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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Superior Court CCLD Addresses Pleading Standards for Trade Secret, Fraud and Implied Covenant Claims
Brightstar and PCS, two competitors that distribute new and pre-owned mobile devices, entered into a buy/sell agreement as part of negotiations for a proposed merger and strategic alliance. Under the buy/sell agreement, PCS purchased mobile devices from Brightstar for re-sale to third parties and was subject to a non-circumvention provision that restricted PCS from purchasing these devices from certain other suppliers. After their merger discussions faltered, PCS terminated the agreement, and Brightstar brought suit for unpaid amounts and alleged misappropriation of pricing information. PCS counterclaimed for, inter alia, fraud and breach of the implied covenant of good faith and fair dealing.
The parties each filed motions to dismiss. The Court first held that Brightstar’s misappropriation claim should be dismissed because, even though Brightstar sufficiently alleged that the prices at which it obtains devices from suppliers constituted a trade secret, it alleged only in conclusory fashion that “PCS misappropriated [that information] … and used it to solicit business from Brightstar’s suppliers” – without any supporting allegations. The Court then dismissed PCS’s fraud counterclaim for failure to meet Superior Court Civil Rule 9(b)’s particularity standard, which requires conduct separate and distinct from the underlying breach of contract claim, because PCS alleged simply that Brightstar systematically overstated the prices it paid, which were used to determine the amounts PCS owed, on invoices delivered pursuant to the buy/sell agreement. Finally, the Court denied Brightstar’s motion to dismiss PCS’s implied covenant claim, which claimed that Brightstar unreasonably delayed in working with PCS to reach agreement on any amounts that remained due post-termination; this was important because, until that was resolved, PCS remained subject to the non-circumvention provision prohibiting it from purchasing inventory from other suppliers. The Court sustained that claim at the pleadings stage, reasoning that an express general dispute resolution provision did not preempt the implied covenant claim, and the alleged breach also was sufficiently distinct from the factual allegations underlying PCS’s express breach of contract claim as to differentiate the two.