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Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP: Court of Chancery Denies Motions to Dismiss Fraud Claims in Private Company Acquisition

December 1, 2014

In a fact-intensive, 76-page motion to dismiss opinion, Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, C.A. No. 7906-VCG (Del. Ch. Nov. 26, 2014), the Delaware Court of Chancery largely denied the defendants’ motions to dismiss fraud claims arising out of the sale of Plimus, a private Delaware corporation (the “Company”), to Great Hill, a private equity fund. The Court analyzed the specific factual allegations of a complaint that had been amended following the Court’s earlier opinion holding that the Company’s privileges, including pre-sale communications with counsel, passed to Great Hill in the merger by which it acquired the Company. See Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 80 A.3d 155 (Del. Ch. 2013). The Court found that the amended complaint stated a claim for civil conspiracy and aiding and abetting fraud against a private equity fund that before the sale was the Company’s single largest stockholder and had two designees on the Company’s five-person board of directors. The Court also held that the amended complaint stated a claim for fraud against the selling private equity fund’s two director designees.

The Great Hill opinion provides significant insight into issues arising in connection with private company M&A transactions, applying well-established law in the context of detailed factual allegations of fraud.