Background
The plaintiffs sold cybersecurity company Infosec Learning, Inc. to ACI Learning Holdings, LLC in December 2023 for $9.5 million in cash, potential earnouts totaling $6.5 million, and, for two plaintiffs, $4 million in rollover equity in ACI. During due diligence, ACI chair Chong Moua allegedly circulated a workbook substantially overstating ACI’s historical EBITDA. The plaintiffs also alleged that the defendants failed to disclose that VET TEC—a federal program historically producing about 40% of ACI’s revenue—had exhausted its funding and stopped accepting new participants shortly before closing.
After closing, the rollover plaintiffs alleged that ACI’s controllers and affiliates issued preferred securities and convertible notes on favorable terms to insiders, diluting and subordinating their common equity. The plaintiffs sued for fraudulent inducement, negligent misrepresentation, breach of fiduciary duty, aiding and abetting, and civil conspiracy. The defendants moved to dismiss all claims.
The Court’s Holding
The Court denied dismissal of the fraud and negligent-misrepresentation claims insofar as they concerned inducement into the stock purchase agreement. Although the workbook statements were extracontractual, the stock purchase agreement did not contain a clear statement by the plaintiffs disclaiming reliance on outside representations. Section 4.7 instead stated that the defendants had made no representations about the accuracy or completeness of information furnished concerning ACI, while Section 5.6 addressed investigation and assumption of unknown risks; neither satisfied Delaware’s demanding anti-reliance standard. The separate rollover agreements did contain effective plaintiff-side anti-reliance language, so the Court dismissed the claims to the extent they alleged inducement into those agreements.
The Court also held that the defendants’ alleged failure to disclose VET TEC’s loss of funding supported fraud and negligent-misrepresentation claims because, after providing historical revenue information, they allegedly learned before closing of information making that picture misleading. The fraud-based conspiracy claim likewise survived. But the equity-dilution allegations stated an exclusively derivative injury to ACI, not a direct injury to the rollover plaintiffs, and the complaint did not identify the board’s composition or plead particularized facts showing that at least half of the demand board was disabled. The Court therefore dismissed the fiduciary-duty claim, the dependent aiding-and-abetting claim, and the conspiracy claim to the extent based on fiduciary breaches.
Key Takeaways
- An acquirer’s statement that it made no representations about information supplied to sellers does not, without a clear seller-side disclaimer of reliance, bar the sellers’ extracontractual fraud claims.
- A buyer or acquirer that supplies historical financial information may have a duty to disclose later-acquired facts that make the information misleading, including the imminent loss of a major revenue source.
- Claims that insiders caused a company to issue undervalued senior securities are derivative when the company suffered the primary injury, and demand futility must be pleaded with particularized facts about the full demand board.
Why It Matters
The decision underscores that Delaware courts closely examine who actually disclaimed reliance. General releases, acknowledgments of due diligence, and representations by the accused party about what it did not represent may be insufficient unless the allegedly defrauded party clearly agrees that it did not rely on extracontractual statements.
It also illustrates the pleading divide between transaction fraud and post-closing dilution claims. Detailed allegations about false financial information and omitted operational developments can survive Rule 12(b)(6), while derivative dilution claims may fail at the threshold if the complaint does not plead the board composition and director-specific conflicts needed to establish demand futility.