Feenix Payment Systems, LLC v. Blum

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

FEENIX PAYMENT SYSTEMS, LLC, et)
al., )
)
Plaintiffs, ) C.A. No. N23C-12-135 EMD CCLD
)
v. )
)
JEFFREY BLUM and MICHAEL BLUM, )
)
Defendants. )

Submitted: May 20, 2024
Decided: August 19, 2024

Upon Defendants’ Motion to Dismiss Complaint
GRANTED in part and DENIED in part

Geoffrey G. Grivner, Esq., Andrew G. Hope, Esq., Buchanan Ingersoll & Rooney PC, Wilmington,
Delaware. Counsel for Plaintiffs Feenix Payment Systems, LLC, FVP Opportunity Fund GP, LLC,
Feenix Venture Partners Opportunity Fund, LP, Feenix Venture Partners, LLC and FVP
Smithfield, LLC.

Jesse L. Noa, Esq., Andrew M. Moshos, Esq., Potter Anderson & Corroon, Wilmington, Delaware,
Andrew Moss, Esq., Kutner Rubinoff & Moss, LLP, Coconut Grove, Florida. Counsel for
Defendants Jeffrey Blum and Michael Blum.

DAVIS, J.

I. INTRODUCTION

This is a civil action assigned to the Complex Commercial Litigation Division of the

Court. Plaintiffs, Feenix Payment Systems, LLC (the “Company”), FVP Opportunity Fund GP,

LLC (“Fund GP”), Feenix Venture Partners Opportunity Fund, LP (“Feenix Opp. Fund”), Feenix

Venture Partners, LLC (“Partners LLC”), and FVP Smithfield, LLC (“FVP Smithfield”)

(collectively, the “Feenix Entities”) allege that Defendants Jeffrey Blum and Michael Blum
(collectively, the “Blums”) breached the Operating Agreement (as defined below) and interfered

with the Feenix Entities’ business operations.1

The Feenix Entities filed their complaint (the “Complaint”) on December 14, 2023. The

Feenix Entities assert claims for: (i) Breach of the Operating Agreement against the Blums; (ii)

Tortious Interference with Contractual Relations against Michael Blum; (iii) Civil Conspiracy

against the Blums; and (iv) Contractual Indemnity Under the Separation Agreement against

Michael Blum.2

The Blums filed Defendants Motion to Dismiss Complaint (the “Motion”) on February

13, 2024.3 The Motion seeks to dismiss the Complaint in its entirety.4 The Blums argue that the

Feenix Entities have failed to state a claim upon which relief can be granted because: (i) the

Feenix Entities have engaged in claim splitting as a nearly identical lawsuit was tried in

December 2023; and (ii) the McWane doctrine supports dismissal.5 The Feenix Entities oppose

the Motion and filed their opposition (the “Opposition”) on March 21, 2024.6 The Blums filed

their reply on March 27, 2024.7 The Court held a hearing on the Motion on May 20, 2024. At

the conclusion of the hearing, the Court took the Motion under advisement.

For the reasons stated below, the Motion is GRANTED in part and DENIED in part.

The Court grants the Motion as to dismissal of the Complaint. The Court denies any request for

sanctions against the Feenix Entities.

1
See Compl. (D.I. No. 1).
2
See generally Compl.
3
Defs.’ Mot. to Dismiss (hereinafter “Mot.”) (D.I. No. 8).
4
See Mot.
5
See generally Mot.
6
Pls.’ Br. in Opp’n to Defs.’ Mot. to Dismiss (hereinafter “Pls.’ Opp’n”) (D.I. No. 11).
7
Defs.’ Reply Br. in Supp. of Mot. to Dismiss (hereinafter “Defs.’ Reply”) (D.I. No. 12).

2
II. RELEVANT FACTS8

A. THE PARTIES.

Collectively, the Feenix Entities are Delaware LLCs with their principal places of

business in New York, New York.9 Although not a party, Keith Lee is the principal and

founding member of the Feenix Entities which were first organized in 2017.10

Jeffrey Blum and Michael Blum are individuals residing in Florida.11 Jeffrey Blum

became a member of the Feenix Entities in 2018 and began accepting distributions, approving

board actions, participating in capital calls, and receiving confidential and proprietary

information.12 Michael Blum – Jeffrey Blum’s son – invested in the Feenix Entities around

October of 2017.13 Michael Blum then exited the Feenix Entities in 2020.14 As part of his exit,

Michael Blum entered into a separation agreement (the “Separation Agreement”).15 Jeffrey

Blum remains a member of the Feenix Entities.16

B. THE FEENIX ENTITIES AND THE BLUMS.

The Blums entered into Fund GP’s Limited Liability Company Agreement (the

“Operating Agreement”) as part of their investments in the Feenix Entities.17 Under the

Operating Agreement, “Holders” were designated as “Restricted Parties” and received

confidential and proprietary information relating to the Feenix Entities.18 The Operating

8
The facts are drawn from the Complaint and are presumed to be true for the purposes of this Motion. The Court is
permitted to take judicial notice of court records in a companion litigation on a motion to dismiss. See Dep’t of Fin.
v. Univar, Inc., 2020 WL 2569703, at *1 n.1 (Del. Ch. May 21, 2020). Therefore, where necessary, I draw on the
motions, orders, and transcripts in C.A. No. N21C-05-099 EMD CCLD (hereinafter the “Prior Litigation”).
9
Compl. ¶¶ 11-15.
10
Id. ¶ 26.
11
Id. ¶¶ 16-17.
12
Id. ¶¶ 1, 19.
13
Id. ¶ 1.
14
Id. ¶ 4.
15
Id.
16
Id. ¶ 6.
17
Id. ¶ 2. The Feenix Entities did not attach the Operation or Separation Agreement to the Complaint.
18
Id. ¶ 3.

3
Agreement prohibited Holders from “using, copying or disclosing” this protected information

without prior written consent from Fund GP’s Board of Managers (the “Restrictive

Covenants”).19

Michael Blum was bound by the Restrictive Covenants for a period of 18 months

following his May 2020 Separation.20 The Separation Agreement expressly integrated the

Restrictive Covenants of the Operating Agreement.21 The Separation Agreement also contained

an Indemnification Provision.22

19
Id. The Restrictive Covenants are as follows:
(a) Each of the Holders and each Board Member (collectively, the “Restricted Parties”) recognizes
and acknowledges that such Restricted Party will be entrusted with or have access to confidential
and proprietary information which is the property of the Companies and/or third parties to which
the Companies owe a duty of confidentiality (whether pursuant to Applicable Law, by contract or
otherwise). Each Restricted Party therefore agrees that, at all times while such Restricted Party is a
Holder or Manager, and for a period of eighteen (18) months thereafter, such Restricted Party shall
(i) not, without the prior written consent of the Board of Managers, directly or indirectly, use, copy
or duplicate, or disclose or otherwise make available to any third party, any Confidential Information
(as defined below) other than in the performance of such Restricted Party’s duties with respect to
the Companies, (ii) take such protective measures as may be reasonably necessary to preserve the
secrecy and interest of the Companies (or, if applicable, of a third party to which the Companies
owes a duty of confidentiality) in the Confidential Information and (iii) not, without the prior written
consent of the Board of Managers, utilize or convert Confidential Information for such Restricted
Party’s own benefit or gain, of whatever nature other than in performance of such Restricted Party’s
duties with respect to the Companies. As used herein, the term “Confidential Information” shall
mean trade secrets and other non-public information, whether tangible or intangible, in any form or
medium, relating to the business or affairs of the Companies that is proprietary to the Companies
(or relating to the business or affairs of a third party to which the Companies owes a duty of
confidentiality) and which the Companies makes reasonable efforts to keep confidential.
Compl. ¶ 28.
20
Id. ¶ 31.
21
See id. ¶ 32.
22
The indemnification provision was as follows:
(c) The Redeemed Member shall indemnify and hold the Company and the Fund GPs harmless from
any and all Claims, arising out of or resulting from, directly or indirectly, (i) any matter arising from
or in connection with a breach by the Redeemed Member of the Operating Agreement prior to the
Effective Date that constitutes fraud, willful misconduct, or a knowing violation of law by the
Redeemed Member; (ii) any breach by the Redeemed Member of any covenant or obligation
contained in this Agreement; and (iii) any breach or inaccuracy of any representation, warranty, or
covenant by the Redeemed Member contained in this Agreement . . . .
Compl. ¶ 33.

4
C. THE FVP SMITHFIELD LEASE.

On December 28, 2017, PBM Partners LLC (“PBM”)23 and FVP Smithfield entered into

an office lease for two properties, one located at 340 3rd Avenue, Pittsburgh, PA 15222 and the

other on the second floor of the Pitt Building in Pittsburgh, PA (collectively, the “Building”).24

Michael Blum is PBM’s registered agent and the company’s manager.25 Jeffrey Blum is an

investor in PBM.26 The Building became an “upscale working share space” that included

“furniture, fixtures, and equipment” (“FF&E”) and was named the “Americus Club.”27 FVP

Smithfield invested $1.6 million into the Americus Club at the Building.28

In April 2019, FVP Smithfield and Feenix Opp. Fund entered into a “senior secured

revolving loan facility and loan and security agreement” (“Loan Agreement”) with certain

“Lenders”29 and their administrative agent, Midtown Madison Management, LLC

(“Midtown”).30 On April 24, 2019, Midtown filed a UCC Financing Statement with the

Delaware Department of State (the “Lien”) against debtor, FVP Smithfield.31 The Lien covered

“all assets of the debtor, whether now owned or hereafter acquired, including all products and

proceeds thereof.”32 The Feenix Entitles assert this includes the FF&E at the Building.33

On August 14, 2020, Midtown executed a notice of senior security interest on the assets

of FVP Smithfield.34 On August 17, 2020, the notice of senior security interest was forwarded to

23
PBM is a Florida LLC, with its principal place of business in Miami, Florida. Id. ¶ 35.
24
Id. ¶ 34.
25
Id. ¶ 36.
26
Id. ¶ 37.
27
Id. ¶ 39.
28
Id.
29
The Complaint refers to “Lenders” and “New Lender” without naming either entity.
30
Compl. ¶ 40.
31
Id. ¶ 41.
32
Id. ¶ 42.
33
Id. ¶ 43.
34
Id. ¶ 44.

5
both PBM and Michael Blum by email and overnight delivery.35 On October 28, 2020, Midtown

issued a notice of a private sale for the FF&E in the Building.36 On November 30, 2020, the

FF&E was sold in a private sale to Feenix Opp. Fund for $250,000 which was then transferred to

Midtown.37 On December 1, 2020, Mr. Lee, representing Feenix Opp. Fund sent an email to

Michael Blum advising him of the Sale.38

D. THE DECEMBER LETTER.

After the sale of the FF&E, Mr. Lee was working on a refinancing deal on behalf of

Feenix Opp. Fund with Lenders and a New Lender.39 On December 16, 2020, Mr. Lee sent a

confidential email (the “December E-mail”) to Feenix Opp. Fund’s limited partners, including

Jeffrey Blum.40 The December E-mail included a request for approval to enter into a new credit

facility with a new lender in order to replace the old lender.41 A term sheet associated with the

refinancing deal was attached to this email.42

On December 18, 2020, the day the refinancing deal was set to close, the Lenders

informed Mr. Lee that they had received a letter from Jacob S. Frenkel, an attorney for PBM (the

“December Letter”).43 The December Letter was addressed to the Managing Director and Senior

Counsel for Lenders, and had the following subject line, “Re: Possible Sham $250,000 Private

35
Id. ¶ 45.
36
See id. ¶ 46.
37
Id. ¶ 48.
38
Id. ¶ 49.
39
Id. ¶ 50.
40
Id. ¶ 51.
41
Id.
42
Id.
43
Id. ¶ 56. Plaintiffs did not attach the December Letter to the instant Complaint despite quoting it extensively. The
Court quoted the December Letter in full in Feenix Payment Systems, LLC, et. al., v. Blum, 2022 WL 215026, at *2-
4 (Del. Super. Jan. 25, 2022).

6
Transaction and Fraudulent Claim of Security Interest.”44 As a result of the December Letter,

the refinancing deal was purportedly put on pause.45

Following the December Letter, the Lenders demanded additional assurances from

Feenix Opp. Fund, including an additional payment of $50,000 to offset any short-term expenses

associated with the December Letter, a deposit for any suits brought or threatened against the

New Lender, and the New Lender required reassurances with respect to the actions of Michael

Blum.46 Ultimately, the New Lender informed the Feenix Entities that they would not be

engaging in business with Mr. Lee or the other Feenix Entities.47

The Feenix Entities later discovered that Jeffrey Blum had forwarded the December E-

Mail to Michael Blum without the Feenix Entities consent.48 The Feenix Entities also discovered

that Jeffrey Blum, in addition to the December E-Mail, had continued to disclose the Feenix

Entities financial statements, and other confidential and proprietary information (the

“Confidential Information”) to Michael Blum.49 The Feenix Entities allege that the Blums’

conspired to use its Confidential Information to further the Blums’ financial interest in PBM.50

The Feenix Entities filed suit on December 14, 2023, alleging that: (i) the Blums’

Breached the Operating Agreement by disclosing confidential information to third parties; (ii)

Michael Blum Tortiously Interfered with Contractual Relations by “soliciting and encouraging”

Jeffrey Blum to disclose the Confidential Information; (iii) the Blums’ engaged in Civil

44
Compl. ¶ 57.
45
Id. ¶ 59.
46
See id. ¶¶ 69-72.
47
Id. ¶ 67.
48
Id. ¶ 53. The Feenix Entities became aware of this fact in April 2023, during the discovery process for the Prior
Litigation. Id. ¶¶ 53-54.
49
Id. ¶ 54. These facts were also revealed during discovery of the Prior Litigation in July 2023. Id.
50
Id. ¶ 55.

7
Conspiracy; and (iv) the Feenix Entities are entitled to Contractual Indemnity from Michael

Blum pursuant to the Separation Agreement.51

E. THE PRIOR LITIGATION.

On May 11, 2021, the Feenix Entities filed suit against Michael Blum (the “Prior

Litigation”).52 The plaintiffs in the Prior Litigation are substantially the same as the Feenix

Entities with the following exceptions: (i) the Prior Litigation included FVP Opportunity Fund II

GP, LLC, and Mr. Lee; and (ii) excluded Feenix Venture Partners, LLC.53 Michael Blum was

the defendant in the Prior Litigation.54 The Prior Litigation initially consisted of the following

claims against Michael Blum: (i) Breach of the Operating Agreement’s Restrictive Covenants;

(ii) Breach of the Separation Agreement’s Mutual Non-Disparagement Clause; (iii) Tortious

Interference with Business Expectation; (iv) Defamation; and (v) Defamation Per Se.55 Michael

Blum filed a motion to dismiss in the Prior Litigation. The Court Dismissed Counts III-IV on

January 25, 2022.56 On February 7, 2022, the Court granted summary judgment in favor of

Michael Blum on count I and denied summary judgment as to count II.57

On October 13, 2023, the plaintiffs filed a motion for leave to file an amended complaint

and case management order (the “Motion to Amend”).58 Through the Motion to Amend, the

Prior Litigation plaintiffs sought to add Jeffrey Blum as a second defendant “based on

information learned in discovery revealing that Jeffrey Blum unlawfully, and in breach of his

51
See Compl.
52
See Feenix Payment Systems, LLC v. Blum, 2024 WL 2768386, at *1 (Del. Super. May 29, 2024) (cited as “Prior
Litigation”).
53
Id.
54
Id.
55
Id.
56
Id.
57
Id.
58
See Mot., Ex. 1 (hereinafter “Mot. to Amend”). As a result of prior orders and stipulations, Feenix Venture
Partners Opp. Fund, LP, FVP Smithfield, and Mr. Lee had been dismissed from the case. Id. at 1 n.1.

8
contractual obligations, provided confidential information to Michael Blum.”59 The Prior

Litigation plaintiffs, in the Motion to Amend, also represented that the claims against Jeffrey

Blum concerned the same facts and circumstances as those at issue in the Prior Litigation and

resulted in the same damages sought.60 On November 15, 2023, the Court granted a joint

stipulation regarding withdrawal of the Motion to Amend and to amend case management

order.61

The Prior Litigation proceeded to trial on December 4, 2024.62 The Court issued its

Decision after Trial on May 29, 2024.

III. STANDARD OF REVIEW

Upon a motion to dismiss, the Court (i) accepts all well-pled factual allegations as true,

(ii) accepts even vague allegations as well-pled if they give the opposing party notice of the

claim, (iii) draws all reasonable inferences in favor of the non-moving party, and (iv) only

dismisses a case where the plaintiff would not be entitled to recover under any reasonably

conceivable set of circumstances.63 However, the court must “ignore conclusory allegations that

lack specific supporting factual allegations.”64 Any additional facts discussed that are not in the

Complaint are either not subject to reasonable dispute or subject to judicial notice.65

59
See Mot. to Amend at 1.
60
Id.
61
See Prior Litigation, Order Granting Withdrawal (D.I. 154).
62
See Prior Litigation, Trial Worksheet (D.I. No. 160).
63
See Central Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 227 A.3d 531, 536 (Del. 2011); Doe v.
Cedars Academy, No. 09C-09-136, 2010 WL 5825353, at *3 (Del. Super. Oct. 27, 2010).
64
Ramunno v. Crawley, 705 A.2d 1029, 1034 (Del. 1998).
65
Dep’t of Fin., 2020 WL 2569703, at *1.

9
IV. DISCUSSION

A. THIS CIVIL ACTION IS PRECLUDED AS CLAIM SPLITTING.

Claim splitting falls within the doctrine of claim preclusion.66 Delaware courts apply the

transactional approach to claim splitting which “considers a second lawsuit precluded if it arises

from the same transaction as a previous adjudication.”67 “If the plaintiff knows or could have

known those common facts at the time of the first action, then the doctrine of claim preclusion

bars the claim in the second action.”68 The rationales behind the doctrine are, “(1) that no person

should be unnecessarily harassed with a multiplicity of suits; and (2) a litigant should be

prohibited from getting two bites at the apple.”69

Importantly, “the rule against claim splitting is not limited to complaints that are word-

for-word identical or present identical theories.”70 To prevail on a theory of claim splitting a

defendant must establish that the same transaction forms the basis for the prior and subsequent

actions, and that “the plaintiff must have not raised a claim in the first action that he or she

should have, in fairness, raised.”71 If a defendant proves these two elements, than the plaintiff

holds the burden to show that they could not have raised their claims in the first case.72 “A final

judgment in the first action is not an element of claim splitting.”73

66
Ford v. Sedgwick Claims Management Services, Inc., 2020 WL 2557141, at *3 (Del. Super. May 20, 2020).
67
Id.
68
Id.
69
Daugherty v. Dondero, 2023 WL 461112, at *3 (Del. Ch. Jan. 27, 2023) (internal quotation marks omitted)
(quoting J.L. v. Barnes, 33 A.3d 902, 918 (Del. Super. June 17, 2011)).
70
Goureau v. Lemonis, 2021 WL 1197531, at *9 (Del. Ch. Mar. 30, 2021); see also Ford, 2020 WL 2557141, at *3
(“Under the transactional approach, resolving the first suit may bar a claim in the second, even if the plaintiff
pursues a different substantive theory of recovery than in the first.”).
71
Ford, 2020 WL 2557141, at *4.
72
See Daugherty, 2023 WL 461112, at *3.
73
See id.

10
Claim splitting “presumes that the interest of fairness will require a plaintiff to present all

of his theories relating to one transaction in a single action.”74 In determining whether two

claims arise out of the same transaction or same common nucleus of operative facts, the Court is

to take a “pragmatic assessment.”75 Some of the things the Court should consider are:

[O]n the one hand, the interests of the defendant and of the courts in bringing
litigation to a close and, on the other, the interest of the plaintiff in the vindication
of a just claim . . . . Among the factors relevant to a determination whether the facts
are so woven together as to constitute a single claim are their relatedness in time,
space, origin, or motivation, and whether, taken together, they form a convenient
unit for trial purposes. Though no single factor is determinative, the relevance of
trial convenience makes it appropriate to ask how far the witnesses or proofs in the
second action would tend to overlap the witnesses or proofs relevant to the first. If
there is a substantial overlap, the second action should ordinarily be held
precluded.76

B. THE FEENIX ENTITIES HAVE ENGAGED IN CLAIM SPLITTING.

The Blums assert that the Feenix Entities have impermissibly split their claims because:

(i) Michael Blum was the sole defendant in the Prior Litigation, which alleged he breached the

parties’ agreement; (ii) the Feenix Entities filed the Motion to Amend to add Jeffrey Blum as a

party, argued to the Court that the claims against Jeffrey Blum concerned the same facts and

circumstances underlying the Prior Litigation, and then voluntarily withdrew the Motion to

Amend; and (iii) each count of the Complaint arise out of the identical facts that were presented

and tried in the Prior Litigation.77

The Feenix Entities seek to distinguish the instant matter from other claim splitting

situations. The Feenix Entities contend that, given the difference in the parties and claims at

74
J.L. v. Barnes, 33 A.3d 902, 917 (Del. Super. June 17, 2011).
75
Hawkins v. Daniel, 2021 WL 3732539, at *13 (Del. Ch. Aug. 24, 2021).
76
Id. (quoting Restatement (Second) of Judgments § 24 cmt. b (1982)).
77
See Mot. at 10-15.

11
issue, the Court should not grant dismissal because they “did not and could not have known the

full scope of Defendants’ actions in initiating the Prior Litigation.”78

Comparing the Prior Litigation to this action, the Court finds that the Feenix Entities have

improperly engaged in claim splitting by filing this action arising from the same alleged conduct

and injuries as the Prior Litigation. The Prior Litigation involved virtually the same plaintiffs

with the exception of Feenix Venture Partners, LLC and Mr. Lee., and one of the same

defendants, Michael Blum.79 The addition of Jeffrey Blum or the fact that the plaintiffs are not

identical is of little importance where, as here, the claims alleged arise out of the same

transaction and common nucleus of operative facts.80

As a threshold matter, the Feenix Entities admit in the Complaint that they knew of

Jeffrey Blum’s disclosure of the December E-mail to Michael Blum by April 2023.81 In the

Complaint, the Feenix Entities also admit to knowing as early as July 2023 about Jeffrey Blum’s

continued disclosures of Confidential Information to Michael Blum.82 However, the Feenix

plaintiffs in the Prior Litigation waited until October 13, 2023 to file the Motion to Amend.83

In the Opposition, the Feenix Entities contend that the Prior Litigation only concerned the

actions of Michael Blum because they were not aware of Jeffrey Blum’s involvement.

Therefore, any “transactions” in the Prior Litigation only concerned Michael Blum’s conduct

leading up to and including the December Letter.84 The Feenix Entities maintain that this action

78
See Pls.’ Opp’n at 11-12.
79
See Compl.
80
See Goureau, 2021 WL 1197531, at *9 (“A second complaint may include additional defendants or assert
additional theories and still be barred.”).
81
See Compl. ¶ 53.
82
See id. ¶ 54 (“[I]n July 2023, M. Blum provided sworn deposition testimony confirming that he had received the
December 16, 2020 email from J. Blum and that his father continued to disclose Plaintiffs’ financial statements and
other confidential and proprietary information without authorization into January 2021.”).
83
See Mot. to Amend.
84
Pls.’ Opp’n at 18.

12
“includes the actions of both [Michael] Blum and [Jeffrey] Blum in obtaining and

misappropriating the Feenix Entities’ proprietary business information to benefit their own

business interest.”85 The Feenix Entities seem to contend that because the claims “arise from

distinctly separate (if admittedly related) transactions” there has been no claim splitting.86

Taking each count in turn and comparing it to the Prior Litigation, the Court finds that the Feenix

Entities are attempting to re-litigate the claims raised in the Prior Litigation.

1. Claim Splitting as to Counts I-IV.

Count I of the Complaint alleges Breach of the Operating Agreement against the

Blums based on the Blums “disclosing Plaintiffs’ Confidential Information to third

parties without prior written consent.”87 The Prior Litigation also contained a count for

breach of the Operating Agreement’s Restrictive Covenants.88 On April 26, 2022, the

Court held a summary judgment hearing in the Prior Litigation. At the conclusion of the

hearing, the Court dismissed the breach of the Operating Agreement claim.89 As such,

Count I as to Michael Blum was squarely raised and addressed in the Prior Litigation.

Count I as to Jeffrey Blum relates in the same “time, space, origin, and

motivation” as in the Prior Litigation.90 This claim against Jeffrey Blum centers entirely

on the Operating Agreement and the events that occurred after Michael Blum’s departure

from the Feenix Entities. Therefore, any purported breach by Jeffrey Blum would have

occurred at the same time as the actions alleged in the Prior Litigation.91

85
Id. (alteration in original).
86
Id.
87
See Compl. at 19-20.
88
See Feenix Payment Systems, LLC, et. al., v. Blum, 2022 WL 215026 (Del. Super. Jan. 25, 2022).
89
See Prior Litigation, Judicial Action Form (D.I. 49).
90
See Ford, 2020 WL 2557141, at *4.
91
Under Count I the Feenix Entities alleged that the Blums’ breached the Operating Agreement by, “disclosing
Plaintiffs’ Confidential Information to third parties,” and by “utilizing and/or converting Plaintiffs’ Confidential
Information for their own benefit or gain.” See Compl. ¶¶ 77-78.

13
The Prior Litigation went to trial on essentially one issue, breach of the Separation

Agreement.92 The Separation Agreement incorporated the Restrictive Covenants of the

Operating Agreement.93 There is substantial overlap between the instant Count I and the

claim raised in the Prior Litigation such that the Feenix Entities should have brought all

their claims related to the Restrictive Covenants in the Prior Litigation.

Count II of the Complaint alleges tortious interference with contractual

relationship against Michael Blum, alleging Michael Blum “interfered with Jeffrey

Blum’s contractual obligations to Plaintiffs.”94 The Feenix Entities assert that Michael

Blum “knowingly solicit[ed] and encourage[ed] Jeffery Blum to disclose and use

Plaintiffs’ Confidential Information.”95 This claim arises out of the identical facts and

evidence available in the Prior Litigation.

The Prior Litigation concerned Michael Blum’s alleged breach of the Restrictive

Covenants, as incorporated into the Separation Agreement, which protects the

Confidential Information.96 The Feenix Entities could have brought this claim against

Michael Blum in the Prior Litigation as Michael Blum was the sole defendant in the Prior

Litigation. The Feenix Entities assert they were foreclosed from pursuing this claim in

the Prior Litigation “as a result of Defendants’ opposition to their requests to extend

discovery and to amend their pleadings.”97 As noted, the Feenix Entities knew of Jeffrey

Blum’s disclosures as early as April 2023,98 and the Court was readily available to

92
See Prior Litigation, Judicial Action Form (D.I. 49).
93
See Compl. ¶¶ 30-32.
94
Id. ¶ 84.
95
Id. ¶ 83.
96
See generally Defs.’ Mot., Ex. 3 (“Motions Hr’g Tr.”).
97
Pls.’ Opp’n at 21.
98
Compl. ¶ 53.

14
address any discovery issues that may have arisen throughout the course of the Prior

Litigation.

Count III of the Complaint brings a claim for civil conspiracy against the Blums.99

This allegation relies on the use and disclosure of the Confidential Information. This

allegation was central to the Prior Litigation and was, in fact, raised as part of the Motion

to Amend.100 Because, the Feenix Entities tried to assert this claim in the Prior Litigation

it follows that the claim arises from the same transaction and common nucleus of facts of

the Prior Litigation.101

Last, Count IV of the Complaint alleges Contractual Indemnity under the

Separation Agreement against Michael Blum.102 In paragraph 28 of their post-trial brief

in the Prior Litigation, the Prior Litigation plaintiffs state, “[p]ursuant to the Separation

Agreement, Blum agreed to indemnify and hold harmless the Plaintiffs against any

claims arising out of or resulting from, directly or indirectly, Blum’s breach of the

Separation Agreement.”103 The issue of indemnity in the current case involves the same

transaction or common nucleus of facts as in the Prior Litigation because it was raised in

the Prior Litigation.

2. Substantial Overlap with the Prior Litigation.

The Feenix Entities maintain that while “the Prior Litigation is admittedly related

to the instant action” it is not so related as to warrant dismissal.104 The Feenix Entities

argue that the Blums are conflating the harm resulting from the December Letter with the

99
Id. at 21-22.
100
See Mot. to Amend; Mot., Ex. 2 (“Proposed Amended Complaint”) ¶¶ 103-106.
101
See Proposed Amended Complaint.
102
Compl. at 22-23.
103
See Mot, Ex. 4 at 9.
104
Pls.’ Opp’n at 16.

15
actions that led to the December Letter.105 The Feenix Entities seek to have the Court

distinguish between “Defendants’ misappropriation of the Feenix entities’ confidential,

proprietary information via a letter from an attorney representing PBM” with the

“conspiracy between [Jeffrey] Blum and [Michael] Blum and the disclosure of Plaintiffs’

confidential information.”106 As discussed in Goureau v. Lemonis, the Feenix Entities

ignore the extensive overlapping between this action and the Prior Litigation.107

In Gouraeu, plaintiffs filed two complaints on the same day, one in New York

asserting derivative claims on behalf of plaintiffs’ entity, and one in the Delaware Court

of Chancery asserting derivative claims on behalf of the parties’ new holding

company.108 The claims stemmed from the plaintiffs’ appearance on a TV show called

The Profit, similar to shark tank, where individuals would seek investments from

Lemonis (defendant) for their companies.109 Plaintiffs alleged that through a series of

actions, defendant induced them into debt and forced plaintiffs into a holding company

where they continued into substantial debt.110 The court held that the plaintiffs had

engaged in claim splitting.111 Plaintiffs attempted to argue that the New York Action

“focused on the events surrounding The Profit” and their episode; where the “Delaware

action focuses on the parties’ subsequent business relationship.”112 The court was not

105
Id.
106
Id. at 17.
107
See 2021 WL 1197531, at *9 (Del. Ch. Mar. 30, 2021).
108
Id. at *1.
109
Id. at *2.
110
Id. at *2-5.
111
Id. at *8.
112
Id. at *9.

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persuaded by this argument. The court noted that the two actions had extensive

overlapping and arose from a connected series of transactions.113

This case is similar to the one in Gouraeu. Here, the Feenix Entities assert that

the Prior Litigation only concerned the December Letter, and this action concerns the

actions leading up to the December Letter. At its core, however, the central focus of both

complaints is Michael Blum’s purported misuse of the Confidential Information which

were divulged to him by Jeffrey Blum.114

The Feenix Entities assert that they were “foreclosed” from presenting the instant

claims in the Prior Litigation.115 That is not so. The Prior Litigation plaintiffs filed the

Motion to Amend in the Prior Litigation on October 13, 2023.116 Michael Blum filed his

opposition on October 17, 2023.117

The Court held a status conference on October 18, 2023 to discuss outstanding

motions and any pending discovery issues.118 A review of the status conference is

revealing. First, the Prior Litigation plaintiffs had acquired new counsel and new counsel

conveyed to the Court that, “relatively little discovery that had been taken by our

predecessor or by the parties prior to our entry into the case, and including, most

critically, depositions, which did not occur after we appeared in the month of August.”119

113
Id. (“But the line Plaintiffs seek to draw is blurred by the two actions’ extensively overlapping allegations, which
span from the Plaintiffs’ initial application for The Profit in 2014 through Lemonis’ looting of their businesses in
2020.”).
114
See Maldonado v. Flynn, 417 A.2d 378, 381 (Del. Ch. 1980) (“The modern transactional view of the doctrine of
res judicata, however, does not require that the claims subsequently asserted be based on a same cause of action to
be barred, but permits the doctrine to be invoked to bar litigation between the same parties if the claims in the later
litigation arose from the same transaction that formed the basis of the prior adjudication.”).
115
Pls.’ Opp’n at 10.
116
Mot. to Amend.
117
See Prior Litigation, Def.’s Resp. to Pls.’ Mot. for Leave to file Amended Compl. (D.I. 143).
118
See Prior Litigation, Official Transcript (hereinafter “Status Conference Tr.”) (D.I. 149).
119
Status Conference Tr. at 11:9-16.

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Counsel further noted, that it was “through the course of those depositions, and the

testimony that we developed in those depositions, that lead us to filing the motion for

leave to amend.”120 Counsel stated, “that in the absence of amendment and appropriate

modification to consolidate all of the claims into a single proceeding, there would end up

being a second lawsuit filed.”121

In response, the Court noted the late filing of the Amended Motion.122 Counsel

for Prior Litigation plaintiffs entered into the case in June of 2023 and had the

opportunity to explore any potential issues surrounding the case, including discovery

deadlines and expert reports.123 Pursuant to the Prior Litigation’s Case Management

Order, the deadline to identify expert witnesses and to submit expert reports was August

11, 2023, which the Prior Litigation plaintiffs did not meet.124 As for the Motion to

Amend, the Court stated the following, “I’ve got a motion for leave to amend the

complaint, and I’ve got a response. Let’s get a reply into it as fast as possible so that I

can have a hearing on that as soon as possible.”125 Last, the Court stated that if the

parties submitted the requested documentation, then the Court would get the parties a

120
Id. at 11:17-20.
121
Id. at 12:13-19.
122
Id. at 13:3-6.
123
Id. at 13:7:-14. The Court noted:
And it is not as if you hadn’t looked at the Case Management Order before September, because I
think as late as June 23rd of this year, you, as new counsel, asked for me to enter a order to modify
the Case Management Order to change some dates. Why wasn’t it done, Mr. Hare, at that point to
address the other issues? You didn’t look at the other issues regarding discovery deadlines and
experts, and things like that, when you asked for the extension – or the change in privilege logs, and
the like, back in June?
Id. at 13:7-19.
124
Id. at 24:2-8.
125
Id. at 25:23, 26:1-4. The Court also stated the following:
Now if Plaintiff wants to file a motion to amend the Case Management Order with its dates and
shows why these will work within the time frame of the trial, I will hear all of those things at the
same time; the motion to amend the complaint, and that request. So, Mr. Hare, you need to –
Plaintiffs need to get something on file with the Court that demonstrates that these deadlines will
work for the December deadline. Okay?
Id. at 28:8-19.

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decision on the Motion to Amend within two weeks.126 The Court was ready and willing

to rule on the request to add: (i) Jeffrey Blum as a defendant; and, (ii) a claim for civil

conspiracy. However, the Prior Litigation plaintiffs decided to withdraw the Motion to

Amend.127

The Feenix Entities had a full and fair opportunity to present all the claims that

arose out of any purported disclosures and from Michael Blum’s actions.128 The

assertion that the Feenix Entities could not bring all their claims in the Prior Litigation is

belied by the record. The Feenix Entities rely on Balin v. Amerimar Realty Co., to

support their argument; however, in Balin the court held that the plaintiffs could not bring

all their claims against defendants in one action because of jurisdictional issues.129 The

court determined the plaintiffs had not engaged in claim splitting because not all the

parties were subject to personal jurisdiction in Delaware.130 That is not the case here.

As the Court has held:

[W]here a plaintiff has had a full, free and untrammeled opportunity to present his
facts, but has neglected to present some of them or has failed to assert claims which
should in fairness have been asserted, he will ordinarily be precluded by the
doctrine of [claim splitting] from subsequently pressing his omitted claim in a
subsequent action.131

When weighing the factors at issue, the Feenix Entities knew of or could have

known of these claims during the Prior Litigation because the claims concern the same

common nucleus of facts, as evidenced by the Motion to Amend. The Feenix Entities

126
Id. at 29:6-13.
127
See Prior Litigation, Stipulation and Order Regarding Withdrawal of Plaintiffs’ Motion (D.I. 154).
128
See Winner Acceptance Corp. v. Return on Capital Corp., 2008 WL 5352063, at *18 (Dec. 23, 2008) (“Claim
splitting is meant to prevent burdening the same defendant with duplicative proceedings in different courts brought
by the same plaintiff based on different causes of action arising out of a common nucleus of facts.”).
129
See 1995 WL 170421, at *4 (Del. Ch. Apr. 10, 1995).
130
Id.
131
J.L. v. Barnes, 33 A.3d 902, 918 (Del. Super., 2011) (quoting Mells v. Billops, 482 A.2d 759, 761 (Del. Super.
1984) (internal citations and quotation marks omitted) (alterations in original).

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had ample opportunity to discovery Jeffrey Blum’s involvement through discovery of the

Prior Litigation. Moreover, the Feenix Entities were given an opportunity to add Jeffrey

Blum as a defendant. Additional claims against Michael Blum could have been added in

the Prior Litigation and the Feenix Entities had every opportunity to know of the claims

as they all concern Michael Blum’s actions after his May 2020.132

C. MCWANE

The Court is dismissing the Complaint due to claim splitting. Accordingly, the Court will

not address the Blums’ McWane arguments.

D. VEXATIOUS LITIGATION

Last, the Blums make an argument for fees as they assert they “are entitled to some

finality of the claims brought against them as a result of the December Letter.”133 The Blums

aver they are entitled to sanctions and attorney fees because the Feenix Entities brought this

claim “for an improper purpose, such as harassment, or for needlessly increasing the cost of

litigation.”134 The Feenix Entities assert that as a matter of procedure and substance this claim

for sanctions should be denied.135

“Superior Court Civil Rule 11(c) provides a trial judge with authority to impose an

‘appropriate sanction’ on attorneys who violate Rule 11(b), but only after notice and a reasonable

opportunity to respond.”136 Further, courts typically reserve sanctions “for those instances where

the Court is reasonably confident that an attorney does not have an objective good faith belief in

the legitimacy of a claim or defense.”137

132
See Prior Litigation, Complaint (D.I. 1).
133
Mot. at 18-19.
134
Id. at 19.
135
See Pls.’ Opp’n at 23-24.
136
Crumplar v. Superior Court ex rel. New Castle County, 56 A.3d 1000, 10005 (Del. Supr. 2012).
137
Donald M. Durkin Contracting, Inc. v. City of Newark, 2020 WL 6588903, at *6 (Del. Super. Nov. 10, 2020)
(internal quotation marks omitted).

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While the Feenix Entities have engaged in claim splitting, the Court does not find that the

conduct is so egregious as to warrant an imposition of sanctions. Moreover, the Court notes that

none of the cases addressing claim splitting award sanctions or attorney fees. The Court does not

believe that sanctions are warranted here. Therefore, the Court will follow the American Rule

that “ordinarily, a litigant must, himself, defray the cost of being represented by counsel.”138

V. CONCLUSION

For the reasons stated above, the Court GRANTS the Motion and dismisses the

Complaint. The Court DENIES the request for attorney’s fees.

Dated: August 19, 2024
Wilmington, Delaware
/s/ Eric M. Davis
Eric M. Davis, Judge

cc: File&ServeXpress

138
See In re Delaware Public Schools Litigation, 312 A.3d 703, 721 (Del. Supr. 2024).

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