CA No. 2024-0344-SG
Del. Ch.Oct 30, 2024Background
- Plaintiffs (Kingfishers L.P., Mike Blitzer, and Guy Shanon) invested $250,000 in Finesse US, Inc. via a Simple Agreement for Future Equity (SAFE).
- Plaintiffs alleged pre-investment discussions included an explicit agreement for a 70% discount and a valuation cap no higher than $13 million, consistent with prior rounds.
- The executed SAFE, prepared by Finesse, included a 70% discount rate (instead of a 70% discount) and omitted any valuation cap.
- Plaintiffs did not read the SAFE before signing, relying instead on oral representations from Finesse’s CEO.
- When the SAFE converted in a subsequent financing, Plaintiffs discovered the absence of a cap and unfavorable discount terms.
- Plaintiffs sought reformation of the SAFE based on mistake, fraud, and equitable fraud; Finesse moved to dismiss under Rule 12(b)(6).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Reformation based on mistake | There was a prior agreement for a 70% discount and a $13M cap; the SAFE does not reflect this due to mistake | The SAFE is unambiguous; allegations lack specificity | Motion to dismiss denied for this count—sufficiently pled to survive dismissal |
| Reformation based on fraudulent inducement | Finesse misrepresented or omitted terms to induce execution of the SAFE | No reasonable reliance—SAFE’s unambiguous terms contradict oral statements | Motion to dismiss granted—no reasonable reliance |
| Reformation based on equitable fraud | Finesse negligently misrepresented inclusion of valuation cap | No reasonable reliance for same reasons as above | Motion to dismiss granted—no reasonable reliance |
| Standing of Kingfishers post-assignment | Right to reformation survives assignment and should reside somewhere | Assignment terminates Kingfishers’ rights under SAFE | Defer decision on standing at this stage |
Key Cases Cited
- Cerberus Intern., Ltd. v. Apollo Mgmt., L.P., 794 A.2d 1141 (Del. 2002) (standards for reformation based on mutual or unilateral mistake)
- Parke Bancorp Inc. v. 659 Chestnut LLC, 217 A.3d 701 (Del. 2019) (failure to read an agreement can bar reformation for bad faith)
- Savor, Inc. v. FMR Corp., 812 A.2d 894 (Del. 2002) (standard for motion to dismiss under Rule 12(b)(6))
- In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162 (Del. 2006) (court need not accept conclusory allegations at motion to dismiss)