626 F.Supp.3d 454
D. Mass.2022Background
- Upland Software agreed in Feb 2020 to acquire Char Software under an Acquisition Agreement that included a Material Customer list and express representations about key customers; "Knowledge" was defined to include Jude McColgan's actual knowledge.
- McColgan was Char’s CEO at closing; Rajeev Aggarwal was a founder/stockholder and former director/advisor.
- ESPN, a major Char customer listed as a Material Customer, had decided not to renew its contract by late January 2020; Char employees informed McColgan, but he allegedly told others he had heard the opposite.
- Aggarwal and McColgan each contacted ESPN’s Andrew Machado during Upland’s diligence; Machado gave assurances to Upland; AIG alleges McColgan also altered an email to allay Upland’s concerns.
- After closing, ESPN ended its relationship; AIG (as Upland’s RWI insurer) reimbursed Upland >$5 million and sued McColgan and Aggarwal for fraud, fraudulent inducement, civil conspiracy, and (against Aggarwal) aiding and abetting.
- Defendants moved to dismiss; the district court denied both motions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. AIG’s subrogation right against McColgan | AIG (as assignee/subrogee) may pursue fraud claims; Policy grants subrogation rights beyond Section 8(c). | Section 8(c) limits subrogation to Sellers for fraud; McColgan says no subrogation because he isn’t a Seller. | Denied as to McColgan’s motion: Section 8(c) does not apply because McColgan was not a stockholder/Seller; other policy provisions permit AIG’s claim. |
| 2. AIG’s subrogation right against Aggarwal (policy vs. Acquisition Agreement) | AIG may pursue fraud claims under the Policy; fraud claims aren’t claims "under" the Acquisition Agreement. | Section 5.11 of the Acquisition Agreement forbids insurer subrogation against Stockholders (e.g., Aggarwal). | Denied as to Aggarwal’s motion: Section 5.11 does not bar AIG’s fraud claim; the Policy and Agreement recognize insurer pursuit of fraud against stockholders. |
| 3. Sufficiency of fraud and fraudulent inducement pleadings (particularity, reliance, merger-clause defense) | AIG pleaded specific facts (emails, calls, altered email, timing, knowledge) showing misrepresentations and intent; reliance and particularity satisfied. | Defendants say merger/representation clauses bar reliance on extra-contractual statements; AIG failed to plead reasonable reliance and specific false statements in the Material Customer list. | Denied: Delaware law requires an express disclaimer to bar extra-contractual statements and none exists; AIG alleged active misleading conduct and pleaded fraud with particularity and plausible reliance. |
| 4. Sufficiency of conspiracy and aiding-and-abetting claims; intra-corporate conspiracy bar | AIG alleges circumstantial facts (timing of calls, communications, detailed knowledge) showing concerted action and substantial assistance. | Defendants argue intra-corporate bar (agents of same corporation cannot conspire) and insufficient linking facts. | Denied: AIG pleaded sufficient circumstantial evidence linking McColgan and Aggarwal; intra-corporate bar inapplicable because Aggarwal is alleged to be a stockholder, not a Char agent, and aiding/conspiracy elements were plausibly alleged. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard: plausibility)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (antitrust pleading standard—plausibility framework)
- Ocasio-Hernandez v. Fortuno-Burset, 640 F.3d 1 (First Circuit on factual plausibility assessment)
- SEC v. Tambone, 597 F.3d 436 (First Circuit en banc on Rule 9(b) particularity)
- Greebel v. FTP Software, Inc., 194 F.3d 185 (First Circuit on fraud particularity)
- In re Cabletron Sys., Inc., 311 F.3d 11 (First Circuit on pleading fraudulent intent)
- FdG Logistics LLC v. A&R Logistics Holdings, Inc., 131 A.3d 842 (Del. Ch. on when merger clauses disclaim reliance)
- Prairie Cap. III, L.P. v. Double E Holding Corp., 132 A.3d 35 (Del. Ch. on stockholder liability for company-made representations)
- AeroGlobal Cap. Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428 (Del. law on conspiracy elements)
- Lipson v. Anesthesia Servs., P.A., 790 A.2d 1261 (Del. Super. Ct. on circumstantial evidence for conspiracy)
- Wavedivision Holdings, LLC v. Highland Cap. Mgmt. L.P., 49 A.3d 1168 (Del. on aiding-and-abetting elements)