Judge Carpenter Denies Defendants’ Motion to Dismiss, Finding Defendants’ Arguments Premature

February 16, 2017

Publication

In LCT Capital, LLC v. NGL Energy Partners LP, C.A. No. N15C-08-109-WCC-CCLD, Judge Carpenter denied the defendants’ motion to dismiss, noting that the “vast majority of NGL’s arguments advocating for dismissal are simply premature.” Plaintiff LCT Capital, LLC (“LCT”) initiated a breach of contract action against defendants NGL Energy Partners LP and NGL Energy Holdings LLC (collectively, “NGL”) arising from NGL’s alleged failure to pay LCT for its services regarding NGL’s acquisition of TransMontaigne, Inc. Specifically, LCT argued that NGL’s CEO, H. Michael Krimbill (“Krimbill”), agreed that NGL would pay LCT a finder’s fee in the form of a 2% ownership interest in NGL Energy Holdings LLC, an agreement to pay LCT’s taxes, and an option to purchase an additional 3% interest in NGL Energy Holdings LLC. In the alternative, LCT alleged that NGL was unjustly enriched by LCT’s services, including LCT’s negotiations with Morgan Stanley in connection with NGL’s TransMontaigne, Inc. acquisition, LCT’s assistance to NGL in closing and post-closing matters, and LCT’s efforts in bringing the acquisition opportunity to NGL’s attention, creating $500 million of value in NGL Energy Holdings LLC.

NGL filed a motion to dismiss and argued that New York law governed the action, a contract between LCT and NGL was not formed under New York law, LCT failed to adequately plead unjust enrichment or quantum meruit under New York law, and LCT failed to properly plead fraudulent misrepresentation. The Court noted that it is “simply too early” for arguments regarding the choice of law and statute of frauds and, accordingly, “this Court will not engage, entertain or waste its time at this point in the litigation addressing [such] arguments.”

Specifically, the issue of whether a contract was formed between LCT and NGL is a question of fact, and LCT had sufficiently pled that both parties intended to be bound by the agreement regarding LCT’s finder’s fee. Similarly, the issue of whether Krimbill had agency authority to agree to the structure of LCT’s finder’s fee is normally a question of fact for which LCT had sufficiently pled allegations concerning Krimbill’s role and representations. The Court further concluded that LCT’s allegations were sufficient to state a claim for unjust enrichment and quantum meruit such that the claims survived dismissal. Finally, because there was a question of whether a contract was ever formed between the parties, Judge Carpenter held that LCT could allege fraudulent misrepresentation at this stage as a competing variation of the same claim. Judge Carpenter did note that if a contract is shown to exist, LCT must demonstrate an independent basis to support a fraud claim.

Analysis: The pleading standards applied on a motion to dismiss in Delaware are quite liberal. Unlike federal courts, Delaware courts do not rely upon the Twombly/Iqbal standard in deciding motions to dismiss. Rather, in evaluating a motion to dismiss, the court will consider whether the claim can survive under any conceivable set of circumstances. This low pleading bar led to Judge Carpenter’s denial of the motion to dismiss. Depending on the case, parties may want to consider conserving resources by holding dispositive motions to the summary judgment stage of the proceedings.