In re Bracket Holding Corp. Litig.

• Decision Date: 07 February 2020
• Docket Number: CONSOLIDATED C.A. No. N15C-02-233 WCC CCLD
• Parties: IN RE BRACKET HOLDING CORP. LITIGATION
• Court: Delaware Superior Court

IN RE BRACKET HOLDING CORP. LITIGATION

CONSOLIDATED C.A. No. N15C-02-233 WCC CCLD

SUPERIOR COURT OF THE STATE OF DELAWARE

Submitted: September 23, 2019
February 7, 2020

Defendants Express Scripts, Inc. and United BioSource LLC's Motion for Judgment as a Matter of Law, Motion for New Trial, and Motion for Remittitur - DENIED

Defendants Express Scripts, Inc. and United BioSource LLC's Motion to Stay Execution of Judgment Pending Resolution of Post-Trial Motions and Appeal - GRANTED

Defendant United BioSource LLC's Motion for Award of Pre- and Post-Judgment Interest - GRANTED

Plaintiff Bracket Holding Corp.'s Motion for New Trial on Punitive Damages - DENIED

Plaintiff Bracket Holding Corp.'s Motion for Costs and Prejudgment and Postjudgment Interest - GRANTED in Part and DENIED in Part

Plaintiff Bracket Holding Corp.'s Motion for Attorneys' Fees and Expenses - DENIED

MEMORANDUM OPINION

David E. Ross, Esquire; Eric D. Selden, Esquire; Ross Aronstam & Moritz LLP, 100 S. West Street, Suite 400, Wilmington, DE 19801. Attorneys for Plaintiff.

Howard M. Kaplan, Esquire; Anastasiya Kapustina, Esquire; Reed S. Oslan, Esquire; Brett A. Nerad, Esquire; Mark Premo-Hopkins, Esquire; Gregory Tsonis, Esquire; Kirkland & Ellis LLP, 300 North LaSalle, Chicago, IL 60654. Attorneys for Plaintiff.

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Kevin G. Abrams, Esquire; Michael A. Barlow, Esquire; Daniel J. McBride, Esquire; Abrams & Bayliss LLP, 20 Montchanin Road, Suite 200, Wilmington, DE 19807. Attorneys for Defendants.

Richard I. Werder, Jr., Esquire; Rollo C. Baker, Esquire; Silpa Maruri, Esquire; Dominic J. Pody, Esquire; Jared E. Ruocco, Esquire; Quinn Emanuel Urquhart & Sullivan, LLP, 51 Madison Avenue, 22^nd Floor, New York, NY 10010. Attorneys for Defendants.

Webster M. Beary, Esquire; Benjamin A. Cornfield, Esquire; Quinn Emanuel Urquhart & Sullivan, LLP, 1300 I Street NW, Suite 900, Washington, DC 20005. Attorneys for Defendants.

CARPENTER, J.

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Before the Court are Defendants Express Scripts, Inc. ("ESI") and United BioSource LLC's ("UBC") (collectively, "Defendants") Motion for Judgment as a Matter of Law, Motion for New Trial, and Motion for Remittitur. Defendants have also filed a Motion to Stay Execution of Judgment Pending Resolution of Post-Trial Motions and Appeal, as well as UBC's unopposed Motion for Award of Pre- and Post-Judgment Interest. Plaintiff Bracket Holding Corp. ("Plaintiff" or "Bracket") has filed a Motion for Costs and Prejudgment and Postjudgment Interest, a Motion for New Trial on Punitive Damages, and a Motion for Attorneys' Fees and Expenses.

For the reasons set forth in this Opinion, Defendants' Motion for Judgment as a Matter of Law, Motion for New Trial, and Motion for Remittitur are DENIED. Defendants' Motion to Stay Execution of Judgment Pending Resolution of Post-Trial Motions and Appeal is GRANTED. Defendant UBC's Motion for Award of Pre- and Post-Judgment Interest is GRANTED and Plaintiff's Motion for Costs and Prejudgment and Postjudgment Interest is GRANTED in part and DENIED in part. Plaintiff's Motion for Attorneys' Fees and Expenses is DENIED. Plaintiff's Motion for New Trial on Punitive Damages is DENIED.

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I. Factual & Procedural Background

A. The Parties

ESI, a Delaware corporation engaged in pharmaceutical support services and benefits management, purchased UBC in 2012.¹ UBC owned Bracket Global Holdings LLC, Bracket Global K.K., and Bracket Global Limited (collectively, "the Company").² In June 2013, Parthenon Capital Partners ("Parthenon"), a private equity fund, formed Bracket to purchase the Company from UBC.³ At all relevant times prior to closing the sale, Jim Stewart ("Stewart") was the Company's Vice President of Finance and Controller for its Scientific Services Division.⁴

B. Marketing & Sale of the Company

In the fall of 2012, ESI and UBC began marketing the Company for sale.⁵ ESI hired Credit Suisse Securities (USA) LLC ("Credit Suisse") as a financial advisor and KPMG LLC ("KPMG") to perform seller-side due diligence.⁶ Credit Suisse prepared a Confidential Information Memorandum ("CIM"),⁷ and KPMG conducted a Quality of Earnings ("QoE") investigation and issued its findings in a February

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2013 QoE Report.⁸ Working closely with Stewart, Defendants prepared the financial information used by KPMG and Credit Suisse to produce their reports.⁹ These reports were provided to Parthenon, as a potential buyer, who relied on their accuracy.

On February 22, 2013, Parthenon sent a letter of intent to purchase the Company and continued to perform due diligence. On April 13, 2013, Parthenon submitted a revised letter of intent based collectively on the CIM, QoE Report, and the represented historical financial information of the Company through March 31, 2013.¹⁰ Parthenon's intent to purchase remained contingent upon the Company's financial performance through May 2013. In early June 2013, UBC and Credit Suisse provided the May 2013 financial statements to Parthenon, and UBC and ESI allegedly represented that the information was true and accurate.¹¹

Satisfied with the information it received about the Company, Parthenon formed Bracket to purchase the Company from Defendants for $187 million.¹² On July 12, 2013, UBC and Bracket signed the Securities Purchase Agreement ("SPA").¹³ UBC, at ESI's direction, executed a closing certificate affirming to

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Bracket that UBC's representations and warranties remained true and correct as of the closing date and that all covenants and agreements had been performed.¹⁴ The transaction closed on August 14, 2013.¹⁵

C. Instant Matter

On February 27, 2015, Bracket filed its original complaint alleging Defendants fraudulently induced Bracket to purchase the Company by misrepresenting its financial status.¹⁶ Bracket asserted that many of the unbilled receivables were invalid because Stewart recognized revenue for contracts prior to work being performed, from nonexistent and/or terminated contracts, and in amounts above contracted totals for active contracts, which he tracked in a separate file maintained only by him.¹⁷ Defendants denied Plaintiff's allegations and UBC asserted a counterclaim for breach of contract and tortious interference, claiming Bracket failed to pay UBC for its performance under a separate Transition Services Agreement ("TSA").¹⁸

On June 24, 2019, following a ten-day trial, the jury determined that ESI and UBC committed fraud and that ESI aided and abetted UBC in the commission of the

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fraud. They awarded $82.1 million in damages to Bracket and $2,264,458.79 to UBC on their counterclaim for breach of contract. This is the Court's decision on all pending Post-Trial Motions.

II. Overview

While the Court will address the primary issues raised by the parties in this Opinion, it is important for this Court to note that all arguments for a new trial or judgment as a matter of law were addressed either in earlier opinions or in rulings made during the trial. As such, the Court finds no need to repeat them here. At times, it is easy to get sidetracked by the accounting disputes and lose sight of what is at the core of the jury's decision. Regardless of how the Defendants try to spin the facts here, they manipulated their records to create a financial picture of Bracket that was simply wrong and fraudulent. They knew that the Plaintiff was valuing the Company by the revenue the Company was generating in the trailing twelve month ("TTM") period before March and they manipulated their records to create a revenue picture that they knew was false. The conduct here was not simply a dispute over the proper accounting procedures, but was an intentional act by their Vice President of Finance to manipulate the financial records he knew would be reasonably relied upon by the Plaintiff in the evaluation of the value of the Company. While the Defendants may

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legitimately stab at portions of the damages award, there was no doubt by the jury or this Court regarding their liability.

III. Defendants' Motion for Judgment as a Matter of Law

A. Standard of Review

Pursuant to Superior Court Civil Rule 50(b):

Whenever a motion for a judgment as a matter of law made at the close of all the evidence is denied or for any reason is not granted, the Court is deemed to have submitted the action to the jury subject to a later determination of the legal questions raised by the motion . . . . If a verdict was returned, the Court may . . . allow the judgment to stand or may reopen the judgment and either order a new trial or direct the entry of judgment as a matter of law.¹⁹

Under Rule 50, this Court is required to view the evidence in a light most favorable to the nonmoving party.²⁰ In order to grant Defendants' Motion, this Court must find that "there is no legally sufficient evidentiary basis for a reasonable jury to find for" Plaintiff.²¹ Thus, "the factual findings of a jury will not be disturbed if there is any competent evidence upon which the verdict could reasonably be based."²²

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B. Discussion

Defendants argue that Bracket failed to establish any misrepresentation related to the working capital aspect of its fraud claim.²³ They claim that the SPA did not make "any representation concerning the dollar amount of [w]orking [c]apital to be provided at [c]losing;" it solely provided for how working capital should be calculated.²⁴ Accordingly, Defendants assert that, per the SPA, Bracket could only establish fraud by proving the working capital statements were not calculated in accordance with the accounting principles required by the SPA, which Bracket did not prove.²⁵ Additionally, Defendants claim that the damages awarded are an "impermissible double recovery" based on the alleged inflated purchase price and shortfall in working capital, reflecting that the jury "double count[ed] working capital."²⁶

In response, Bracket contends that Defendants' argument is frivolous because they presented abundant evidence that the working capital overstatement was inseparable from...