minority stockholders represents a secondary reflective

injury that merely flows to them indirectly in proportion to their relative equity

ownership. 123 Turning to the second prong of Tooley, the Siegal Court invoked

119

Gregory M. Raiff 2000 Tr. v. Jenzabar, Inc., 2026 WL 992587, at *5 (citing Tooley, 845 A.2d 1031, 1033 (Del. 2004)).

120

Id.

121

Siegel v. Cantor Fitzgerald, L.P., 2025 WL 1074604, at *1 (Del. Ch. Apr. 10, 2025). 122

Id.

123

Id.

Brookfield Asset Management Inc. v. Rosson to reject the theory that a specialized

pro rata recovery could convert the action into a direct claim, noting that only the

corporation possesses the right to compel the restoration of value for a dilutive

overissuance.124

The rational articulated in Siegel and Brookfield controls here. Plaintiffs allege

that Defendants—who already maintained majority control over ACI—utilized the

post-Closing Transaction and the subsequent preferred stock issuances to expand

their percentage control via undervalued shares, systematically diluting the common

equity held by the Rollover Plaintiffs. As in Siegel, the primary economic harm was

suffered by ACI, which allegedly issued senior securities to insiders on overly

favorable terms without receiving matching, fair market value. Any resulting

recovery would necessarily require restoring that missing economic value directly

to ACI.125 Because the alleged injury is reflecting and asset-dilutive rather than

unique or independent, the Rollover Plaintiffs have failed to state a viable direct

claim for breach of fiduciary duty.

2. The Derivative Claim Fails for Failure to Allege Demand Futility

Because the equity dilution allegations state an exclusively derivative claim,

the Court must next evaluate whether Plaintiffs complied with the strict procedural

124

Id. at *7.

125

At oral argument, Plaintiffs correctly abandoned their contention that the harm was individualized. Tr. 49:9.

demand requirement set forth in Court of Chancery Rule 23.1.126 Under Rule 23.1,

a derivative complaint must state with particularity any effort by the plaintiff to

obtain the desired action from the entity’s governing body or specific reasons why

such an action was not made.127 A stockholder can bypass this internal prerequisite

only by pleading with specific factual particularity that demand is futile.128

The universal, governing test for establishing demand futility is set forth in

United Food and Commercial Workers Union and Participating Food Industry

Employers Tri-State Pension Fund v. Zuckerberg.129 Under the three-pronged

Zuckerberg framework, courts must evaluate demand futility on a director-bydirector basis, testing whether each individual director on the board at the time the

litigation commenced: (i) received a material personal benefit from the misconduct,

(ii) faces a substantial likelihood of liability on any of the claims, or (iii) lacks

independence from someone who received a material personal benefit or faces a

126

Los Angeles City Emp. Ret. Sys. v. Sanford, 352 A.3d 276, 321 (Del. Ch. 2026). 127

Id.; see also Ct. Ch. R. 23.1(a)(1).

128

In a demand futility analysis:

[t]he court is confined to the well-pleaded allegations in the Complaint, the

documents incorporated into the Complaint by reference, and facts subject to

judicial notice. Rule 23.1 requires that a plaintiff who asserts demand futility must

comply with stringent requirements of factual particularity that differ substantially

from the permissive notice pleadings governed solely by Chancery Rule 8(a). The

court will draw all reasonable factual inferences that logically flow from the

particularized facts alleged.

Cent. Laborers' Pension Fund v. Karp, 349 A.3d 1165, 1182 (Del. Ch. 2025) (internal quotations omitted).

129

262 A.3d 1034, 1058 (Del. 2021).

substantial likelihood of liability.130 If the answer to any of these questions is

affirmative for at least half of the members of the board at the time of litigation—

the demand board—then demand is futile. 131

The Complaint alleges that demand upon ACI’s Board of Managers would be

futile because, at the time the lawsuit was filed, Moua served as the Chairman of

ACI’s Board, Boathouse CCF acted as ACI’s Managing Member, and Moua

operated as the Managing Partner of Boathouse CCF.132 Plaintiffs contend that

because these identical individual and entity defendants are the primary wrongdoers

who executed the self-dealing recapitalization, they are incapable of independently

evaluating a demand to sue themselves.133 In their Answering Brief, Plaintiffs

expand this theory, asserting that because Moua allegedly admitted that ACI

engaged in active financial misrepresentations during pre-Closing diligence, both he

and the Boathouse entities face a substantial likelihood of personal liability.134

130

Zuckerberg, 262 A.3d at 1059.

131

Id.

132

Compl. ¶ 81.

133

Id. at ¶ 86; see also Ans. Br. p. 16.

134

Ans. Br. p. 16; Compl. ¶ 58.

Defendants reply that this reasoning is “completely unclear” and

conclusory,135 asserting that the Complaint fails to satisfy the stringent requirements

of Rule 23.1. 136

The Rollover Plaintiffs’ demand futility argument fails for a fundamental

mathematical reason. The Complaint fails to provide any specific particularized

factual disclosures regarding the structural composition of the ACI Board of

Managers. Plaintiffs allegations target only Moua. To establish that a disqualifying

conflict disables at least half of the demand board under Zuckerberg, Plaintiffs

would need to allege specific facts showing that the entire Board of Managers

consists of no more than two members. In the absence of any particularized

allegations identifying the remaining managers or demonstrating that Moua exerts

total domination over a deadlocked board, the Court cannot infer that a conflict

isolating Moua disables a majority of ACI’s governing body.137 Accordingly,

because Plaintiffs have failed to supply the factual particularity required to

demonstrate demand futility under Rule 23.1, they lack standing to pursue a

derivative claim. Count III is therefore DISMISSED. Because a well-pleaded claim

135

Reply Br. p. 12.

136

Tr. 27:8.

137

See In re INFOUSA, Inc. S’holders Litig., 953 A.2d 963, 989–90 (Del. Ch. 2007) (“Plaintiffs must show that a majority—or in a case where are an even number of directors, exactly half—of the board was incapable of considering the demand.”).

for breach of fiduciary duty is a prerequisite to an action for aiding and abetting,138

Count IV must likewise be DISMISSED.

V. CONCLUSION

For the foregoing reasons, Defendants’ Motion to Dismiss is DENIED as to

the fraud and negligent misrepresentation claims in Counts I and II as to inducement

into the SPA and GRANTED as to inducement into the Rollover Agreements.

Defendants’ Motion to Dismiss is GRANTED as to the breach of fiduciary duty and

aiding and abetting claims in Counts III and IV. Finally, as to conspiracy to commit

fraud in Count V, Defendants’ Motion is DENIED to the extent the conspiracy is

predicated on the pre-closing fraud claims and GRANTED to the extent it is

predicated on the dismissal of the fiduciary duty claims.

IT IS SO ORDERED.

Sheldon K. Rennie, Judge

138

See In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 72 (Del. 1995) (noting that a breach of fiduciary duty is a required element of a claim for aiding and abetting).

James T. Kowatch v. ACI Learning Holdings, LLC

Authorities cited

Opinion · public domain