MIG Invs. LLC v. Aetrex Worldwide, Inc., C.A. Nos. 11–00039–LPS, 10–00905–LPS.

• Decision Date: 30 March 2012
• Docket Number: C.A. Nos. 11–00039–LPS, 10–00905–LPS.
• Parties: MIG INVESTMENTS LLC, Plaintiff, v. AETREX WORLDWIDE, INC., Defendant. Just4fit, Inc., Plaintiff/Counterclaim Defendant, v. Aetrex Worldwide, Inc., Defendant/Counterclaim Plaintiff/Third Party Plaintiff, v. Noam Danenberg, Just4fit Israel, Ltd.; Mavidex Ltd. d/b/a Blue Bird Surf and Urban; Ofer Michalovski; John and/or Jane Does 1–25; ABC, Corporations 1–25, Third Party Defendants.
• Court: U.S. District Court — District of Delaware

852 F.Supp.2d 493

MIG INVESTMENTS LLC, Plaintiff,

v.AETREX WORLDWIDE, INC., Defendant.

Just4fit, Inc., Plaintiff/Counterclaim Defendant,

v.Aetrex Worldwide, Inc., Defendant/Counterclaim Plaintiff/Third Party Plaintiff,

v.Noam Danenberg, Just4fit Israel, Ltd.; Mavidex Ltd. d/b/a Blue Bird Surf and Urban; Ofer Michalovski; John and/or Jane Does 1–25; ABC, Corporations 1–25, Third Party Defendants.

C.A. Nos. 11–00039–LPS, 10–00905–LPS.

United States District Court,

D. Delaware.

March 30, 2012.

Edmond D. Johnson, James G. McMillan, III, Pepper Hamilton LLP, Wilmington, DE, for Plaintiff MIG Investments LLC; Plaintiff/Counterclaim Defendant Just4Fit, Inc., and Third Party Defendants Just4Fit Israel, Ltd., Marvidex Ltd., Noam Danenberg, and Ofer Michalovski.

William E. Manning, James D. Taylor, Jr., Saul Ewing, LLP, Wilmington, DE, Michael S. Gugig, Saul Ewing LLP, Newark, NJ, for Defendant/Counterclaim Plaintiff/Third Party Plaintiff Aetrex Worldwide, Inc.

MEMORANDUM OPINION

STARK, District Judge:

Pending before the Court are: (1) a Motion to Dismiss, or alternatively, to Strike the Third Party Complaint (D.I. 16),¹ filed by putative third party defendants Noam Danenberg, Just4Fit Israel, Ltd., Mavidex Ltd. d/b/a Blue Bird Surf & Urban, and Ofer Michalovski (collectively, “TP Defendants”); and (2) a Motion to Consolidate Cases (D.I. 22), filed by Defendant/Counterclaim Plaintiff/Third Party Plaintiff Aetrex Worldwide, Inc. (“Aetrex”).For the reasons discussed below, the Court will grant in part and deny in part TP Defendants' Motion to Dismiss and grant Aetrex's Motion to Consolidate.

I. BACKGROUND²A. The Parties

Plaintiff/Counterclaim Defendant Just4Fit, Inc. (“Just4Fit”) is a Delaware corporation with its principal place of business in Israel. (D.I. 3 at ¶ 3) TP Defendant Just4Fit Israel, Ltd. (“Just4Fit Israel”) is an Israeli corporation with its principal place of business in Israel. ( Id.) Just4Fit Israel is wholly-owned by Just4Fit, and the two corporations share directors and officers. ( Id.) Just4Fit Israel transacts business in Israel and has never done business in the United States. (D.I. 18 at A163)

Plaintiff MIG Investments LLC (“MIG”) ³ is a Delaware limited liability company that represents the former stockholders of Fitracks, Inc. (“Fitracks”). (C.A. No. 11–00039, D.I. 1 Ex. 1 at ¶ 12)

Defendant Aetrex is a New Jersey corporation with its principal place of business in Teaneck, New Jersey. (D.I. 3 at ¶ 1)

TP Defendant Noam Danenberg (“Danenberg”) is an Israeli citizen. (D.I. 3 at ¶ 2) Danenberg is the controlling shareholder, director, and President of Just4Fit and is also a director of Just4Fit Israel. (Id.; D.I. 18 at 161)

TP Defendant Ofer Michalovski (“Michalovski”) is an Israeli citizen. (D.I. 18 at A159) He is Vice President of Just4Fit and a consultant for Just4Fit Israel. (Id.; D.I. 3 at ¶ 5) Acting in his role as Vice President of Just4Fit, he signed Just4Fit's verification of the factual allegations in the complaint. (D.I. 18 at A159)

TP Defendant Mavidex Ltd. d/b/a Blue Bird Surf & Urban (“Blue Bird”) is a business entity organized and existing under the laws of Israel, with its principal place of business in Israel. (D.I. 3 at ¶ 6)

1. Aetrex I⁴

This case arises out of a merger between a Delaware corporation, Fitracks, and a subsidiary of Aetrex. (D.I. 17 at 1) Fitracks developed, manufactured, and patented computerized foot measuring devices—iStep machines—that Aetrex used in its business of making and selling orthotic devices. ( Id.) In 2008, the stockholders of Fitracks agreed to sell Fitracks to Aetrex in return for, among other things, a contingent exclusive worldwide license to use the iStep machines in a market segment defined in the merger agreement as “Virtual Stores.” (D.I. 3 Ex. C and, hereinafter, “Merger Agreement”) The Merger Agreement defined a Virtual Store as:

a non-shoe store environment (such as a booth, stall or kiosk) at a fixed site, situated in a location other than at a shopping mall or shopping center in North America containing an existing iStep customer (unless Parent agrees otherwise in writing), which contains single or multiple foot-measuring devices and is intended to function as a promoter and direct seller of customized footwear products, including, without limitation,insoles and shoes, but which shall carry no inventory of shoes and which shall occupy a space of not more than 150 square feet.

( Id. at § 1.01)

The Merger Agreement was entered into on May 15, 2008. ( Id.) Under § 6.01 of the Merger Agreement, Fitracks's stockholders had the option to form Newco in order to effectuate the merger and operate Virtual Stores.⁵ Pursuant to § 6.03(e) of the Merger Agreement:

[I]f the Equity Holders have not formed Newco and established Newco as a viable licensee of Parent and Parent's Subsidiaries (including the Company) to operate Virtual Stores by 180 days after the Closing Date, Parent and Parent's Subsidiaries shall be required to grant Newco only a non-exclusive license pursuant to the Newco Licensing Agreement.

( Id. at § 6.03(e)) In order to obtain the exclusive license, Fitracks's stockholders formed a Newco called Just4Fit. Upon forming Just4Fit, Aetrex was obligated to negotiate a license agreement with Just4Fit that memorialized the terms of the license required by the Merger Agreement. (D.I. 1 Ex. 1 Part 4 at 29–39 and, hereinafter, the “VLA”) The VLA was entered into on November 28, 2008. ( Id. at 29) Pursuant to the VLA, Just4Fit obtained an exclusive worldwide license to operate the Virtual Stores. ( Id. at ¶ 2) The VLA defined a Virtual Store as:

[A] non-shoe store environment (such as a booth, stall or kiosk) at a fixed site, situated in a location other than at a shopping mall or shopping center in North America containing an existing iStep customer (unless Aetrex agrees otherwise in writing), which contains single or multiple foot-measuring devices and is intended to function as a promoter and direct seller of customized footwear products, including, without limitation, insoles and shoes, and which shall occupy a space of not more than 150 square feet. Additionally, the Virtual Stores shall be permitted to carry a limited fitting inventory in amounts as mutually agreed upon between the Parties in writing from time to time.

( Id. at ¶ 2(a)) However, Just4Fit would lose this exclusive license if it did not establish at least twenty-five Virtual Stores by July 1, 2010. (D.I. 3 at ¶ 43)

Prior to the July 1, 2010 deadline, Danenberg made numerous representations indicating that Just4Fit was going to meet the deadline. ( See id. at ¶¶ 55, 58) On June 3, 2010, Danenberg emailed Aetrex and advised that he was “opening 25 Virtual Stores during the month of June.” ( Id. at ¶ 55; id. Ex. E) Then, on June 29, 2010, Danenberg sent an email to Just4Fit's stockholders and stated that Just4Fit “intends to meet its contractual obligations and open 25 Virtual Stores before July 1, 2010.” (Id. Ex. G) On July 5, 2010, Danenberg informed Aetrex via email that he had opened twenty-five Virtual Stores prior to the deadline. ( Id. at ¶ 59; id. Ex. H) Danenberg's email contained a letter from Blue Bird indicating that Blue Bird had the Virtual Stores in its retail locations. ( Id. at ¶ 60; id. Ex. H) Aetrex claims that Danenberg never opened any Virtual Stores. ( Id. at ¶ 63)

2. Aetrex II⁶

Aetrex II arises out of Aetrex's alleged failure to pay MIG post-merger payments (the “Earnout”) pursuant to the requirements of the Merger Agreement. (C.A. No. 11–00039, D.I. 10 at 1) The Merger Agreement provided that consideration to be paid to the Fitracks's stockholders would be bifurcated, consisting of a base payment and the Earnout. (C.A. No. 11–00039, D.I. 1 Ex. 1 at ¶ 12) The base payment was due on the closing date of the merger. ( Id. at ¶ 15) The Earnout was to be paid to the stockholders and holders of options or warrants in Fitracks over a period of ten years following the closing date of the merger. ( Id. at ¶ 16) Section 6.01 of the Merger Agreement sets forth the specific terms of the Earnout payment. ( See D.I. 3 Ex. C at § 6.01) Specifically, § 6.01(a) of the Merger Agreement provides:

For a period of ten (10) years following the Closing Date (the “Earnout Term”), Parent shall pay Paying Agent, for the benefit of the Equity Holders (in the aggregate) and in proportion to each Equity Holder's interest in the Closing Equivalent Shares prior to the Effective Time, an earnout ... on account of each computerized foot measuring system (the “System”) that Parent (and/or any Parent Subsidiary in which Parent's ownership interest exceeds ten percent (10%)) sells or places with a customer (with or without consideration) in the amount of (i) USD $500 per System ... and (ii) USD $300 per System for each System sold or placed at any Major Retailer location. Notwithstanding anything herein to the contrary, the following transactions shall be specifically excluded from the Earnout: (i) any Systems sold or placed at any Virtual Store

( Id. at § 6.01(a)) In the spring of 2010, MIG discovered that some of the Earnout payments failed to account for all iStep machines placed by Aetrex during the relevant quarter. (C.A. No. 11–00039, D.I. 1 Ex. 1 at 128) Specifically, the Earnout payments did not account for the iStep machines placed by Just4Fit Israel. ( Id. at ¶ 29) Aetrex has also failed to provide Earnout reports to MIG since the closing date, as required by the Merger Agreement. ( Id. at ¶ 34)

B. Procedural History

Just4Fit filed its breach of contract action against Aetrex—seeking declaratory relief, specific performance, damages, and injunctive relief—on September 21, 2010, in the Delaware Court of Chancery. (D.I. 1 Ex. 1) On October 1, 2010, Aetrex removed Aetrex I to federal court, pursuant to 28 U.S.C. § 1441. (D.I. 1)

Subsequently, on November 1, 2010, Aetrex filed a “Verified Answer, Defenses, Counterclaims, and Third Party Complaint.” (D.I. 3 and, hereinafter, ...