Opinion — Fin Cap Inc. v. PayNerd LLC (Aug. 16, 2023)

Summary

An opinion in Fin Cap Inc. and Blueacorn PPP, LLC v. PayNerd LLC, PayNerdier LLC, Matthew Mandell and Taylor Hendricksen, C.A. No. N21C-12-118 MMJ CCLD, in the Superior Court of the State of Delaware, submitted June 6, 2023, decided August 16, 2023 and unsealed August 29, 2023. The opinion describes a contract dispute in which PayNerd and PayNerdier were referral partners of Fin Cap and Blueacorn for Paycheck Protection Program loans, and takes up a motion to dismiss PayNerd's counterclaims and third-party claims. Its closing section states that Counterclaims VII–XII are dismissed as duplicative of the contractual claims, that the motion is granted in part and denied in part, and that Nathan Reis' motion to dismiss and joinder is denied. The opinion ends with /s/ Mary M. Johnston.

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Cite this document

“Opinion — Fin Cap Inc. v. PayNerd LLC (Aug. 16, 2023).” Original at cases.justia.com. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2023-n21c-12-118-mmj-ccld-pdf-763afbdc9eb3c7ee-c958c435ee/, SHA-256 8fb7b1cda16333b1ac9e0e1421eeaf6bbf20cb19a716900f9bd7ba35e13ce723.

Full text

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

FIN CAP INC. and BLUEACORN PPP, )
LLC, )
)
Plaintiffs, )
)
v. )
)
PAYNERD LLC, PAYNERDIER LLC, )
MATTHEW MANDELL, and TAYLOR )
HENDRICKSEN )
)
Defendants. )
)
And ) C.A. No. N21C-12-118 MMJ CCLD
)
PAYNERD LLC and PAYNERDIER )
LLC, )
)
Counterclaim-Plaintiffs and Third )
Party Plaintiffs, )
)
v. )
)
FIN CAP INC., and BLUEACORN PPP, )
LLC, )
)
Counterclaim-Defendants; and )
)
NATHAN REIS, NOAH SPIRAKUS, and )
BARRY CALHOUN, )
)
Third-Party Defendants. )

Submitted: June 6, 2023
Decided: August 16, 2023
Unsealed: August 29, 2023
On Plaintiffs’ and Third-Party Defendants
Noah Spirakus’ and Barry Calhoun’s Motion to Dismiss
PayNerd’s Counterclaims and Third-Party Claims
GRANTED IN PART AND DENIED IN PART

On Third-Party Defendant Nathan Reis’
Motion to Dismiss and Joinder
DENIED

OPINION

A. Thompson Bayliss, Esq., Michael A. Barlow, Esq., Abrams & Bayliss LLP,
Wilmington, DE, Michael A. Levy, Esq. (pro hac vice) (Argued), Charlotte K.
Newell, Esq., Katelin Everson, Esq. (pro hac vice), Yu Kyung Kim, Esq. (pro hac
vice) (Argued), Sidley Austin LLP, New York, NY, Christopher M. Egleson, Esq.
(pro hac vice), Sidley Austin, Los Angeles, CA, Attorneys for Plaintiffs Fin Cap
Inc., Blueacorn PPP, LLC, and Third-Party Defendants Noah Spirakus and Barry
Calhoun

Francis DiGiovanni, Esq., Todd C. Schiltz, Esq., Renée M. Dudek, Esq., Faegre
Drinker Biddle & Reath LLP, Wilmington, DE, Breton Bocchieri, Esq. (pro hac
vice) (Argued), Michael B. Lachuk, Bocchieri & Lachuk, Los Angeles, CA,
Attorneys for Defendants PayNerd LLC, PayNerdier LLC, Matthew Mandell, and
Taylor Hendricksen

Blake Rohrbacher, Esq., Mari Boyle, Esq., Richards, Layton, & Finger, P.A.,
Wilmington, DE, Daniel C. Nester, Esq. (pro hac vice), Benjamin A. Ford, Esq.
(pro hac vice), Attorneys for Third-Party Defendant Nathan Reis

JOHNSTON, J.

FACTUAL AND PROCEDURAL CONTEXT

This is a contract dispute. Fin Cap Inc. (“Fin Cap”) and Blueacorn PPP,

LLC (“Blueacorn”) are financial technology companies that help small businesses

2
obtain loans under the Small Business Administration’s (“SBA’s”) Paycheck

Protection Program (“PPP”).1 PayNerd LLC (“PayNerd”) and PayNerdier LLC

(“PayNerdier”) were non-exclusive referral partners of Fin Cap and Blueacorn.2

Fin Cap, Blueacorn, PayNerd, and PayNerdier memorialized their relationship

through two contracts: one in February 2021 (“Referral Agreement 1”) between

Fin Cap and PayNerd, and one in April 2021 (“Referral Agreement 2”) between

Blueacorn and PayNerdier.3 PayNerd and PayNerdier were to direct potential loan

applicants to Fin Cap and Blueacorn through online advertising campaigns.4 Fin

Cap and Blueacorn were to facilitate the processing of the PPP loans for qualified

customers.5

PayNerd and PayNerdier allegedly had control over the reporting that led to

compensation for referrals to Fin Cap and Blueacorn.6 In August 2021, Fin Cap

and Blueacorn allegedly discovered through a final reconciliation that they had

overpaid PayNerd and PayNerdier.7 Fin Cap and Blueacorn then filed suit against

PayNerd, PayNerdier, Matthew Mandell (“Mandell”)—Chief Executive Officer

1
Am. Compl. at ¶ 1.
2
Id. at ¶ 3.
3
Id.
4
Id.
5
Referral Agreements 1 & 2, Schedule B.
6
Am. Compl. at ¶ 5, 10, 74–86.
7
Id. at ¶ 7.
3
and Co-Founder of PayNerd, and Taylor Hendricksen (“Hendricksen”)—Co-

Founder of PayNerd.8

Fin Cap and Blueacorn filed their original complaint on December 23, 2021.

On February 25, 2022, PayNerd and PayNerdier filed a Partial Motion to Dismiss,

along with their Answer, Counterclaims, and Third-Party Claims. On April 18,

2022, Fin Cap and Blueacorn filed their Amended Complaint.

The Amended Complaint alleges: (Count I) breach of Referral Agreement 1

against PayNerd; (Count II) fraudulent inducement against PayNerd, PayNerdier,

Mandell, and Hendricksen; (Count III) negligent misrepresentation against

PayNerd, PayNerdier, Mandell, and Hendricksen; (Count IV) breach of Referral

Agreement 2 against PayNerdier; (Count V) breach of the implied covenant of

good faith and fair dealing against PayNerd; (Count VI) fraud against PayNerd,

PayNerdier, Mandell, and Hendricksen; (Count VII) unjust enrichment against

PayNerd, PayNerdier, Mandell, and Hendricksen; (Count VIII) promissory

estoppel against PayNerd, PayNerdier, Mandell, and Hendricksen; (Count IX)

declaratory judgment that “organic loans issued to PPP applicants that arrived at

Blueacorn’s website from a non-traceable source are subject to the Company

Generated fee sharing formula under the [Referral Agreements 1 and 2], not the

8
Id. at ¶ 17–18.
4
PayNerd Generated formula[]”;9 and (Count X) violation of the Arizona Consumer

Fraud Act against PayNerd, PayNerdier, Mandell, and Hendricksen.

On June 16, 2022, PayNerd, PayNerdier, Mandell, and Hendricksen filed

their Motion to Dismiss Counts II, III, V–VIII, and X of the Amended Complaint.

After briefing, this Court heard oral argument on October 31, 2022. On November

3, 2022, this Court found:

Defendants’ Motion to Dismiss Count II is DENIED.
Count II fairly alleges that Defendants’ purportedly
fraudulent statements regarding the success of the initial
marketing efforts induced Plaintiffs to enter into a separate
contract, the April contract, which allowed Defendants to
earn fees from other lenders. Allegations that fraud
directly induced formation of a contract are not barred by
the bootstrapping doctrine. Under Rule 9(b), the
Amended Complaint specifically alleges the
circumstances constituting the fraud, including the
allegedly false statements, Plaintiffs’ reliance on those
statements, and damages. Those damages are distinct
from the damages Plaintiffs seek in their breach of contract
claims. Whether the Plaintiffs actually relied on the
statements, or whether such reliance was reasonable, are
issues of fact that cannot be resolved on a pleadings-based
motion. The Motion is GRANTED in part as to Count III.
It is virtually axiomatic that the Court of Chancery has
exclusive jurisdiction over negligent misrepresentation
claims. Negligent misrepresentation claims are inherently
equitable, and recent caselaw suggests the Delaware
courts have abandoned the distinction Plaintiffs seek to
draw between negligent misrepresentation and simple
negligence claims. Plaintiffs shall have 60 days in which
to file a written election to transfer Count III to the Court
of Chancery under 10 Del. C. § 1902. If Plaintiffs fail to

9
Id. at ¶ 140.
5
transfer within that timeframe, Count III shall be
dismissed with prejudice.

The Motion is DENIED as to Count X. Narrow provisions
designating a choice of law governing contracts will not
bar statutory causes of action arising under the laws of
another state. The proper scope of Count X and whether is
withstands discovery are issues for another day.

Counts V-VIII are DISMISSED WITHOUT PREJUDICE
per Plaintiffs’ Answering Brief. IT IS SO ORDERED.10

The Court’s ruling left Counts I, II, IV, IX, and X of the Amended

Complaint remaining. The Court has been cross-designated as Vice Chancellor in

the Court of Chancery for the purpose of Fin Cap’s and Blueacorn’s Count III—

negligent misrepresentation against PayNerd, PayNerdier, Mandell, and

Hendricksen—and all equitable defenses.

On December 21, 2022, PayNerd, PayNerdier, Hendricksen, and Mandell

filed their Answer and Third-Party Complaint. PayNerd and PayNerdier assert

various counterclaims. PayNerd alleges: (Counterclaim I) breach of Referral

Agreement 1 against Fin Cap; (Counterclaim III) breach of the implied covenant of

good faith and fair dealing against Fin Cap; (Counterclaim V) fraud in the

inducement against Fin Cap, Nathan Reis (“Reis”)—Fin Cap co-founder and

executive, and Noah Spirakus (“Spirakus”)—Fin Cap’s Chief Technology Officer;

(Counterclaim VII) unjust enrichment against Fin Cap—pled in the alternative;

10
Court Order, (D.I. 56).
6
(Counterclaim IX) quantum meruit as to PayNerd’s services rendered to Fin Cap—

pled in the alternative; and (Counterclaim XI) declaratory judgment against Fin

Cap that Referral Agreement 1 is valid and enforceable.

PayNerdier alleges: (Counterclaim II) breach of Referral Agreement 2

against Blueacorn; (Counterclaim IV) breach of the implied covenant of good faith

and fair dealing against Blueacorn; (Counterclaim VI) fraud in the inducement of

Referral Agreement 2 against Fin Cap, Blueacorn, and Barry Calhoun

(“Calhoun”)—Prior Chief Executive Officer of Fin Cap; (Counterclaim VIII)

unjust enrichment against Blueacorn—pled in the alternative; (Counterclaim X)

quantum meruit as to PayNerdier’s services rendered to Blueacorn—pled in the

alternative; and (Counterclaim XII) declaratory judgment against Blueacorn that

Referral Agreement 2 is valid and enforceable.

On February 27, 2023, Fin Cap, Blueacorn, Spirakus, and Calhoun filed

their Motion to Dismiss Paynerd’s and PayNerdier’s Counterclaims and Third-

Party Claims. Third-Party Defendant Reis also filed his Motion to Dismiss and

Joinder on February 27, 2023.11 On April 17, 2023, PayNerd and PayNerdier filed

their Answering Brief in Opposition to the Motion to Dismiss. On May 8, 2023,

Fin Cap, Blueacorn, Spirakus, and Calhoun filed their Reply Brief. Third-Party

11
Reis only requests dismissal of Counterclaim V, which is the only claim brought against Reis.
7
Defendant Reis also filed his Reply Brief on May 8, 2023. The Court heard oral

argument on June 6, 2023.

To simplify terms moving forward, the Court will refer to Fin Cap,

Blueacorn, Spirakus, Calhoun, and Reis collectively as “Blueacorn,” and specify

individuals and entities as required. Similarly, the Court will refer to PayNerd,

PayNerdier, Mandell, and Hendricksen collectively as “PayNerd,” and specify

individuals and entities as required.

MOTION TO DISMISS STANDARD

In a Rule 12(b)(6) Motion to Dismiss, the Court must determine whether the

claimant “may recover under any reasonably conceivable set of circumstances

susceptible of proof.”12 The Court must accept as true all well-pled allegations.13

Every reasonable factual inference will be drawn in the non-moving party’s

favor.14 If the claimant may recover under that standard of review, the Court must

deny the Motion to Dismiss.15

ANALYSIS

Fraudulent Inducement
(Counterclaim Counts V & VI)

12
Spence v. Funk, 396 A.2d 967, 968 (Del. 1978).
13
Id.
14
Wilmington Sav. Fund. Soc’v, F.S.B. v. Anderson, 2009 WL 597268, at *2 (Del. Super.) (citing
Doe v. Cahill, 884 A.2d 451, 458 (Del. 2005)).
15
Spence, 396 A.2d at 968.
8
The Delaware Supreme Court stated the elements a plaintiff must allege to

establish a fraudulent inducement claim:

A party claiming fraud must allege:

1) a false representation, usually one of fact, made
by the 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.16

“Delaware courts have held that to satisfy particularity under [Superior

Court] Rule 9(b) all that is required is that the complaint set forth the ‘time, place,

and contents of the alleged fraud, as well as the individual accused of committing

the fraud.’”17 A party must allege fraudulent intent at the time the alleged

representation was made.18 Merely alleging “fraud by hindsight” is not sufficient

to survive a motion to dismiss.19

16
Lord v. Souder, 748 A.2d 393, 402 (Del. 2000); see also ITW Glob. Invs. Inc. v. Am. Indus.
Partners Cap. Fund IV, L.P., 2017 WL 1040711, at *6 (Del. Super.) (stating the elements
required to establish a claim for fraudulent inducement).
17
TrueBlue, Inc. v. Leeds Equity Partners IV, LP, 2015 WL 5968726, at *6 (Del. Super.)
(quoting Universal Cap. Mgmt., Inc. v. Micco World, Inc., 2012 WL 1413598, at *2 (Del.
Super.)).
18
Id.
19
Noerr v. Greenwood, 1997 WL 419633, at *4–6 (Del. Ch.) (dismissing a fraud claim because
the claim rested upon hindsight, rather than a “contemporaneous pleaded fact,” to support the
fraud claim).
9
PayNerd relies upon Phage Diagnostics Incorporated v. Corvium

Incorporated;20 inVentiv Health Clinical, LLC v. Odonate Therapeutics,

Incorporated;21 and Claros Diagnostics, Incorporated Shareholders

Representative Committee through Goldberg v. OPKO Health, Incorporated22 to

support its assertion that misrepresentations concerning then-existing facts about

operational capacities are actionable through a fraudulent inducement claim.

In Phage, the Court denied a motion to dismiss a fraudulent inducement

claim where the plaintiff pled then-existing misrepresentations concerning the

commercial readiness of its bacteria testing technology.23 The plaintiff relied upon

specific discussions and representations made by the defendant on separate

occasions.24 The defendant’s misrepresentations were of then-existing facts

concerning the technology’s readiness at the time of negotiations, including: (1)

that the technology “was ready for launch”;25 (2) that the technology’s “production

could be performed at scale”;26 (3) that defendant “had a commercially ready

product portfolio”;27 and (4) that the technology was in the process of obtaining

20
2020 WL 1816192 (Del. Super.).
21
2021 WL 252823 (Del. Super.).
22
2020 WL 829361 (Del. Ch.).
23
2020 WL 1816192 at *2, *5–6.
24
Id. at *2.
25
Id. at *5.
26
Id. at *6.
27
Id.
10
certification.28 The Court concluded that a question of fact existed concerning

whether the defendant’s statements constituted “mere puffery.”29 The Court also

concluded that the plaintiff sufficiently had pled each element of a fraudulent

inducement claim.30

In inVentiv, this Court concluded that the defendant’s counterclaim for

fraudulent inducement had met the heightened pleading standard by properly

addressing the “time, place, and content elements of fraud claims.”31 The

fraudulent inducement counterclaim alleged that the plaintiff “knowingly and

intelligently: (1) held itself out to be highly qualified and experienced . . . ; (2)

assured [the defendant] of its abilities to hit the discussed milestones and timelines;

(3) engaged in pre-contractual concealment of its pending merger . . . ; and (4) did

all of this to induce [the defendant] into entering into the [agreements].”32 The

Court did not address whether these assertions constituted puffery. Rather, despite

properly pleading the “time, place, and content elements” of a fraud claim, the

defendant failed to plead separate damages from its breach of contract

counterclaim.33 Thus, this Court granted the motion to dismiss the fraud claim.34

28
Id.
29
Id. at *10.
30
Id.
31
2021 WL 252823, at *8.
32
Id.
33
Id.
34
Id. at *9.
11
In Claros, the Court of Chancery primarily focused on whether a

counterclaim for fraud was time-barred, rather than on whether then-existing facts

about operational capacities constituted an actionable basis for a claim.35 As such,

Claros does not control.

PayNerd relies upon Wal-Mart Stores, Incorporated v. AIG Life Insurance

Company;36 Sofregen Medical Incorporated v. Allergan Sales, LLC;37 Aviation

West Charters, LLC v. Freer;38 and Mooney v. E.I. du Pont Nemours & Company39

to support its position that forward-looking and opinion representations are

actionable because the misrepresentations were based on facts known to the

speakers.

In Wal-Mart, the Court concluded that an opinion may form the basis for an

equitable fraud claim.40 A broker “allegedly [had] advised Wal-Mart that its

maximum exposure under a “worst case” scenario would be $283,000.”41 While

assurances of a worst case scenario constitute an opinion, it was “the type of

opinion that suggest[ed] the reasonable belief that it was based on facts known to

the maker” at the time of the representation.42

35
2020 WL 829361, at *13.
36
901 A.2d 106 (Del. 2006).
37
2021 WL 1400071 (Del. Super.).
38
2015 WL 5138285 (Del. Super.).
39
2017 WL 5713308 (Del. Super.), aff’d, 192 A.3d 557 (Del. 2018).
40
901 A.2d at 116.
41
Id.
42
Id.
12
In Sofregen, this Court denied a motion to dismiss a fraud claim where a

plaintiff alleged that the defendant made forward-looking projections that it “did

not genuinely believe to be true.”43 The defendant allegedly had made optimistic

revenue forecast projections, while simultaneously ceasing to promote the product

and intending to discontinue the product.44 “‘Forward-looking statements of

opinion are actionable as fraudulent only if they were known to be false when

made or were made with a lack of good faith.’”45

In Mooney, the plaintiff based “his fraud claim entirely on forward-looking,

nonactionable statements.”46 All of the plaintiff’s alleged misrepresentations

“refer[red] to what management ‘believe[d]’ or [thought would] happen[,] or

refer[red] to vague goals of increased growth and value.” 47 Because these alleged

misrepresentations were purely forward-looking statements without allegations of

management’s knowledge or lack of good faith, the Court granted the defendant’s

motion to dismiss.48

PayNerd alleges that: (1) Blueacorn had the back-end technical

sophistication to process over 10,000 PPP loan applications per day for a total of

43
2021 WL 1400071, at *4.
44
Id.
45
Id. (quoting Mooney v. E.I. du Pont de Nemours and Co., 2017 WL 5713308, at *6 (Del.
Super.)).
46
2017 WL 5713308, at *6.
47
Id.
48
Id. at *8.
13
one million PPP loan applications;49 (2) Blueacorn claimed to have a “competent

management team in place . . . that . . . could competently scale its personnel

numbers . . . to handle over 10,000 PPP loan applications originating from

PayNerd per day”;50 (3) Calhoun assured PayNerd that Blueacorn had obviated

prior mismanagement failures, fixed technical deficiencies, contracted with a new

lender to support applications, corrected reporting procedures, and equipped itself

to conduct PPP loan processing;51 (4) Blueacorn had manipulated Salesforce data

to avoid payments to PayNerd;52 (5) Blueacorn knew or should have known their

representations were false;53 and (6) Blueacorn intended for Paynerd to rely upon

the misrepresentations.54 PayNerd alleges that if it had known Blueacorn could

not handle the required number of applications, then PayNerd would not have

entered into Referral Agreements 1 and 2, nor would PayNerd have used its

resources to build a front-end sales funnel for Blueacorn.55

“Under Delaware law, a company’s optimistic statements praising its own

‘skills, experience, and resources’ are ‘mere puffery and cannot form the basis for

a fraud claim.’”56 Representations of future performance “‘are mere puffery and

49
PayNerd’s Countercl. at ¶¶ 3–4, 19, 239–44, 256–63.
50
Id. at ¶¶ 242, 259.
51
Id. at ¶ 259(A)–(E).
52
Id. at ¶¶ 12, 14, 176, 177.
53
Id. at ¶¶ 247, 263.
54
Id. at ¶¶ 248, 264.
55
Id. at ¶¶ 251, 268
56
Airborne Health, Inc. v. Squid Soap, LP, 2010 WL 2836391, at *8 (Del. Ch.).
14
cannot form the basis for a fraud claim.’”57 “[A] promise of future conduct can be

actionable in fraud if the plaintiff ‘plead[s] specific facts that lead to a reasonable

inference that the promisor had no intention of performing at the time the promise

was made.’”58

The alleged damages from the fraud claim must be more than duplicative of

breach of contract damages.59 The alleged damages must be cognizable.60 The

alleged damages from a fraud claim must seek different relief from the alleged

damages from a breach of contract claim.61

PayNerd alleges millions of dollars in out-of-pocket costs and lost

opportunity damages stemming from alleged inducement into entering Referral

Contracts 1 and 2.62 PayNerd alleges that it spent millions of dollars in upfront

advertising and marketing in vain because many of the applications generated from

those campaigns went unprocessed.63 PayNerd also alleges that it lost out on other

57
Edinburgh Holdings, Inc. v. Educ. Affiliates, Inc., 2018 WL 2727542, at *12 (Del. Ch.).
58
Id.
59
Cornell Glasgow, LLC v. La Grange Properties, LLC, 2012 WL 2106945, at *8 (Del. Super.)
(“‘[T]o successfully plead a fraud claim, the allegedly defrauded plaintiff must have sustained
damages as a result of a defendant's actions.’ And the damages allegations may not simply
‘rehash’ the damages allegedly caused by the breach of contract.” (internal citations omitted)).
60
Abbott Lab’ys v. Owens, 2014 WL 8407613, at *12 (Del. Super.) (stating a plaintiff must
allege legally cognizable damages to survive a motion to dismiss); Manzo v. Rite Aid Corp.,
2002 WL 31926606, at *5 (Del. Ch.), aff’d, 825 A.2d 239 (Del. 2003).
61
ITW Glob. Invs. Inc. v. Am. Indus. Partners Cap. Fund IV, L.P., 2015 WL 3970908, at *5
(Del. Super.) (“[The fraud claim] must be dismissed because it pleads damages that are simply a
‘rehash’ of the breach of contract damages.”).
62
PayNerd’s Countercl. at ¶¶ 250, 252, 267–69.
63
Id. at ¶¶ 156, 251.
15
“highly lucrative PPP loan referral contracts” because it entered into Referral

Agreements 1 and 2 with Blueacorn.64

Damages based upon lost opportunity and speculative alternatives are

difficult to prove, and as a general matter, do not constitute a cognizable injury.65

However, costs incurred by PayNerd for marketing and advertising are cognizable.

Additionally, costs associated with marketing and advertising may not be

recoverable under PayNerd’s breach of contract counterclaims, but potentially may

be recoverable under PayNerd’s fraudulent inducement counterclaims.

The Court finds that PayNerd sufficiently pled the elements of its fraudulent

inducement counterclaims—misrepresentation, knowledge of the falsity, intent,

reliance, and damages. PayNerd sufficiently alleged that Blueacorn made

misrepresentations of then-existing operational capacities that were based on facts

known to the speakers at the time the misrepresentations were made. Under these

case-specific factual allegations, whether or not fraudulent inducement ultimately

is determined to be beyond mere puffery or fraud in hindsight will be determined

in the context of evidence produced in discovery. This is especially true because

64
Id. at ¶¶ 252, 269.
65
Manzo v. Rite Aid Corp., 2002 WL 31926606, at *5 (Del. Ch.), aff’d, 825 A.2d 239 (Del.
2003) (“[A]warding money damages to compensate plaintiff for the return she could have earned
had she invested elsewhere . . . amounts to speculation founded upon uncertainty. . . .
[P]laintiff’s assertion of ‘investment opportunity losses’ does not, in my opinion, state a
cognizable injury.”).
16
the alleged misrepresentations are oral, making credibility and context of greater

importance.

Group Pleading

PayNerd alleges fraudulent inducement against Fin Cap, Reis, and Spirakus.

Reis contends that PayNerd failed to put Reis on notice of the allegations against

him due to improper group pleading.

“There is nothing in [Superior Court] Rule 9 that per se prohibits group

pleading. A plain reading of the rule suggests that group pleading may be

permitted so long as individual defendants are on notice of the claim against

them.”66 However, group pleading “‘is generally disfavored.’”67

In River Valley Ingredients, LLC v. American Proteins, Inc.,68 the Court

found that the specific allegations of wrongful actions were “sufficiently

particularized to put” the defendants on notice.69 It was “reasonably conceivable

that [the plaintiff] could show that the [individual executives] [were] connected to,

66
River Valley Ingredients, LLC v. Am. Proteins, Inc., 2021 WL 598539, at *3 (Del. Super.).
67
In re Swervepay Acquisition, LLC, 2022 WL 3701723, at *9 (Del. Ch.) (quoting In re WeWork
Litig., 2020 WL 7343021, at *11 (Del. Ch.)).
68
2021 WL 598539 (Del. Super.).
69
Id. at *4.
17
and liable for, the representations . . . .”70 The Court denied the motion to dismiss

the fraudulent inducement claim.71

In In re WeWork Litigation,72 the Court of Chancery denied a similar motion

to dismiss.73 The plaintiff had referred to two affiliated entities together in its

pleading, rather than distinguishing between them.74 The Court of Chancery

determined that discovery was warranted to assist the plaintiff in making

distinctions between the closely related parties in developing the factual record.75

In In re Swervepay Acquisition, LLC,76 the Court of Chancery granted a

motion to dismiss as to specific group-pled buyers.77 The basis for the fraud

claims was a vice president’s email with payment volume projections.78 The Court

of Chancery considered whether it was fair to impute the alleged fraudulent

representations to parties other than the vice president and his company.79 The

Court of Chancery concluded that it was not fair to impute the alleged fraudulent

misrepresentations to parties other than the vice president and his company.80 No

70
Id. (emphasis in original).
71
Id. at *8.
72
2020 WL 7343021 (Del. Ch.).
73
Id. at *11.
74
Id.
75
Id.
76
2022 WL 3701723 (Del. Ch.).
77
Id. at *11.
78
Id. at *4
79
Id. at *9.
80
Id. at *10.
18
other party made statements related to the payment projections from the email that

either expressly or impliedly endorsed or affirmed any aspect of the payment

volume projection.81

PayNerd alleges Reis, Spirakus, and Fin Cap: (1) “[a]pproached PayNerd in

late January 2021 regarding entering into a business relationship based on

soliciting and processing PPP applications and loans”;82 (2) “[R]epeatedly assured

PayNerd LLC that Fin Cap could competently process high volumes of PPP loan

applications, including during the January 31 meeting”;83 (3) “[a]ssured PayNerd

that Fin Cap could process up to thousands of new PPP loan applications per

day”;84 (4) “claimed to have a competent management team in place to run Fin Cap

and that Fin Cap could competently scale its personnel numbers, . . . to handle over

10,000 PPP loan applications originating from PayNerd per day” 85 —totaling

approximately one million PPP loan applications over ten weeks;86 and (5) told

PayNerd that Fin Cap was only deficient in marketing, advertising, and

“development of a front end sales funnel.”87

81
Id. at *9–10.
82
PayNerd’s Answering Br. at 37; PayNerd’s Countercl. at ¶ 238.
83
PayNerd’s Countercl. at ¶ 239.
84
PayNerd’s Answering Br. at 37; PayNerd’s Countercl. at ¶ 240–41.
85
PayNerd’s Countercl. at ¶¶ 240–41.
86
Id. at ¶ 242.
87
Id. at ¶ 243.
19
The Court finds that imputation is not required in this case because the

counterclaim does not allege that another’s statements should be imputed to Reis.

Rather, PayNerd alleges that Reis himself made misrepresentations. Therefore, the

instant case is more akin to River Valley and WeWork. The Court finds that the

allegations are sufficiently particularized to put Reis on notice. It is reasonably

conceivable that Reis is liable for the alleged misrepresentations. PayNerd should

have the opportunity to develop the factual record through discovery to make the

appropriate distinctions between allegations attributable to closely related parties:

Reis, Spirakus, and Fin Cap.

Therefore, the Court hereby DENIES Blueacorn’s and Reis’ Motions to

Dismiss with respect to Counterclaim V. The Court hereby DENIES Blueacorn’s

Motion to Dismiss with respect to Counterclaim VI.

Breach of Contract
(Counterclaim Counts I & II)

PayNerd alleges that Blueacorn breached Referral Contracts 1 and 2 by

failing: (1) to provide customers with Blueacorn services;88 (2) to make timely

payment;89 (3) to make complete payment;90 (4) to process loan applications in a

competent and timely manner;91 (5) to process PayNerd-generated loan

88
Id. at ¶¶ 204, 214.
89
Id. at ¶¶ 201, 211.
90
Id. at ¶¶ 12–17, 202, 205–06, 212, 215–16.
91
Id. at ¶¶ 149–50.
20
applications—instead choosing to process Womply-generated loans;92 (6) to

submit for funding loans that were processed and approved;93 (7) to provide

accounting backup;94 and (8) to process up to one million applications and loans—

many of which already had received SBA approval.95

Blueacorn argues there was no breach of contract as a matter of law because

Blueacorn did not have a duty to process every single loan application.

The Court finds that PayNerd’s breach of contract claims go beyond the

alleged failure to process every single PPP loan application. The breach of

contract claims include other alleged breaches. The Court finds that genuine issues

of material fact exist that prevent dismissal of Counterclaims I and II. For

example, a genuine issue of fact exists as to whether the SBA would have declined

to pay a fee to Blueacorn on a loan it approved. Therefore, the Court hereby

DENIES Blueacorn’s Motion to Dismiss with respect to Counterclaims I and II.

Implied Covenant of Good Faith and Fair Dealing
(Counterclaim Counts III & IV)

92
Id. at ¶¶ 17, 202–03, 213.
93
Id. at ¶¶ 204, 213–14.
94
Id. at ¶¶ 13, 200, 210.
95
Compare Am. Compl. ¶ 55 (“From February through July 2021, Blueacorn assisted the
Lenders in making approximately 700,000 completed PPP loans.”), with PayNerd’s Countercl. at
¶ 102 (“Ultimately, the combination of PayNerd’s extensive sales and marketing campaign and
its front-end sales funnel generated over 1.7 million applications and over 700,000 loans for
Blueacorn to process.”). See also PayNerd’s Countercl. at ¶ 157 (“Blueacorn failed to complete
the processing of approximately 130,000 applications that had already received SBA-approval.”
(emphasis in original)).
21
“To state a claim for breach of an implied covenant, a claimant must allege:

(1) a specific implied contractual obligation; (2) a breach of that obligation; and (3)

resulting damage.”96 “The implied covenant only applies to developments that

could not be anticipated, not developments that the parties simply failed to

consider[.]”97 The implied covenant comes into play “when the court finds that the

expectations of the parties were so fundamental that it is clear that they did not feel

a need to negotiate about them.”98

[T]he implied covenant is not a license to rewrite
contractual language just because the plaintiff failed to
negotiate for protections that, in hindsight, would have
made the contract a better deal. Rather, a party may only
invoke the protections of the covenant when it is clear
from the underlying contract that “the contracting parties
would have agreed to proscribe the act later complained of
. . . had they thought to negotiate with respect to that
matter.”99

PayNerd argues that Blueacorn breached the implied covenant of good faith

and fair dealing by “engaging in post hoc data manipulation.”100 PayNerd pled in

96
Brightstar Corp. v. PCS Wireless, LLC, 2019 WL 3714917, at *11 (Del. Super.); see also
Am. Healthcare Admin. Servs., Inc. v. Aizen, 285 A.3d 461, 478 (Del. Ch.), judgment entered,
(Del. Ch. 2022) (“To prevail on an implied covenant claim, a plaintiff must prove ‘a specific
implied contractual obligation, a breach of that obligation by the defendant, and resulting
damage to the plaintiff.’” (quoting Cantor Fitzgerald, L.P. v. Cantor, 1998 WL 842316, at *1
(Del. Ch.))).
97
Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010).
98
Allied Cap. Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1032–33 (Del. Ch. 2006).
99
Winshall v. Viacom Int’l, Inc., 76 A.3d 808, 816 (Del. 2013), as corrected (Oct. 8, 2013)
(quoting Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005)).
100
PayNerd’s Countercl. at ¶¶ 221, 231.
22
its counterclaims that Blueacorn had specific implied contractual obligations: (1)

“to accurately record loan application data in Salesforce”;101 (2) “to timely and

accurately process applications”;102 (3) “to process applications generated by

PayNerd, including those already approved by the SBA for funding”;103 and (4)

“not [to] mismanage internal operations such that Blueacorn’s performance was

paralyzed, including to the point that approximately 130,000 [SBA] approved

loans were not submitted for funding.”104 PayNerd contends that if this conduct

does not breach Referral Agreements 1 and 2, then the conduct does violate the

implied covenant of good faith and fair dealing.105

“The implied covenant of good faith and fair dealing involves . . . inferring

contractual terms to handle developments or contractual gaps that the asserting

party pleads neither party anticipated.”106 Either Referral Agreements 1 and 2

govern the Salesforce data integrity, or, if there is a contractual gap, then the

implied covenant of good faith and fair dealing will fill that gap.107

101
PayNerd’s Answering Br. at 33; PayNerd’s Countercl. at ¶¶ 221, 231.
102
PayNerd’s Answering Br. at 33; PayNerd’s Countercl. at ¶¶ 222, 232.
103
PayNerd’s Answering Br. at 33; PayNerd’s Countercl. at ¶¶ 223–24, 233–34.
104
PayNerd’s Answering Br. at 33; PayNerd’s Countercl. at ¶ 225(A)–(E).
105
PayNerd’s Answering Br. at 33–34.
106
Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010).
107
See Brightstar Corp. v. PCS Wireless, LLC, 2019 WL 3714917, at *11 (Del. Super.) (“The
Court will resort to implying a covenant only when ‘the contract is truly silent with respect to the
matter at hand, and . . . when . . . the expectations of the parties were so fundamental that it is
clear that they did not feel a need to negotiate about them.’” (quoting Allied Cap. Corp. v. GC-
Sun Holdings, L.P., 910 A.2d 1020, 1032 (Del. Ch. 2006))).
23
The Court finds that Blueacorn had an implied duty to maintain accurate

Salesforce records. Even though Referral Agreements 1 and 2 do not explicitly

state that “accuracy” is a requirement of “manag[ing] and operat[ing]” Salesforce,

it reasonably can be implied from Blueacorn’s responsibility to “manage and

operate” Salesforce, that the data should be accurate.108 Thus, a gap exists that the

implied covenant of good faith and fair dealing may fill. The alleged damage from

false reporting in Salesforce is a discrepancy in the referral fees paid to PayNerd.

The Court finds that data accuracy is an expectation that is “so fundamental that it

is clear that [Blueacorn and PayNerd] did not feel a need to negotiate about [it].”109

Thus, with respect to the allegations concerning the integrity of the Salesforce data,

the implied covenant claim may remain.

The contract provides that Blueacorn has a duty to “provide underwriting,

application processing for business loans and timely submission for qualified

customers.”110 Thus, the Court finds that no gap exists for the implied covenant to

fill with respect to timely and accurately submitting applications. Therefore,

PayNerd’s breach of contract claims govern this allegation.

108
See Referral Agreements 1 & 2, Schedule B (stating that it is Blueacorn’s and Fin Cap’s
responsibility to manage and operate all backend technology—e.g., Salesforce—required for
providing services).
109
Allied Cap. Corp., 910 A.2d at 1032–33.
110
Referral Agreements 1 & 2, Schedule B.
24
The Court finds that an implied covenant does not apply to Blueacorn’s

alleged duty to process all loan applications generated by PayNerd. Referral

Agreements 1 and 2 explicitly state that the agreements are “non-exclusive,” which

permitted Blueacorn also to process applications from other referral partners.

However, Referral Agreements 1 and 2 are silent with respect to whether

Blueacorn was required to process all loan applications generated by PayNerd.

Therefore, a gap does exist. However, the Court finds that this is a contractual

development that could have been anticipated at contracting.111 Whether

Blueacorn was obligated to process every loan application generated by PayNerd is

not “so fundamental that it is clear that [Blueacorn and Paynerd] did not feel a need

to negotiate about [it].”112 Rather, it appears this is an attempt to rewrite the

contract for more favorable terms.

The Court finds that Blueacorn did not have an implied duty not to

mismanage internal operations by: (1) not locking personnel out of the company’s

email and financial systems;113 and (2) paying buyouts of over $180 million to its

founders and other executives.114 These actions by Blueacorn were matters of

internal corporate business that impacted operations and available funding. Duties

111
Nemec, 991 A.2d at 1126.
112
Allied Cap. Corp., 910 A.2d at 1032–33.
113
PayNerd’s Countercl. at ¶ 225(A).
114
Id. at ¶ 225(B)–(C).
25
not to mismanage internal operations cannot be implied from the parties’

agreements. The alleged duties not to mismanage internal operations are not “so

fundamental that it is clear that [Blueacorn and Paynerd] did not feel a need to

negotiate about them.”115 Rather, it appears these allegations are an attempt to

“rewrite contractual language just because the plaintiff failed to negotiate for

protections that, in hindsight, would have made the contract a better deal.”116

Therefore, Blueacorn’s Motion to Dismiss is hereby GRANTED IN PART

AND DENIED IN PART with respect to Counterclaims III and IV.

Quasi-Contract

PayNerd alleges unjust enrichment and quantum meruit claims in the

alternative to its contract-based claims. The parties do not dispute that Referral

Agreements 1 and 2 are valid and enforceable contracts. This Court previously

dismissed Blueacorn’s quasi-contractual claims. The only argument raised by

PayNerd to prevent dismissal of Counterclaims VII–XII117 was that Blueacorn

sought rescission of Referral Agreement 2.118 Blueacorn stated in reply that it does

115
Allied Cap. Corp., 910 A.2d at 1032–33.
116
Winshall v. Viacom Int’l, Inc., 76 A.3d 808, 816 (Del. 2013), as corrected (Oct. 8, 2013).
117
The briefing only seeks dismissal of Counterclaims VII–XI. However, Counterclaim XII is
essentially the same as Counterclaim XI. Counterclaim XI is for declaratory judgment that
Referral Agreement 1 is valid, while Counterclaim XII is for declaratory judgment that Referral
Agreement 2 is valid. Therefore, the Court will treat Counterclaim XII in the same manner as
Counterclaim XI.
118
PayNerd’s Answering Br. at 35–36.
26
not seek rescission of Referral agreement 2, and only seeks ordinary tort

damages.119

The Court finds that PayNerd’s Counterclaims VII–XII are unnecessarily

duplicative of its contractual claims. Therefore, PayNerd’s Counterclaims VII–XII

are hereby DISMISSED.

CONCLUSION

The Court finds that PayNerd sufficiently pled its fraudulent inducement

counterclaims by alleging that Blueacorn made misrepresentations of then-existing

operational capacities that were based on facts known to the speakers at the time

the misrepresentations were made. Under these case-specific factual allegations,

whether or not fraudulent inducement ultimately is determined to be beyond mere

puffery or fraud in hindsight will be determined in the context of evidence,

including facts relating to credibility and context.

The Court finds PayNerd has alleged that Reis himself made

misrepresentations. The Court finds that the allegations are sufficiently

particularized to put Reis on notice. PayNerd may develop the factual record

through discovery to make the appropriate distinctions between allegations

attributable to closely related parties: Reis, Spirakus, and Fin Cap.

119
Blueacorn’s Reply Br. at 22.
27
Therefore, the Court hereby DENIES Blueacorn’s and Reis’ Motions to

Dismiss with respect to Counterclaim V. The Court hereby DENIES Blueacorn’s

Motion to Dismiss with respect to Counterclaim VI.

The Court finds that PayNerd’s breach of contract claims go beyond the

alleged failure to process every single PPP loan application. The breach of

contract claims include other alleged breaches. The Court finds that genuine issues

of material fact exist that prevent dismissal of Counterclaims I and II. Therefore,

the Court hereby DENIES Blueacorn’s Motion to Dismiss with respect to

Counterclaims I and II.

The Court finds that Blueacorn had an implied duty to maintain accurate

Salesforce records. With respect to Blueacorn’s alleged duties to provide

application processing, to process all applications from PayNerd, and not to

mismanage internal operations, the Court finds the implied duty of good faith and

fair dealing does not apply. Therefore, Blueacorn’s Motion to Dismiss is hereby

GRANTED IN PART AND DENIED IN PART with respect to Counterclaims

III and IV. Counterclaims III and IV only may continue as to the alleged

Salesforce data integrity.

The Court finds that PayNerd’s Counterclaims VII–XII are unnecessarily

duplicative of its contractual claims. Therefore, PayNerd’s Counterclaims VII–XII

are hereby DISMISSED.

28
Plaintiffs’ and Third-Party Defendants Noah Spirakus’ and Barry Calhoun’s

Motion to Dismiss PayNerd’s Counterclaims and Third-Party Claims is hereby

GRANTED IN PART AND DENIED IN PART. Third-Party Defendant Nathan

Reis’ Motion to Dismiss and Joinder is hereby DENIED.

IT IS SO ORDERED.

/s/ Mary M. Johnston
The Honorable Mary M. Johnston

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