Wellgistics, LLC v. Welgo, Inc.

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

WELLGISTICS, LLC, )
)
Plaintiff/counterclaim )
defendant, ) C.A. No.: N22C-08-182 KMM
)
v. )
)
WELGO, INC., )
)
Defendant/counterclaim )
plaintiff. )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

WELGO, INC., )
)
Petitioner, )
) C.A. No.: 2024-0342-KMM1
v. )
)
)
WELLGISTICS, LLC, )
)
Respondent. )
)

Submitted: July 11, 2024
Decided: September 27, 2024

1
Sitting as a Vice Chancellor in the Court of Chancery of the State of Delaware by designation
of the Chief Justice of the Supreme Court of Delaware pursuant to In re: Designation Of The
Honorable Kathleen M. Miller under Del. Const. art. IV § 13(2) dated April 9, 2024.
MEMORANDUM OPINION AND ORDER

Upon Wellgistics, LLC’s Motion to Dismiss Welgo, Inc.’s Third Amended
Counterclaim: GRANTED

Upon Wellgistics, LLC’s Motion to Strike Welgo, Inc.’s Affirmative Defenses:
GRANTED

Upon Wellgistics, LLC’s Motion to Dismiss Welgo, Inc.’s Petition: GRANTED

Chad S.C. Stover, Esquire, Amy E. Tryon, Esquire, Barnes & Thornburg LLP,
Wilmington, Delaware, Marc S. Silver, Esquire (pro hac vice) (argued), Christine
E. Skoczylas, Esquire (pro hac vice), Barnes & Thornburg LLP, Chicago, Illinois,
Attorneys for Wellgistics, LLC.

Basil C. Kollias, Esquire, Gordon L. McLaughlin, Esquire, Kollias Law, LLC,
Wilmington, Delaware, Geri Lyons Chase, Esquire (pro hac vice) (argued), Law
Office of Geri Lyons Chase, Annapolis, Maryland, Attorneys for Welgo, Inc.

MILLER, J.

1
I. INTRODUCTION

Welgo, Inc. (“Welgo”) generated revenue through its wholly-owned

subsidiary, Welgo, LLC, which sold prescription medications. Welgo, LLC had

negotiated favorable contracts with distributors for certain medications. Prior to

Wellgistics, LLC’s (“Wellgistics”) investment in Welgo, Welgo, LLC’s distributor

contracts were disclosed to Wellgistics.

Welgo alleges that after the identity of Welgo, LLC’s distributors and its

high-profit prescription medications were disclosed to Wellgistics, it improperly

used this confidential information to begin purchasing large quantities of these

medications. Wellgistics’ sharp increase in purchases substantially contributed to

an increase in the national utilization rate, causing insurance companies to curtail

or stop covering the medications. This, in turn, caused Welgo, LLC’s physician-

customers to substantially reduce the amount of these medications they dispensed

to their patients, resulting in lost revenue for Welgo, LLC and ultimately, Welgo.

Welgo further alleges that just days after the identity of Welgo, LLC’s

distributors were disclosed to Wellgistics, the distributors sold their rights in these

medications to third-parties. The new distributors increased the price, cutting into

Welgo, LLC’s profit margin. The new owners aggressively marketed the

medications, which also contributed to the increase in the national utilization rate

and the attendant loss of revenue for Welgo, LLC. Additionally, Wellgistics’

2
increased purchases of these medications prompted other companies to jump into

the market, further contributing to the increase in national utilization rate.

In response to Wellgistics’ debt action filed in the Superior Court seeking to

recover amounts due under a promissory note, Welgo filed its Third Amended

Counterclaim2 (“TAC”) asserting claims for breach of contract (Count I), breach of

fiduciary duty (Count II), tortious interference with contract (Count III), fraud

(Count IV), and estoppel (Count V). Welgo’s answer asserts affirmative defenses

of fraud and estoppel. Welgo also filed a Court of Chancery action, asserting a

claim for breach of fiduciary duty. The Court of Chancery and the Superior Court

claims (and affirmative defenses) rest on the same factual predicate described

above.

Wellgistics filed motions to dismiss the TAC3 and the Court of Chancery4

action, pursuant to Superior Court Civil Rules 12(b)(1), 12(b)(6) and 9(b) and

Court of Chancery Rule 12(b)(6), asserting that Welgo lacks standing and failed to

adequately plead the causes of action. Wellgistics also filed a motion to strike

Welgo’s affirmative defenses, pursuant to Rules 8(a), 8(c), 9(b), and 12(f).5

2
Welgo’s Second Amended Counterclaim was dismissed on January 9, 2024 (D.I. 44), with
leave to amend.
3
D.I. 59.
4
D.I. 6.
5
D.I. 60.

3
The TAC asserts a breach of fiduciary duty claim (Count II) despite that

claim previously being dismissed for lack of jurisdiction. There is no basis for

jurisdiction over this claim in the Superior Court. For the reasons stated in this

Court’s November 29, 2023 Order,6 Count II is DISMISSED.

Although the TAC asserts substantially more facts than the previously

dismissed Second Amended Counterclaim, the TAC fails to adequately plead the

asserted causes of action. Likewise, the Court of Chancery complaint fails to

adequately plead a claim for breach of fiduciary duty. Therefore, Wellgistics’

motions are GRANTED.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. The parties and relevant non-parties

1. Welgo and related non-parties

Welgo is a holding company, owning 100% of Welgo, LLC from its

formation until March 2023.7 Michael Lion (“Lion”) and Keith Holdan (“Holdan”)

each owned 50% of Welgo’s stock at its formation in 2018.8

Welgo, LLC is a specialty prescription medication wholesaler. In 2019, its

business model focused on selling a limited number of medications, but with high

6
D.I. 42.
7
TAC (D.I. 48), ¶ 4; Court of Chancery complaint (“CC Com.”), ¶ 13.
8
TAC, ¶ 14.

4
profit margins.9 To that end, it contracted with distributors for the purchase of

certain medications at favorable prices10 and sold them to physicians, who

dispensed the medications directly to their patients.11

On March 30, 2023, Welgo sold its interest in Welgo, LLC to an unrelated

third-party.12

2. Welgo, LLC’s distributors

Prior to the events with Wellgistics, Welgo, LLC contracted with Athena

Bioscience LLC (“Athena”) to purchase Naprosyn Oral Solution.13 Athena was the

exclusive distributor for this product in the United States.14 Philip Volt is the Chief

Operating Officer of Athena.

Also prior to the events with Wellgistics, Welgo, LLC contracted with

Crown Laboratories, Inc. (“Crown”) to purchase Ala-Scalp and Ala-Quin.15 David

Arapakes (“Arapakes”) is the business development manager at Crown.

3. Wellgistics and related parties

Wellgistics, also a specialty prescription medication wholesaler, sells

primarily to independent pharmacies.16 Wellgistics is a much larger wholesaler

9
TAC, ¶ 5; CC Com., ¶ 14.
10
Id.
11
Id.
12
D.I. 71.
13
TAC, ¶ 6; CC Com., ¶ 15.
14
CC Com., ¶ 7.
15
TAC, ¶ 13.
16
Id., ¶ 18.

5
than Welgo, LLC.17 However, Wellgistics is much smaller than the large national

wholesalers, such as AmerisourceBergen, Cardinal Health, and McKession, that

control 90% of the wholesale market in the United States.18

Wellgistics encourages its pharmacy-customers to hire sales personnel to

market the medications sold by Wellgistics and promises to pass-on discounts to

the pharmacies.19

Charles Jenkins (“Jenkins”) is an Executive Vice President of Brand

Strategy for Wellgistics.

Matthew Starley (“Starley”) is the Chief Operating Officer and General

Counsel for Wellgistics.

Michael Pearce (“Pearce”) is a consultant for Wellgistics, charged with

increasing its profitability.20

4. Other non-parties

Key Therapeutics, LLC (“Key”) “labeled” the only authorized generic of

Naprosyn Oral Solution in the period 2016 through October 2019.21

Marnel Pharmaceuticals, LLC (“Marnel”), owned by Jonathan Alba

(“Alba”), is a prescription drug distributor.22

17
TAC, ¶ 61.
18
TAC, ¶ 18; CC Com., ¶¶ 26, 27.
19
TAC, ¶ 19.
20
Id., ¶ 32.
21
Id., ¶ 9; CC Com., ¶ 18.
22
TAC, ¶¶ 28, 29.

6
Allegis Pharmaceuticals, LLC (“Allegis”), owned by Rett Crowder

(“Crowder”), is a prescription drug distributor.23

Jamison Roberts (“Roberts”) is an executive consultant for Allegis and also

“work[s] closely” with Pernix Therapeutics Holdings, a company of which Pearce

was the Chief Executive Officer.24

Crowder and Roberts formed Derm Ventures LLC (“Derm”), on September

29, 2019.25

B. Welgo, LLC’s contracts

While the pill form of Naprosyn Oral Solution and its generic – Naproxen

Oral Solution – was widely used in 2019, the oral solution had a low utilization

rate (i.e., low sales volume), because it serves a limited population –– those who

cannot swallow pills.26 With few manufacturers and distributors of this

medication, Welgo, LLC sought to take advantage of its high profit margin.27 So,

in 2019, it contracted with Athena to purchase generic Naprosyn Oral Solution on

favorable pricing terms.28

Also in 2019, Welgo, LLC contracted with Crown to purchase Ala-Scalp

and Ala-Quin (with Naprosyn Oral Solution, the “Products”) on favorable pricing

23
Id., ¶¶ 29, 36.
24
Id., ¶ 36.
25
Id., ¶ 37.
26
Id., ¶ 63.
27
Id., ¶¶ 8-12. In 2019, there were only two manufacturers of this medication. Id., ¶¶ 10, 63. See
also CC Com., ¶¶ 17-21.
28
TAC, ¶ 6; CC Com., ¶ 15.

7
terms.29 Like Naprosyn Oral Solution, Ala-Scalp and Ala-Quin had low utilization

rates, but high profit margins.30

C. Wellgistics buys 50% of Welgo’s stock.

Shortly after formation of Welgo, a conflict arose with Holdan who then

sought to sell his interest in the company.31 In July 2019, Lion met Jenkins, who

indicated that Wellgistics may be interested in purchasing Holdan’s Welgo stock.32

Jenkins signed a confidentiality agreement, and discussions progressed.33

On September 24, 2019, Welgo and Welgo, LLC entered into a Mutual

Confidentiality Agreement (the “MCA”), with Wellgistics, the “Purpose” of which

was to exchange information “in connection with their discussions of a possible

business relationship.”34 The MCA provides:

During the term of this Agreement, and for a period of
five (5) years thereafter, the Recipient shall keep
confidential and shall not divulge the Disclosing Party’s
Confidential Information to any third party or use such
information other than for the Purpose, without the prior
written consent of the Disclosing Party.35

29
TAC, ¶ 13; CC Com., ¶ 22.
30
Id.
31
TAC, ¶ 15; CC Com., ¶ 24.
32
TAC, ¶ 16; CC Com., ¶ 25.
33
Id.
34
TAC., ¶¶ 16, 26-27.
35
Id., Ex. D (emphasis added).

8
After further discussions, the parties agreed that Pearce would buy Holdan’s

stock and soon thereafter, transfer the shares to Wellgistics.36 Accordingly, Pearce

purchased Holdan’s stock in October 2019. Wellgistics acknowledged that Pearce

was its agent in this transaction and that Wellgistics funded the purchase.37 Pearce

joined Welgo’s board of directors in November 2019.38

In December 2019, Pearce transferred the stock to Wellgistics, thus

becoming a 50% owner of Welgo.39

D. Wellgistics receives confidential information.

As of September 2019, a substantial portion of Welgo, LLC’s gross revenue

was derived from selling the Products.40 At the time, Welgo, LLC was servicing

21 physicians.41 In 2020, it added the largest orthopedic practice in the United

States to its customer base.42 Welgo, LLC anticipated servicing an additional 100

physicians in each of 2021 and 2022.43

In due diligence in connection with the stock purchase, Wellgistics requested

information about Welgo, LLC’s products. Wanting to protect Welgo, LLC’s

36
Id., ¶ 33; CC Com., ¶ 43.
37
TAC, ¶¶ 32-33; CC Com., ¶¶ 42-43.
38
TAC, ¶ 40; CC Com., ¶ 50.
39
TAC, ¶ 49. The Complaint asserts that Wellgistics’ interest in Welgo represented only a 40%
stake. D.I. 1, ¶ 8. For purposes of the motion to dismiss, the Court must accept Welgo’s
allegation that Wellgistics held a 50% interest in the company.
40
TAC, ¶ 31; CC Com., ¶ 41.
41
TAC, ¶ 50; CC Com., ¶ 61.
42
Id.
43
Id.

9
business, Lion refused to disclose this information until a confidentiality agreement

was executed.44

Once the MCA was executed on September 29, 2019, Wellgistics learned

the identity of Welgo, LLC’s distributors and the products it sold.45 On October 4,

2019, Welgo, LLC’s distributor contracts were provided to Wellgistics.46 On

October 7, 2019, Jenkins told Lion that Wellgistics was already “in the works with

several of these.”47

E. Distribution rights to the Products are transferred to third-parties,
resulting in higher prices for Welgo, LLC.

Shortly after execution of the MCA, Lion provided Jenkins with contact

information for the business development manager at Crown (Arapakes). On

October 2, 2019, Arapakes advised Lion that Crown changed its distribution

process and Welgo, LLC now was required to purchase Ala-Scalp and Ala-Quin

through a distributor - Marnel.48 The result of this new arrangement was a higher

product cost for Welgo, LLC: its profit margin on Ala-Scalp dropped from $165

per unit to $105, and on Ala-Quin, it dropped from $150 per unit to $75.49

44
TAC, ¶ 26; CC Com., ¶ 36.
45
Id.
46
TAC, ¶ 30. Wellgistics also received “financial information, existing contracts, proprietary
software, and other information critical to [Wellgistics’] consideration of its potential acquisition
of a substantial stake in the company.” Id., ¶ 27.
47
TAC, ¶ 34; CC Com., ¶ 44.
48
TAC, ¶ 28; CC Com., ¶ 38.
49
TAC, ¶¶ 41, 52; CC Com., ¶¶ 51, 63.

10
Alba (Marnel’s owner), at some unidentified time, told Lion that Jenkins

was Alba’s college friend and his former employee.50 Alba also told Lion that

Marnel would be purchasing Ala-Scalp and Ala-Quin from Allegis and selling

these products to Welgo, LLC.51 It appears that Crown transferred its rights in

these products to Allegis.52

Also in October 2019, Volt of Athena (Welgo, LLC’s distributor for

Naprosyn Oral Solution) told Lion that he (Volt) met with representatives of

Wellgistics.53 Shortly thereafter, Lion learned that Allegis also acquired the rights

to sell Naprosyn Oral Solution.54 Prior to this transaction, Welgo, LLC purchased

the medication, manufactured by Key, for $925 per unit.55 Allegis was now

“relabeling” the product and selling it to Welgo, LLC for $1,135 per unit.56

When Lion learned of these transactions, he warned Wellgistics to “stay

away” from Welgo, LLC’s distributors because if the sales volumes increased, it

would hurt his business.57

50
TAC, ¶ 29; CC Com., ¶ 39.
51
Id.
52
TAC, ¶ 42 (“Lion learned from Jonathan Alba that after acquiring the Ala-Scalp and Ala-Quin
products from Crown…”).
53
TAC, ¶ 35; CC Com., ¶ 45.
54
Id.
55
Id., ¶¶ 9-10, 35.
56
TAC, ¶ 35; CC Com., ¶ 45.
57
TAC, ¶ 38; CC Com., ¶ 48.

11
F. Marnel aggressively markets Ala-Scalp and Ala-Quin.

After obtaining the right to sell Ala-Scalp and Ala-Quin, Marnel and Allegis

began aggressively marketing these products.58 As a result, the utilization rate

increased, which caused Pharmacy Benefits Managers (“PBMs”)59 to discontinue

reimbursements for Ala-Scalp in June 2020.60

G. Other wholesalers enter the market.

After PBMs stopped reimbursements for Ala-Scalp due to the much higher

sales volume, Derm (apparently having entered the prescription drug wholesale

market), introduced a dual-pack of Ala-Scalp, which contained two units.61

Because Ala-Scalp was traditionally sold in single-unit packs, the dual-pack was

assigned a new “National Drug Code,” essentially becoming a new product.62 As a

new product, utilization rates were low, so PBMs resumed reimbursements for

Ala-Scalp.63 Welgo, LLC did not sell a dual-pack.

58
TAC, ¶ 42; CC Com., ¶ 52.
59
PBM is a group of companies responsible for securing lower costs for insurance companies.
Id., ¶ 20. PBMs track market data, including claims activity and available generic alternative
medication. Id. “When claims submissions increase on high-profit margin medication and
national utilization rates increase for that specific medication or group of medications, PBM’s
[sic] advise the insurers to take one of several potential actions intended to reduce the amount of
money paid by the insurers for the medications. These potential actions include requiring prior
authorization of insurance coverage for a medication, reducing the share of the medication cost
covered by the insurer, or removing the medication from the insurer’s formulary (i.e., list of
medications paid for by the insurer).” Id. at ¶ 62.
60
TAC, ¶ 42; CC Com., ¶ 52.
61
TAC, ¶ 44; CC Com., ¶ 54.
62
Id.
63
Id.

12
In each of 2020, 2021, and 2022, the Food and Drug Administration (the

“FDA”) approved an additional generic drug manufacturer for Naproxen Oral

Solution, thus doubling the number of companies selling this medication.64

H. Wellgistics purchases large quantities of the Products, substantially
contributing to an increase in the national utilization rate.

Prior to September 2019, Wellgistics did not purchase a significant amount

of the Products.65 After the identities of Welgo, LLC’s distributors were disclosed,

Wellgistics began purchasing the Products in large quantities. In addition,

Wellgistics encouraged its pharmacy-customers to conduct “test runs” on these

medications and in turn, “sell” their customers (the patients) on Wellgistics’ high-

margin products.66 Wellgistics used training videos to show the pharmacies how

they could profit from this marketing strategy.67

When Welgo learned that Wellgistics’ representatives contacted Welgo,

LLC’s distributors, Welgo and Welgo, LLC immediately demanded that

Wellgistics “cease and desist” from interfering with Welgo, LLC’s contracts and

that Wellgistics discontinue its purchases of the Products.68 Welgo “unequivocally

advised Wellgistics that Wellgistics’ high-volume purchases of the aforesaid

medications was a breach of the MCA and may result in a marked increase in

64
TAC, ¶ 11; CC Com., ¶ 20.
65
TAC, ¶ 45; CC Com., ¶ 55.
66
TAC, ¶ 64.
67
Id.
68
TAC, ¶ 47; CC Com., ¶ 57.

13
national utilization classification for the medications, which would cause Welgo

substantial economic harm.”69 Despite these demands, Wellgistics “knowingly and

intentionally” continued contacting Welgo, LLC’s distributors and purchasing

large quantities of the Products, knowing the detrimental impact it could have on

Welgo, LLC’s business.70

Wellgistics purchasing large quantities of the Products from Welgo, LLC’s

“contract manufacturers, other manufacturers, wholesalers or third-party logistics

companies” and encouraging its pharmacy-customers to run test claims, caused an

increase in the national utilization rates, consequently triggering scrutiny by the

PBMs.71 As a result, in late 2020, PBMs limited approvals for Naprosyn Oral

Solution and stopped reimbursements for Ala-Scalp and Ala-Quin. Because the

Products were no longer fully covered by insurance, Welgo, LLC’s physician-

customers substantially reduced the number of prescriptions they dispensed.

Instead, the physicians prescribed other medications that were covered by

insurance, which Welgo, LLC did not sell.

69
TAC, ¶ 47; CC Com., ¶ 57.
70
TAC, ¶ 48; CC Com., ¶ 58.
71
TAC, ¶ 65.

14
I. Wellgistics’ Aberrant List medications

CVS Caremark is one of the largest PBMs.72 In 2019, it created an

“Aberrant List,” a list of restricted medications, the purpose of which was to

reduce the sales volumes and thus, save costs for its insurer-customers.

Medications were placed on this list due to their high-profit margins, among other

reasons.73 Pharmacies were contractually bound to limit the amount of a

medication on the Aberrant List they dispensed.74

Prior to 2019, Chlorzoxazone was one of Wellgistics’ principal products,

from which it derived substantial revenue.75 CVS Caremark placed Chlorzoxazone

on the Aberrant List and stopped reimbursements due to its high cost. 76 With the

loss of revenue on Chlorzoxazone and its other products on the Aberrant List,

Wellgistics needed to find other sources of revenue.77 This led to Wellgistics

purchasing Welgo stock and purchasing large quantities of the Products.78

J. Welgo repurchases its stock from Wellgistics.

By May 2020, Welgo and Wellgistics decided to part ways. Jenkins met

with Lion to discuss “unwinding” the stock transaction. During this meeting,

72
TAC, ¶ 21; CC Com., ¶ 31.
73
TAC, ¶ 23; CC Com., ¶ 33.
74
Id.
75
TAC, ¶ 22; CC Com., ¶ 32.
76
TAC, ¶ 21; CC Com., ¶ 31.
77
TAC, ¶ 25; CC Com., ¶ 35.
78
Id., ¶ 16. None of Welgo, LLC’s products were on the Aberrant List. Id., ¶ 30. See also CC
Com., ¶¶ 25, 40.

15
Jenkins made “assurances” to Lion that Wellgistics would “honor the cease and

desist and would no longer sell” the Products.79 In August 2020, Wellgistics and

Welgo executed a Redemption Agreement and Welgo executed a Promissory Note

(the “Note”), to purchase Wellgistics’ interest in Welgo.80

The Redemption Agreement contains the following integration clause:

Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties hereto with respect
to the subject matter hereof, and any other written or oral agreement
relating to the subject matter hereof existing between the parties are
expressly canceled.81

Wellgistics’ Complaint asserts a claim for breach of the Note because Welgo

failed to make required payments.82

K. Welgo files the TAC and asserts the affirmative defenses.

In the TAC, Welgo claims that Wellgistics breached the MCA by using

confidential information regarding Welgo, LLC’s profitable Products. The TAC

also asserts claims for fraud and tortious interference with Welgo, LLC’s

distributor contracts. In each claim, Welgo asserts that it lost over $7.5 million

dollars “in value” and revenue of $200,000 per month (or another $7.2 million as

of the filing of the TAC).83

79
Id., ¶ 102.
80
See Complaint (D.I. 1) and TAC (D.I. 48).
81
D. I. 59, Ex. 1, § 8.9.
82
D.I. 1.
83
D.I. 71.

16
The TAC asserts a claim for estoppel, alleging that Welgo relied on

Wellgistics’ promise to stop selling the Products. Had Welgo known that

Wellgistics would break its promise, Welgo would not have agreed to the

Redemption Agreement and Note. Welgo seeks to be relieved of further payment

obligations under the Note.

In Welgo’s answer to the Complaint, it asserts affirmative defenses of fraud

and estoppel, as follows:

FIRST AFFIRMATIVE DEFENSE – ESTOPPEL – “The plaintiff’s conduct

as set forth in the counterclaim appearing below is such that they be [sic] estopped

from prosecuting this action;”84

SECOND AFFIRMATIVE DEFENSE – FRAUD – “the plaintiff’s

conduct/actions are as described in the [defendant’s] counterclaim appearing below

is such that the plaintiff’s actions were fraudulent as to the defendant;”85

III. STANDARD OF REVIEW

The standard of review is the same under Superior Court Civil Rule 12(b)(6)

and Court of Chancery Rule 12(b)(6): the Court accepts as true all well pleaded

factual allegations and draws all reasonable inferences in favor of the non-moving

party; the liberal construction afforded to a claimant does not “extend to

‘conclusory allegations that lack specific supporting factual allegations;’” and

84
D.I. 48.
85
Id.

17
dismissal will be denied if there is a reasonably conceivable set of circumstances of

recovery on the claim.86

“A complaint that gives fair notice ‘shifts to the [opposing party] the burden

to determine the details of the cause of action by way of discovery for the purpose

of raising legal defenses.’”87 Therefore, to avoid dismissal under Delaware’s

notice pleading standard, a party “need not plead evidence,” but at a minimum,

must “allege facts that, if true, state a claim upon which relief can be granted.”88

Delaware law requires a claimant to plead fraud with particularity –– a

heightened pleading standard89 –– even when asserted as an affirmative defense.90

To satisfy Rule 9(b), a fraud claim must allege: “(1) the time, place, and contents

of the false representation; (2) the identity of the person making the representation;

86
Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Holdings LLC, 27 A.3d 531, 535, 536-37,
n.13 (Del. 2011) (the “‘conceivability’ standard is more akin to ‘possibility,’ while the federal
‘plausibility’ standard falls somewhere beyond mere ‘possibility’ but short of ‘probability.’”);
Surf’s Up Legacy Partners, LLC v. Virgin Fest, LLC, 2021 WL 117036, at *6 (Del. Super. Jan.
13, 2021) (citation omitted); In re Hennessy Cap. Acquisition Corp. IV S’holder Litig., 318 A.3d
306, 319-20 (Del. Ch. 2024).
87
VLIW Tech., LLC Hewlett-Packard Co., 840 A.2d 606, 611 (Del. 2003).
88
Id.
89
Super. Ct. Civ. R. 9(b).
90
Commonwealth Const. Co. v. Cornerstone Fellowship Baptist Church, Inc., 2006 WL
2567916, at *25 (Del. Super. Aug. 31, 2006) (“Superior Court Civil Rule 9(b) requires that ‘[i]n
all averments of fraud ... the circumstances constituting fraud ... shall be stated with
particularity.’ Such particularity requires, even where fraud is pled as an affirmative defense,
that the party averring fraud must provide the time, place and contents of the fraudulent act or
omission, as well as the person who gave the false representation.”).

18
and (3) what the person intended to gain by making the representations.” 91

“Essentially, the [claimant] is required to allege the circumstances of the fraud with

detail sufficient to apprise the [opposing party] of the basis for the claim.”92

The standard for a motion to strike is similar to that for a motion to

dismiss.93 Under Rule 12(f), the Court “may order stricken from any pleading any

insufficient defense or any redundant, immaterial, impertinent, or scandalous

matter.”94 “When ruling on a motion to strike, ‘the Court must construe all facts in

favor of the nonmoving party and deny the motion if the defense is sufficient under

law.’”95 Motions to strike are disfavored and granted sparingly. 96 It is appropriate,

however, to strike an affirmative defense that is legally insufficient.

91
Medlink Health Sols., LLC v. JL Kaya, Inc., 2023 WL 1859785, at *2 (Del. Super. Feb. 9,
2023) (quoting Abry Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032, 1050 (Del. Ch.
2006)).
92
Id.
93
Nat’l Amusements, Inc. v. Endurance Am. Specialty Ins. Co., 2023 WL 3145914, at *8 (Del.
Super. Apr. 28, 2023) (citing Nichols v. Chrysler Grp. LLC, 2010 WL 5549048, at *5 (Del. Ch.
Dec. 29, 2010)).
94
Super. Ct. Civ. R. 12(f).
95
Nichols, 2010 WL 5549048, at *5.
96
Salem Church (Del.) Assocs. v. New Castle Cnty., 2004 WL 1087341, at *2 (Del. Ch. May 6,
2004).

19
IV. DISCUSSION

A. The Superior Court claims

1. Standing

Wellgistics argues that Welgo lacks standing to assert its claims for breach

of contract, tortious interference, and fraud97 because Welgo, LLC entered into the

contracts with the distributors and generated revenue from sales of the Products,

and thus it (and not Welgo) suffered any alleged loss.98 Welgo responds that it has

standing because it is a party to the MCA and suffered an injury independent of

Welgo, LLC.

“Standing” refers to the right of a person to invoke jurisdiction of the Court

to redress its grievance. “The issue of standing is concerned ‘only with the

question of who is entitled to mount a legal challenge and not with the merits of the

subject matter of the controversy.’”99 When a defendant argues that the Court does

not have authority to grant the requested relief to any plaintiff, standing is analyzed

under Rule 12(b)(1).100 However, where “the issue of standing is so closely related

97
D.I. 59, pp. 17-20.
98
Relying on Tooley v. Donalson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) and
Acrisure Holdings, Inc. v. Frey, 2019 WL 1324943 (D. Del. Mar. 25, 2019), Wellgistics asserts
that Welgo is improperly attempting to convert a derivative claim into a direct claim. (D.I. 67 p.
7). Rather, disputes relating to commercial contracts, however, are not derivative claims.
Derivative claims relate to breaches of fiduciary duties. NAF Holding, LLC v. Li & Fung
(Trading) Ltd., 118 A.3d 175, 179 (Del. 2015). Thus, Wellgistics’ reliance on these cases is
misplaced.
99
Albence v. Higgin, 295 A.3d 1065, 1086 (Del. 2022) (emphasis in original) (citation omitted).
100
In re Covid-Related Restrictions on Religious Services, 302 A.3d 464, 478 (Del. Super. 2023).

20
to the merits, a motion to dismiss based on lack of standing is properly considered

under Rule 12(b)(6) rather than Rule 12(b)(1).”101

Here, as Wellgistics acknowledges, Welgo is a party to the MCA,102 and as

such, Welgo has standing to enforce its rights under the contract. Wellgistics’

argument is that Welgo has not sufficiently alleged facts to state a claim.

Therefore, Wellgistics’ standing argument is more aptly addressed under Rule

12(b)(6) and the Court will do so.

2. Breach of contract

a. The parties’ contentions

Wellgistics argues that the TAC fails to state a claim because Welgo has not

alleged that it directly sustained damages from Wellgistics’ alleged conduct.

Additionally, even if Welgo suffered damages, its damages are “so untethered”

from its breach of contract allegations that its causation theory is “hopelessly

speculative.”103 Finally, Wellgistics argues that Welgo cannot isolate any damages

from Wellgistics’ alleged breach of the MCA from its losses from other forces and

therefore, Welgo’s damages theory fails.

101
Appriva S’holder Litig. Co., LLC v. EV 3, Inc., 937 A.2d 1275, 1285-86 (Del. 2007); In re
Covid-Related Restrictions, 302 A.3d at 478 (when the defendant is arguing that the court cannot
grant relief to a plaintiff in a particular case because this particular plaintiff has not pleaded an
essential element of the claim, the motion is properly decided under Rule 12(b)(6)).
102
D.I. 67, p. 5.
103
D.I. 59, p. 21.

21
Welgo counters that its position in the TAC is clear – Wellgistics agreed not

to use confidential information and breached that agreement when it used that

information to earn a profit for itself.104 Further, Welgo argues that the TAC

details facts showing Wellgistics started a “chain of causation” by (i) purchasing

large quantities of the Products, and (ii) influencing various players in the

pharmaceutical industry, including pharmacies, patients, and physicians, causing

harm to Welgo.105

b. Analysis

Under Delaware law,106 a claimant asserting a breach of contract must

allege: (1) the existence of a contract; (2) the breach of a contractual obligation;

and (3) resulting damages.107 While damages may be pled generally, a factual

basis to relate the alleged injury to the breach is required. 108 Conclusory

104
D.I. 66, p. 12.
105
TAC, ¶ 65.
106
The MCA provides that it is governed by New York law. The parties, however, argue the
motion under Delaware law. Because the parties rely on Delaware law and there is no actual
conflict with New York law on the elements of breach of contract, see, e.g., inVentiv Health
Clinical, LLC v. Odonate Therapeutics, Inc., 2021 WL 252823, at *4 (Del. Ch. Feb. 18, 2021)
(applying New York law to breach of contract claim), the Court is applying Delaware law to the
motion to dismiss.
107
VLIW Tech., LLC, 840 A.2d at 612; Anschutz Corp. v. Brown Robin Cap., LLC, 2020 WL
3096744, at *9 (Del. Ch. June 11, 2020).
108
Cf. Phage Diagnostics, Inc. v. Corvium, Inc., 2020 WL 1816192, at *9 (Del. Super. Mar. 9,
2020). The court in Phage Diagnostics found that while damages may be pled generally even in
fraud claims, a plaintiff “must relate its alleged injury to the misrepresentations that constitute its
grounds for fraud such that the issue of damages may be inferred from the complaint.” While
Welgo’s claim is for breach of contract, the same pleading standard applies – a claimant must
allege facts relating the alleged injury to the breach.

22
allegations of damages are insufficient.109

The TAC satisfies the first pleading requirement –– the existence of a

contract. Welgo is a party to the MCA.

Under the MCA, Wellgistics had a duty only to use confidential information

for the possible purchase of Welgo stock.110 The TAC alleges that Lion disclosed

the identity of Welgo, LLC’s products and provided Welgo, LLC’s distribution

contracts to Wellgistics.111 While more than one entity within an organization may

have an interest in the same confidential information, “[g]enerally, ‘a parent

corporation does not, by reason of owning the stock of a subsidiary alone, own or

have legal title to the assets of the subsidiary.’”112 Thus, under the general rule, a

parent does not have a claim for improper disclosure of confidential information

belonging to a subsidiary.113

While the TAC alleges that Welgo disclosed confidential information,114

there are no factual allegations to substantiate this assertion. Indeed, the TAC

makes clear that the confidential information –– the contracts and the Products ––

belonged to Welgo, LLC. The Court need not accept conclusory allegations and

109
Id.
110
TAC, Ex. D, ¶ 1.
111
CC Com., ¶ 36.
112
Metro Storage Int’l LLC v. Harron, 275 A.3d 810, 869 (Del. Ch. 2022) (quoting 1 Fletcher
Cyclopedia L. Corps. § 26).
113
Id.
114
See TAC, ¶ 58 (Wellgistics breached the MCA by using the information disclosed by Welgo,
Inc. concerning Welgo’s profitable contracts…”) and ¶ 68 (“Wellgistics’ use of Welgo, Inc. and
Welgo, LLC’s confidential information …).

23
there are no well pled allegations that Welgo disclosed its confidential information

to Wellgistics. Accordingly, Welgo failed to sufficiently plead a breach of the

MCA for which it may seek redress.

Even if the Court construed the TAC as pleading that Welgo also held an

interest in Welgo, LLC’s confidential information, the TAC fails to sufficiently

plead the third element –– damages.115

The TAC alleges that Wellgistics used confidential information to purchase

large quantities of (and aggressively marketed) the Products, driven by its need to

generate revenue after Chlorzoxazone was added to the Aberrant List. Wellgistics’

purchases alone, however, did not cause such an increase in the national utilization

rate to prompt action by the PBMs. Other wholesalers jumped into the market for

the Products, allegedly due to Wellgistics’ sales and together, caused the PBMs to

take action. But, there are no factual allegations in the TAC that these other

entities were even aware of Wellgistics selling the Products. Further, even if

others knew what products Wellgistics was selling, there are no factual allegations

115
Relying on Tanner v. Exxon Corp., 1981 WL 191389 (Del. Super. July 23, 1981) and Deville
Court Apartments, L.P. v. Fed. Home Loan Mortg. Corp., 39 F. Supp. 2d 428 (D. Del. 1999),
Wellgistics argues that Welgo has not alleged damages with “reasonable certainty.” D.I. 59, p.
21. The court in Tanner ruled that to recover on a breach of contract claim, the plaintiff must
prove its damages with reasonable certainty, as opposed to damages based on speculation. Id. at
*1. The court in Deville denied a motion for summary judgment due to a dispute of material fact
concerning the cause of plaintiff’s alleged damages. Neither court required the plaintiff to plead
damages with specificity or to plead evidence. Thus, Wellgistics seeks to hold Welgo to a higher
pleading standard, which the Court will not do.

24
as to how Wellgistics, a small player in the U.S. market,116 could influence other

companies to enter the market or cause (or cause the need for) the FDA’s approval

of additional generic manufacturers for Naproxen Oral Solution, for example.

Similarly, the TAC lacks factual support for the allegations that Wellgistics

caused Athena and Crown to sell their rights in the Products and change their

distribution processes. Even with Jenkins’ prior connection to Alba and Jenkins

advising Lion that Wellgistics was already “in the works” with distributors, it is

not reasonable to infer that within a few days of learning the confidential

information, Wellgistics caused the distributors to find a contract-counterparty,

negotiate a deal, and close on the deals. Without factual support, it is also not

reasonable to infer that Wellgistics, a relatively small wholesaler, could influence

Athena and Crown in such a way. The timing of the disclosures coupled with the

timing of Welgo learning of the changes made by Crown and Athena is not enough

to infer that Wellgistics caused these fundamental commercial changes.

Because Welgo did not plead a breach of a contract for which it can seek

redress and because it is not reasonably conceivable that Wellgistics caused the

alleged harm to Welgo, Count I is DISMISSED.

116
TAC, ¶ 18.

25
3. Tortious Interference

a. The parties’ contentions

Welgo, LLC contracted with Crown and Athena. Because Welgo was not a

party to those contracts, it now argues that it was a third-party beneficiary of the

Welgo, LLC contracts. Therefore, Welgo asserts, it may pursue a tortious

interference claim.

Wellgistics argues that Welgo did not plead a third-party beneficiary claim

and therefore, the TAC fails to state a claim for tortious interference. Additionally,

Wellgistics continues, there are no facts alleged (or argued in the brief) to satisfy

the elements of third-party beneficiary.

b. Analysis

To assert a claim for tortious interference with a contract, a plaintiff must

allege: “(1) a contract, (2) about which defendant knew, and (3) an intentional act

that is a significant factor in causing the breach of such contract, (4) without

justification, (5) which causes injury.”117

To qualify as a third party beneficiary, (i) the contracting
parties must have intended that the third party beneficiary benefit
from the contract, (ii) the benefit must have been intended as a gift or
in satisfaction of a pre-existing obligation to that person, and (iii) the

117
Bhole, Inc. v. Shore Investments Inc., 67 A.3d 444, 453 (Del. 2013) (citation and emphasis
omitted).

26
intent to benefit the third party must be a material part of the parties’
purpose in entering into the contract.118

Welgo’s claim fails for two reasons. First, the TAC does not allege that

Welgo was a third-party beneficiary of the Welgo, LLC contracts. Supporting

facts and allegations must be in the pleading, which cannot be supplemented

through briefing.119 There are no facts alleged in the TAC that the parties intended

to benefit Welgo, that the contracts were a gift to Welgo, or that a pre-contract

obligation existed.120

Second, merely owning the equity of a subsidiary does not make Welgo a

third-party beneficiary of Welgo, LLC’s contracts. Welgo argues that under

Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P.,121a wholly-owned subsidiary

is operated for the benefit of the parent, and thus, Welgo is a third-party

beneficiary.122 While it is true that the goal of having a wholly-owned subsidiary is

to generate value for its parent,123 it does not follow that the parent is automatically

a third-party beneficiary of the subsidiary’s contracts. Illustration 3 in Comment b

to the Restatement (Second) of Contracts, § 302 is helpful here:

118
Encore Preakness, Inc. v. Chestnut Health and Rehabilitation Group, Inc., 2017 WL
5068753, at *4 (Del. Super. Nov. 1, 2017) (quoting Madison Realty Partners 7, LLC v. Ag ISA,
LLC, 2001 WL 406268 (Del. Ch. Apr. 17, 2001)).
119
See Dunn v. FastMed Urgent Care, P.C., 2019 WL 4131010, at *7 n.56 (Del. Ch. Aug. 30,
2019) (explaining that a “brief cannot patch pleading deficiencies”); Intertek Testing Services
NA, Inc. v. Eastman, 2023 WL 2544236, at *4 .40 (Del. Ch. Mar. 16, 2023.
120
See id.
121
906 A.2d 168 (Del. Ch. 2006).
122
D.I. 66, p. 15.
123
906 A.2d at 173.

27
B promises A to pay whatever debts A may incur in a certain
undertaking. A incurs in the undertaking debts to C, D and E. If
the promise is ... a promise that B will pay C, D and E, they are
intended beneficiaries...; if the money is to be paid to A in order
that he may be provided with money to pay C, D and E, they
are at most incidental beneficiaries.124

Here, the purpose of the distributor contracts was to provide Welgo, LLC

with medications at a certain price. The fact that Welgo, LLC paid Welgo some

portion of Welgo, LLC’s revenue from further sale of the medications makes

Welgo, at most, an incidental beneficiary. Because Welgo was not a party to the

Welgo, LLC contracts or an intended third-party beneficiary, Welgo fails to state a

claim for tortious interference with a contract. Accordingly, Count III is

DISMISSED.125

4. Fraud

a. The parties’ contentions

In its answer to the Complaint, Welgo asserts as an affirmative defense that

Wellgistics’ actions, as described in the TAC, “were fraudulent as to” Welgo.126 In

the TAC, Welgo’s fraud theory consists of two components: (1) Wellgistics never

intended to abide by the MCA because it wanted to exploit the confidential

information for its own benefit; and (2) Wellgistics failed to inform Welgo that

124
Restatement (Second) of Contracts, § 302, cmt. B, illus. 3 (1981) (June 2024 update).
125
Count III also fails to state a claim for failure to plead damages for the reasons stated in the
analysis of Count I. See supra.
126
Because the Rule 12(f) and Rule 12(b)(6) standards are essentially the same, the Court is
addressing the grounds for the motion to strike with the motion to dismiss.

28
Wellgistics’ products were on the Aberrant List and had Wellgistics done so,

Welgo would not have disclosed the confidential information.

Wellgistics responds that Welgo’s first theory is improper bootstrapping of a

contract claim into a fraud claim and its second theory is fatally flawed because

Wellgistics had no duty of disclosure.

b. Analysis

To state a claim for fraud, a party must allege:

(1) the defendant falsely represented or omitted facts that the
defendant had a duty to disclose; (2) the defendant knew or
believed that the representation was false or made the
representation with a reckless indifference to the truth; (3) the
defendant intended to induce the plaintiff to act or refrain from
acting; (4) the plaintiff acted in justifiable reliance on the
representation; and (5) the plaintiff was injured by its
reliance.127

A claim for fraud may be based on representations in a contract, but the

factual allegations of fraud must be separate from the factual allegations for breach

of contract.128 Additionally, damages arising from the alleged fraud must be

separate from the alleged contractual damages.129

Welgo’s first theory of fraud is bootstrapping. The factual predicate and

127
Everphone, Inc. v. Go Tech. Mgmt., LLC, 2023 WL 7996560, at *4 (Del. Super. Nov. 17,
2023) (citing DCV Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954, 958 (Del. 2005)).
128
AssuredPartners of Va., LLC v. Sheehan, 2020 WL 2789706, at *10 (Del. Super. May 29,
2020); Everphone, Inc., 2023 WL 7996560, at *8; see also Black Horse Capital, LP v. Xstelos
Holdings, Inc., 2014 WL 5025926, at *25 (Del. Ch. Sept. 30, 2014) (“‘a plaintiff cannot
‘bootstrap’ a claim of breach of contract into a claim of fraud merely by alleging that a
contracting party never intended to perform its obligations….’”) (citations omitted).

29
alleged damages for the fraud claim are the same as the allegations supporting the

breach of contract claim – Wellgistics used confidential information, which

harmed Welgo.130 Alleging that a contract counterparty did not intend to abide by

the terms of a contract does not then turn the claim into one for fraud.131 Rather,

such claims must be pursued under whatever rights the complaining party has

under the contract.

Welgo’s second theory also fails. Welgo alleges that Wellgistics failed to

disclose that some of Wellgistics’ products were on the soon-to-be-released

Aberrant List. Had Welgo known this information, the argument goes, it would

not have disclosed the Welgo, LLC contracts to Wellgistics.

“Generally, there is no duty to disclose a material fact or opinion, unless the

defendant had a duty to speak.”132 Welgo makes no argument (and provides no

facts) that Wellgistics had a duty to speak in this arms’ length commercial

130
See TAC, ¶ 98 (“Welgo relied on the false representations of Wellgistics, that it intended to
be bound by the MCA…”).
131
Earth Pride Organics LLC v. Corona-Orange Foods Intermediate Holdings, LLC, 2024 WL
1905384, at *9 (Del. Super. Apr. 17, 2024); Cornell Glasgow, LLC v. La Grange Properties,
LLC, 2012 WL 2106945, at *9 (Del. Super. June 6, 2012) (“Delaware courts have consistently
held that to 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.”) (citation omitted).
132
Nicolet, Inc. v. Nutt, 525 A.2d 146, 149 (Del. 1987); See also Airborne Health, Inc. v. Squid
Soap, LP, 2010 WL 2836391, at *9 (Del. Ch. July 20, 2010) (citing Prop. Assoc. 14 v. CHR
Holding Corp., 2008 WL 963048, at *6 (Del. Ch. Apr. 10, 2008)) (holding that in the absence of
a special relationship, one party to a contract is under no duty to disclose “‘facts of which he
knows the other is ignorant’ “even if “‘he further knows the other, if he knew of them, would
regard [them] as material in determining his course of action in the transaction in question’”)
(quoting Restatement (Second) of Torts § 551 cmt. a (1977)).

30
transaction. Welgo argues that once Wellgistics made a partial disclosure, its duty

to fully disclose was triggered.133 The “partial disclosure” Welgo relies on,

however, is Wellgistics’ execution of the MCA. This is no disclosure at all, but

rather a spin on Welgo’s argument that Wellgistics never intended to abide by its

contractual obligations. Accordingly, Count IV is DISMISSED and the

affirmative defense is STRICKEN.134

5. Estoppel

a. The parties’ contentions

In its answer to the Complaint, Welgo asserts as an affirmative defense that

Wellgistics’ actions, as described in the TAC, were “such that [Wellgistics] should

be estopped from prosecuting this action.”135 In the TAC, Welgo asserts that when

negotiating the Redemption Agreement, Wellgistics promised to stop selling the

Products. Because of this promise, Welgo entered into the Redemption

Agreement.

Wellgistics makes two arguments for dismissal of the estoppel claim. First,

Welgo’s claim fails as a matter of law because the integration clause in the

Redemption Agreement prevents any justifiable reliance on the alleged promise.136

133
D.I. 66, p. 17.
134
Count IV also fails to state a claim for failure to plead damages for the reasons stated in the
analysis of Count I. See supra.
135
Because the Rule 12(f) and Rule 12(b)(6) standards are essentially the same, the Court is
addressing the grounds for the motion to strike with the motion to dismiss the estoppel count.
136
D.I. 59, pp. 29-30.

31
Second, the TAC makes general allegations of a promise by Wellgistics, but it does

not include factual details, as required by Rule 9(b).137

Welgo responds that it has sufficiently pled its claim for estoppel and that it

justifiably relied on Wellgistics’ promise. Welgo further argues that it would be

unfair to enforce the Redemption Agreement because of an integration clause, but

ignore Wellgistics’ obligations under the MCA.138

b. Analysis

i. Estoppel elements

To assert estoppel, the claimant must show that: (i) a promise was made; (ii)

it was the reasonable expectation of the promisor to induce action or forbearance

on the part of the promisee; (iii) the promisee reasonably relied on the promise and

took action to his detriment, and (iv) such promise is binding because injustice can

be avoided only by enforcement of the promise.139

ii. Does the integration clause bar the estoppel
claim?

“‘Where the parties have made a contract and have expressed it in writing to

which they both assented as the complete and accurate integration of that contract,

137
D.I. 59, p. 31.
138
D.I. 66, p. 18.
139
Davis v. Town of South Bethany Beach, 2022 WL 6646506, at *3 (Del. Super. Oct. 11, 2022)
(citing Lord v. Souder, 748 A.2d 393, 399 (Del. 2000)); Harmon v. Delaware Harness Racing
Comm., 62 A.3d 1198, 1201 (Del. 2013); Keating v. Board of Education, 1993 WL 460527 (Del.
Super. Nov. 3, 1993). See also Delmar News, Inc. v. Jacobs Oil Co., 584 A.2d 531, 535 (Del.
Super. 1990); Borders v. Townsend Assocs., 2002 WL 725266, at *5 (Del. Super. Apr. 17, 2002).

32
evidence, whether parol or otherwise, of antecedent understanding and negotiations

will not be admitted for the purpose of varying or contradicting the writing.’”140

Wellgistics argues that the Redemption Agreement’s integration clause bars

Welgo’s estoppel claim, but Welgo is not seeking to vary or contradict the terms of

the Redemption Agreement. Rather, Welgo is claiming that it would not have

agreed to the Redemption Agreement had it known that Wellgistics would breach

its promise to stop selling the Products. Accordingly, the integration clause does

not bar the estoppel claim.

iii. Has Welgo sufficiently alleged a claim for
estoppel?

Under Rule 8(a), a claim or defense must be stated in a “short and plain

statement.”141 An exception to Rule 8(a) is found in Rule 9(b)’s heightened

pleading standard. Under Rule 9(b), “averments of fraud, negligence or mistake,

the circumstances constituting fraud, negligence or mistake” must be stated with

particularity.142 While estoppel is subject to a heightened burden of proof at

trial,143 it is not among the claims/defenses that must be plead with particularity

140
Scott v. Land Lords Inc., 616 A.2d 1214 (TABLE), 1992 WL 276429, at *3 (Del. Sept. 22,
1992) (emphasis added) (quoting Scott-Douglas Corp. v. Greyhound Corp., 304 A.2d 309, 315
(Del. 1973)); Chrin v. Ibrix, 2005 WL 2810599, at *5 (Del. Ch. Oct. 19, 2005) (“Thus, the court
cannot reasonably allow the FED, an antecedent preliminary understanding, to vary or contradict
the facially unambiguous SPA.”) (emphasis added).
141
Del. Super. Ct. Civ. R. 8(a).
142
Super. Ct. Civ. R. 9(b) (“In all averments of fraud, negligence or mistake, the circumstances
constituting fraud, negligence or mistake shall be stated with particularity.”).
143
See Davis, 2022 WL 6646506, at *3.

33
under Rule 9(b).144 Estoppel is not subject to Rule 9(b)’s heightened pleading

standard. Thus, the claim will not be dismissed for failure to plead with

particularity.

In the context of a motion to dismiss under Rule 12(b)(6), the Court reviews

the pleading to determine whether it asserts facts from which it is reasonably

conceivable that the claimant could establish estoppel by clear and convincing

evidence.145 “Clear and convincing” means to prove something “that is highly

probable, reasonably certain, and free from serious doubt.”146

The crux of Welgo’s position is that Wellgistics improperly used

confidential information, sold large quantities of the Products, causing Welgo to

lose millions of dollars in value. Welgo alleges that in negotiations over

unwinding Wellgistics’ stock purchase, Wellgistics assured Lion it would stop

selling the Products. It is not reasonable to infer that Welgo would obtain such a

critical promise but not include that promise in its written contract. Welgo is

essentially looking to estoppel as a way to obtain a benefit that it failed to secure

144
See Hydrogen Master Rights, Ltd. v. Weston, 228 F. Supp. 3d 320, 333 (D. Del. 2017)
(referring to the estoppel allegations in the complaint, the court stated that while “‘[D]etailed
factual allegations’ are not required, … a complaint must do more than simply provide ‘a
formulaic recitation of the elements of a cause of action.’”) (emphasis added).
145
See In re TIBCO Software Inc. S’holders Litig., 2015 WL 6155894, at *14 n.48 (Del. Ch. Oct.
20, 2015) (noting that on a motion to dismiss a claim that requires proof by clear and convincing
evidence, the legal standard is whether the complaint alleges facts from which it is reasonably
conceivable that the plaintiff could establish its right by clear and convincing evidence).
146
Hudak v. Procek, 806 A.2d 140, 147 (Del. 2002) (quoting Superior Court Civil Pattern Jury
Instruction on clear and convincing as a proper articulation of the standard).

34
for itself at the drafting table. It is not reasonably conceivable that Welgo will be

able to prove by clear and convincing evidence that injustice can be avoided only

by enforcing this alleged promise. Accordingly, Count V is DISMISSED and the

affirmative defense is STRICKEN.

B. Court of Chancery claim

1. The parties’ contentions

Welgo makes three arguments in support of its breach of fiduciary duty

claim. First, Pearce breached his duty of loyalty by taking no action to prevent

Wellgistics from misusing the confidential information and that he effectively “sat

back” and watched his principal “drain the value” from Welgo. Thus, Wellgistics

is responsible for its agent’s (Pearce) inaction. Second, because Pearce owed

fiduciary duties to Welgo as a director and he was Wellgistics’ agent, Wellgistics

is therefore cloaked with the same fiduciary duties, which it breached by misusing

the confidential information. Third, as a majority stockholder, Wellgistics owed

fiduciary duties to Welgo, which Wellgistics then breached by misusing the

confidential information. Welgo argues that these actions caused the same

damages asserted in its breach of contract claim – due to the increase in the

national utilization rate and subsequent actions of insurers reducing or eliminating

coverage for Welgo, LLC’s Products, Welgo was damaged.

35
Wellgistics counters that the claim must be dismissed because the complaint

does not actually allege a breach of fiduciary duty, and it is improper for Welgo to

rely on allegations in the Superior Court TAC.

Further, Wellgistics continues, even if the Court considers the allegations in

the TAC, the complaint fails to adequately allege agency. While Pearce was

Wellgistics’ agent for purposes of purchasing the Welgo stock, Wellgistics argues

that there are no allegations that he was Wellgistics’ agent as a director. Also,

there are no allegations in the complaint to rebut the presumption that directors are

independent.

Finally, Wellgistics argues that the complaint does not adequately allege that

it owed fiduciary duties as a stockholder. The complaint does not allege that

Wellgistics owned more than 50%, so it cannot be a majority owner, and further, it

argues, the complaint is devoid of allegations that Wellgistics controlled the Welgo

board.

2. Analysis

To state a claim for breach of fiduciary duty, a plaintiff must allege that the

defendant owed a fiduciary duty and that he breached that duty.147 Directors of a

Delaware corporation owe fiduciary duties to the company and its stockholders.148

147
Maka v. Musial, 2024 WL 2374483, at *3 (Del. Ch. May 23, 2024).
148
See Gantler v. Stephens, 965 A.2d 695, 708-09 (Del. 2009); McRitchie v. Zuckerberg, 315
A.3d 518, 537, 543, 546 (Del. Ch. 2024).

36
A stockholder may act in its own self-interest without the constraints of fiduciary

duties,149 except when the stockholder owns voting control, or it owns less than a

majority and it controls the board.150 When a plaintiff’s allegations are based on

the stockholder owning less than a majority, the plaintiff must plead facts to

support a reasonable inference that the alleged controller possessed “(i) control

over the corporation’s business and affairs in general or (ii) control over the

corporation specifically for purposes of the challenged transaction.”151

Welgo alleges that Pearce, as a director of Welgo, owed fiduciary duties to

the company.152 Welgo argues in its brief that Pearce breached this duty when he

took no action to prevent Wellgistics from misusing Welgo’s confidential

information. Welgo, does not, however, make any such allegation in its complaint.

Factual allegations not asserted in the complaint cannot be asserted through the

party’s briefing.153

149
Skye Mineral Investors LLC v. DXS Capital (U.S.) Ltd., 2020 WL 881544, at *26 (Del. Ch.
Feb. 20, 2020).
150
Sciannella v. AstraZenca UK Limited, 2024 WL 3327765, at *16 (Del. Ch. July 8, 2024)
(“Delaware courts ‘will deem a stockholder a controlling stockholder when the stockholder: (1)
owns more than 50% of the voting power of a corporation or (2) owns less than 50% of the
voting power of the corporation but exercises control over the business affairs of the
corporation.’”).
151
Id. (“‘To plead that the requisite degree of control exists generally, a plaintiff may allege
facts supporting a reasonable inference that a defendant or group of defendants exercised
sufficient influence ‘that they, as a practical matter, are not differently situated than if they had
majority voting control.’”).
152
D.I. 1, ¶ 43.
153
See Dunn v. FastMed Urgent Care, P.C., 2019 WL 4131010, at *7 n.56 (Del. Ch. Aug. 30,
2019) (explaining that a “brief cannot patch pleading deficiencies”); Intertek Testing Services
NA, Inc. v. Eastman, 2023 WL 2544236, at *4 n.40 (Del. Ch. Mar. 16, 2023).

37
Even if the Court considered this argument, the complaint fails to identify a

breach by Pearce, which is a necessary predicate under Welgo’s theory. First,

there are no factual allegations, in the complaint, the TAC, or Welgo’s brief, that

Pearce was even aware of Wellgistics’ alleged misuse of the confidential

information. Even if he was aware, there are no factual allegations that he

controlled Wellgistics or could have stopped the alleged misuse. Indeed, Welgo’s

allegations are the opposite – it alleges Wellgistics controlled Pearce.154

The case Welgo relies on, Skye Mineral Investors LLC v. DXS Capital (U.S.)

Ltd.,155 also does not support its theory. In Skye Mineral, the director-defendant

shared information regarding the value of the company’s assets with his affiliates,

but did not share this information with the other directors. Armed with

information that the assets were worth far more than anticipated, the director-

defendant ordered management to take actions that impeded the company’s ability

to meet its financial obligations, he participated in a lawsuit with the intention of

blocking much-needed company financing, and he lied to the board about his

involvement in negotiating the affiliates’ purchase of the loan from the company’s

secured lender. This was part of a scheme to force the company into bankruptcy,

which would (and did) allow the affiliates to purchase the assets as the secured

154
TAC, ¶¶ 32-33; see also Skye Mineral, 2020 WL 881544, at *23 (“A defining feature of the
principal-agent relationship is the principal’s right to control the agent’s conduct.”) (emphasis in
original).
155
2020 WL 881544 (Del. Ch. Feb. 20, 2020).

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creditor, at a steep discount. The plaintiff’s theory was bolstered by an email from

the director-defendant that disclosed the scheme to “sit back,” wait for the

company’s collapse, and as the first-lien holder, “buy it out of bankruptcy very

cheap.”156

Unlike the director in Skye Mineral, there are no allegations that Pearce took

any actions as a director. There are no allegations of a scheme by which Pearce

used his position as a director to assist Wellgistics harm Welgo. Simply asserting

that Pearce “sat back” and watched as Wellgistics devalued the company is

insufficient to state a claim.

Welgo’s theory that Wellgistics owed its own fiduciary duties by virtue of

Pearce being its agent, also fails. Even assuming that the complaint sufficiently

alleged that Pearce was Wellgistics’ agent as a director, Welgo offers no legal

authority that imposes fiduciary duties on a third-party just because its agent

served as a director. Such a theory would run contrary to the nature of directors’

fiduciary duties, which were developed from a concept that “rested on the fact that

stockholders entrusted their capital to the firm, which the directors had virtually

plenary power to manage.”157 As Welgo would have it, fiduciary duties would be

imposed on any principal of a director, despite the alleged principal having no

156
Skye Mineral, 2020 WL 881544, at *6.
157
McRitchie, 315 A.3d at 557. (detailing the history of the development of the law of directors’
fiduciary duties).

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ability to make decisions for the corporation. There is no legal basis for Welgo’s

theory.

Finally, Welgo argues that the definition of a “minority” stockholder is one

who owns less than 50% of the stock. Because Wellgistics cannot be a minority

stockholder (as it owns 50%), the argument goes, Wellgistics must be a majority

holder. Even if Welgo’s theory is accepted, there are no allegations that

Wellgistics, as a stockholder, exerted any control over Welgo. The complaint fails

to sufficiently allege that Wellgistics owed a fiduciary duty to Welgo.

Accordingly, the complaint is DISMISSED.

V. CONCLUSION

Because Welgo failed to allege any reasonably conceivable circumstances

under which it is entitled to recover under its claims in the TAC, Wellgistics’

Motion to Dismiss is GRANTED. Because Welgo has already amended its

counterclaim three times, the TAC is dismissed with prejudice.

Because Welgo failed to plead legally sufficient affirmative defenses

Wellgistics’ Motion to Strike is GRANTED, and the affirmative defenses are

stricken with prejudice.

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The Court of Chancery complaint fails to state a claim and therefore

Wellgistics’ Motion to Dismiss is GRANTED. Under Rule 15(aaa), the dismissal

is with prejudice.

IT IS SO ORDERED.

/s/Kathleen M. Miller
Kathleen M. Miller, Judge

41