Restanca, LLC v. House of Lithium, Ltd.
| Docket Number | 2022-0690-PAF |
| Decision Date | 30 June 2023 |
| Parties | RESTANCA, LLC, a Delaware limited liability company, on its own behalf and in its capacity as Sellers' Representative, and REBY, INC., a Delaware corporation, Plaintiffs, v. HOUSE OF LITHIUM, LTD., a foreign corporation, Defendant. HOUSE OF LITHIUM, LTD., Counterclaim-Plaintiff, v. JOSEP GOMEZ TORRES, REBY, INC., and RESTANCA, LLC, in its corporate status and as purported Sellers' Representative, Counterclaim-Defendants. |
| Court | Court of Chancery of Delaware |
Submitted: March 30, 2023
Daniel A. Mason, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP Wilmington, Delaware; Bruce Birenboim, Jaren Janghorbani Paul A. Paterson, Kristina A. Bunting, Jonathan C. Day, PAUL WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, New York; Attorneys for Plaintiffs/Counterclaim-Defendants Restanca, LLC and Reby, Inc. Matthew D. Perri, Raymond J. DiCamillo, Andrew L. Milam, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Alexis Coll, GOODWIN PROCTER LLP, Redwood City, California; Brendan Blake, GOODWIN PROCTER LLP, Boston, Massachusetts; Attorneys for Counterclaim-Defendant Josep Gomez Torres.
Daniel M. Silver, Sarah E. Delia, Travis J. Ferguson, Shannon D. Humiston, MCCARTER & ENGLISH, LLP; Attorneys for Defendant/Counterclaim-Plaintiff House of Lithium, Ltd.
FIORAVANTI, Vice Chancellor On the evening of April 30, 2022, after being on the job as CEO of a private equity firm for five days, Kevin Taylor electronically signed a signature page committing the firm to acquire all of the shares of a privately held scooter business that it did not already own. The deal had been in the works for months, heavily negotiated by Taylor's predecessor who had been forced out, but was still advocating for the transaction. Taylor had agonized over the decision, but ultimately caved to the demands of the aggressive and impatient co-founder of the target, who refused to make last minute changes to the deal terms and had threatened to walk away. Taylor and his private equity firm suffered a case of buyer's remorse and searched for a way out of the deal. The target has sued to force the buyer to close or to pay damages for breaching the agreement. The buyer has counterclaimed, asserting claims for fraudulent inducement, breach of contract, unjust enrichment, and declaratory judgment. In this post-trial opinion, the court concludes the necessary conditions obligating the buyer to close have not been satisfied, and that the buyer has not proved its fraud and unjust enrichment claims and is otherwise not entitled to damages.
The following recitation reflects the facts as the court finds them after trial.[1]
A. Parties
Reby, Inc. ("Reby" or the "Company") is a privately held Delaware corporation with its principal place of business in Barcelona, Spain.[2] Reby operates a micro-mobility business which contracts with municipalities to offer short term escooter rentals through its SaaS platform. Josep "Pep" Gomez Torres, Kiran Thomas, Cristina Castillo, and Guillem Pages founded Reby in 2018. Since 2018, Reby has secured contracts with over a dozen public administrations in Spain and Italy. Reby, Inc. holds 100% of the outstanding shares of Reby Global, S.L., a European intermediate holding entity for the Company's operating subsidiaries, Reby Rides, S.L., Rodea Electric Vehicles, S.L., and Reby Italia, S.R.L.[3]
Gomez is the chairman and sole member of the Reby board of directors.[4]Restanca, LLC is Gomez's personal investment vehicle, through which he owns approximately 20% of Reby's outstanding equity.[5] Gomez founded his first company, an online ticketing platform called "Fever" in 2011, when he was 19 years old.[6] At the time of trial, Fever was continuing to raise impressive amounts of funding from institutional investors and was valued at approximately $1.3 billion.[7]Gomez left Fever in 2018 and founded Reby the same year.[8]
SOL Global Investments Corp. ("SOL") is a Canadian private equity firm.[9]SOL's shares are traded on the Canadian Stock Exchange ("CSE"). SOL first invested $800,000 in Reby in the first half of 2021.[10] In July 2021, SOL created House of Lithium, Ltd. ("HOL") as an operating subsidiary to hold SOL's investments in electric mobility.[11] In November 2021, SOL transferred its interest in Reby to HOL[12] and invested an additional $5 million into Reby, increasing its stake to around 16.67% of Reby's outstanding equity.[13] SOL's founder is Andy DeFrancesco.[14] He served as the chief executive officer of both SOL and HOL and as SOL's board chairman until he left both companies on April 25, 2022 under the cloud of a federal investigation.[15]DeFrancesco holds between 20 and 25 percent of SOL's shares.[16] DeFrancesco was replaced as SOL's CEO and chairman by Kevin Taylor, who had joined the SOL board in August 2021.[17]
B. The Transaction Chronology
What follows is the chronology of the key events leading up to this action. Other facts are included in the legal analysis.
SOL first approached Reby regarding a potential acquisition in the summer of 2021.[18] Initially, Reby was uninterested in being acquired, but began to warm to the idea by the fall of 2021 as the relationship between Gomez and DeFrancesco developed.[19] Acquisition negotiations intensified after SOL increased its equity stake in Reby in November 2021 and moved those assets to HOL.[20] On December 10, 2021, HOL and Reby entered into a non-binding term sheet that outlined the process for HOL to purchase all of the equity in Reby that it did not already own (the "First Term Sheet").[21] The First Term Sheet contemplated that HOL would eventually be listed on a recognized stock exchange and that Gomez would be appointed executive vice-chairman of HOL.[22] The First Term Sheet noted the conditions precedent to closing included "satisfactory completion of due diligence by HOL, its counsel and representatives on the business, assets, financial condition, and corporate records of the Issuer which due diligence process shall be concluded on or before the date of entering into the Definitive Documents" as well as "all required regulatory and third-party consents and approvals."[23] Paul Kania, SOL's chief financial officer and then HOL's sole director, signed the First Term Sheet on behalf of HOL.[24]
In mid-January 2022, DeFrancesco created a WhatsApp group named "HoLi Into Over Drive" with SOL leadership.[25] Messaging the group, DeFrancesco emphasized that "we need to accelerate the process with Reby Rides" and noted that SOL's second highest immediate priority was to "finalize the deal with Pep & Reby Rides."[26] HOL was represented by Canadian counsel at Gowling WLG, including Sharagim Habibi.[27]
At the same time, Gomez was soliciting Reby stockholders to sell their shares to him.[28] Gomez told a colleague on January 26, 2022 that he had been "buying from everyone I caught at $75m" based on his knowledge that the company was worth more and would increase in value once HOL was publicly traded.[29] He boasted: "I am buying 80% of [Kiran Thomas's] position . . . and people like lanai and seed investors . . . making dishonest offers, sure."[30]
On January 28, 2022, HOL announced that it had entered into an agreement to acquire Rio Verde Industries Inc. ("Rio Verde"), a publicly traded company, in a reverse takeover.[31] The press release specified that as a condition precedent to the transaction, Rio Verde would change its name to "HoLi Technologies Inc."[32] On January 31, 2022, HOL and Reby entered into a second term sheet (the "Second Term Sheet").[33] The Second Term Sheet did not displace the First Term Sheet, but rather amended certain provisions.[34] The Second Term Sheet continued to contemplate a transaction between HOL and Reby under which HOL would purchase all outstanding equity in Reby that it did not already own. It included binding provisions that required Reby to refrain from initiating, soliciting, or discussing any outside acquisition proposals, prohibited both parties from publicizing the transaction without consent from the other party, and provided for a $2 million break-up fee if the transaction was not completed by March 15, 2022.[35]In another binding provision, the parties agreed "that the Transaction will be consummated by the execution of one [or] more stock purchase agreements with the stockholders of the Issuer in substantially the form attached hereto as Exhibit A."[36]The exhibit provided for a single secondary sale agreement or "SSA," to be signed in March 2022 by all selling stockholders and for Restanca-Gomez's entity-to serve as a representative for the selling stockholders.[37] It contemplated a closing "on the date that the aggregate Purchase Price has been fully paid to the Sellers, which is expected to be June 10, 2022, or such other date as agreed to by the Sellers and the Buyer."[38] The form SSA contained a signature block for Kania to execute the agreement on behalf of HOL.[39] Neither the Second Term Sheet nor the form SSA attached to it made any reference to HoLi Technologies Inc. ("HoLi").
On March 8, 2022, HOL's counsel circulated a revised form of the SSA that listed HoLi, not HOL, as the Buyer.[40] Another version circulated the same day also added what Habibi considered "standard representations and warranties for a transaction of this type."[41] Among the 33 new representations to be made in respect of the Company, Habibi added a provision providing that final financial statements, audited in accordance with International Financial Reporting Standards ("IFRS"), had been provided for 2020 and 2021 and fairly present Reby's financial condition.[42]Habibi also added a provision which...
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