Cytotheryx, Inc. v. Castle Creek Biosciences, Inc. and Paragon Biosciences, LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

CYTOTHERYX, INC. )
)
Plaintiff, )
)
v. )
) Case No. 2023-1142-VLM
CASTLE CREEK BIOSCIENCES, INC. )
AND PARAGON BIOSCIENCES, LLC, )
)
Defendants. )
)

MEMORANDUM OPINION
Submitted: July 16, 2024
Decided: October 16, 2024

Upon Consideration of Defendants’ Motion to Dismiss,
DENIED.

Gary W. Lipkin, Esquire, and Michelle C. Streifthau-Livizos, Esquire, of SAUL
EWING LLP, Wilmington, Delaware, Attorneys for Plaintiff.

Adam V. Orlacchio, Esquire, and James G. Gorman III, Esquire, of BLANK ROME
LLP, Wilmington, Delaware, Attorneys for Defendants.

Medinilla, J. 1

1
Sitting as a Vice Chancellor of the Court of Chancery of the State of Delaware by designation of
the Chief Justice of the Supreme Court of Delaware under Del. Const. art. IV, § 13(2), pursuant
to In re Designation of Actions Filed Pursuant to 8 Del. C. § 111 (Del. Sept. 18, 2023) (ORDER).
I. INTRODUCTION
Plaintiff Cytotheryx, Inc. (“Cytotheryx”) initiated this action for fraud and

promissory estoppel against Castle Creek Biosciences Inc. (“Castle Creek”) for its

failure to redeem stock. It later amended to add parent, Paragon Biosciences, LLC

(“Paragon”) (collectively, “Defendants”) to its First Amended Complaint. 2

Cytotheryx alleges damages in the amount of $3.2 million as a result of Defendants’

false misrepresentations,3 and Cytotheryx’s reliance on the promise that it would be

entitled to exercise its right to redemption.4 Defendants seek dismissal under Rule

12(b)(6).5 For the reasons below, Defendants’ Motion is DENIED.

II. FACTUAL BACKGROUND 6
Pursuant to a Merger Agreement dated October 28, 2021 (“Merger

Agreement”)7 Cytotheryx sold to Castle Creek its majority interest in a biotech

startup gene therapy company, novavita thera, Inc. (novavita). 8 Castle Creek

acquired novavita when the Merger Agreement closed on November 19, 2021.9 In

2
Verified First Am. Compl. ¶ 4, D.I. 7 (hereafter “Compl.”).
3
Compl. ¶ 35.
4
Id. ¶ 40.
5
Opening Br. in Supp. of Defs. Castle Creek Biosciences, Inc. and Paragon Biosciences, LLC’s
Mot. to Dismiss Cytotheryx, Inc.’s Verified Am. Compl., D.I. 13 (hereafter “MTD”).
6
The background is drawn from the well-pleaded allegations in the First Amended Complaint and
the documents incorporated by reference therein.
7
Compl. ¶ 5.
8
Id. ¶¶ 8-9; see MTD, Ex. A (hereafter “Merger Agreement”).
9
Compl. ¶ 9.

2
exchange, Cytotheryx received a combination of cash and preferred C-1 shares of

Castle Creek (the “Castle Creek Shares”);10 an 80 percent share of a $2 million cash

payment and $8 million in Castle Creek stock, structured in this manner, at

Cytotheryx’s request, to minimize its tax liability. 11 These Castle Creek Shares

included a right of redemption for $3.2 million pursuant to Castle Creek’s Fourth

Amended and Restated Certificate of Incorporation (the “Charter”). 12

A. Negotiations and Pre-Merger Representations

Cytotheryx alleges it had multiple offers available interested in the purchase

of novavita but elected to sell to Castle Creek on the strength of Castle Creek’s

assurances that Castle Creek would either close an initial public offering, which

would have triggered a conversion and liquidity, or that the stock would be

redeemed. 13

Serving as both Paragon’s Executive Vice President and Castle Creek’s Chief

Operating Officer, Mr. Babar Ghais (“Ghais”) negotiated the terms of the Merger

Agreement. 14 In this dual capacity, he allegedly made material pre-merger

10
Id. ¶ 10; Merger Agreement § 2.3.
11
Compl. ¶¶ 11, 13, 18; Pl. Cytotheryx, Inc.’s Answering Br. in Opp’n to Mot. to Dismiss at 2-5,
19, D.I. 15 (hereafter “MTD Opp’n”).
12
Compl. ¶ 11.
13
Id. ¶ 12.
14
Id. ¶ 16.

3
representations 15 confirming that Defendants had removed any obstacles to

obtaining lender approval for Cythotheryx to exercise its contractual redemption

right. 16

15
Id. ¶ 18. Those pre-merger representations included:
• This structure guarantees $10M in cash . . . 3 main shareholders have
invested over $200M . . . so capital has not been an issue;
***
• [E]ach Stockholder will have the ability to redeem, on a pro rata basis, all
or, at the election of such Stockholder, a portion of the Closing Stock Payment,
based on the aggregate cash value of $8M;
***
• [Y]ou . . . have a contractual put right that you can exercise to take $8M
cash instead . . . each noteholder . . . shall be entitled to transfer its note or equity
securities issued upon conversion of the note to CCB at a price equal to . . . the
original issue price of such securities;
***
• The $8M convertible note . . . will basically be viewed as cash and not equity
for the purposes of tax analysis given the certainty that it could be cash;
***
• [W]e will need to get consent from additional shareholders that we have . .
. in fact the reason there is a put right that enables you to get $8M in cash;
***
• The fact that you have this ‘put right’ on the $8 million does not pose the
same issues as being viewed as real cash for your analysis. In which case, why don’t
we just give you $2M in closing cash and $8 million milestone in cash in 2022?;
***
• I have to believe that even if we take the PV of future milestones the $10
million (in cash or cashlike) is greater than 60%.”
16
Id. ¶ 19.

4
B. The Merger and the Redemption Demand

Relying on Defendants’ representations, Cytotheryx sold to Castle Creek its

majority interest of novavita, executed the Merger Agreement, and accepted the

Castle Creek Shares as payment for the assignment of Cytotheryx’s shares of

novavita,17 including its redemption right. The Merger Agreement was signed on

October 28, 2021.18 The merger closed on November 19, 2021. 19 Over one year

after closing on the merger at a February 2023 meeting, Castle Creek’s CEO further

represented to Cythotheryx’s CEO that Castle Creek would honor its obligation to

redeem the shares.20

Two months later, on April 1, 2023, Cytotheryx submitted a redemption

request to Castle Creek pursuant to the Charter. 21 Section 6.1.1 of the Charter

provides in relevant part that:

[Castle Creek] shall redeem [a portion of the Castle Creek Shares] . . .
provided that such redemption does not then violate this Certificate of
Incorporation or [Castle Creek]’s other then existing governance
documents or debt financing documents.22

17
Compl. ¶ 20.
18
Id. ¶ 5.
19
Id. ¶ 9.
20
Id. ¶ 24.
21
Id. ¶ 25.
22
MTD, Ex. B (hereafter “Charter”) § 6.1.1.

5
Castle Creek pointed to one such debt document. 23 Under Section 7.5 of

Castle Creek’s Venture Loan and Security Agreement (the “Loan Agreement”),

Castle Creek had agreed not to:

(b) purchase, redeem, retire, defease or otherwise acquire, or permit any
Subsidiary to purchase, redeem, retire, defease or otherwise acquire, for
value any of their respective Equity Securities . . .; (c) return, or permit
any Subsidiary to return, any capital to any holder of its Equity
Securities as such. 24

In September 2023, Castle Creek advised that its lender refused to permit the

redemption and Castle Creek would not be able to redeem the shares.25

C. The Integration Clause and Reservation of Rights

The terms of the Merger Agreement include an integration clause. It provides,

in pertinent part:

This Agreement, together with the Exhibits and Annexes hereto, and
the Disclosure Letters and the other Transaction Documents, contains
the entire understanding of the parties hereto with respect to the subject
matter contained herein and supersedes all prior agreements and
understandings, oral and written, with respect hereto. 26

The Merger Agreement also contains a provision specifically preserving the

parties’ right to assert fraud claims. Section 11.5(a) of the Agreement states:

23
Motion, Ex. C (hereafter “Loan Agreement”) § 7.5.
24
Id.
25
Compl. ¶ 29.
26
MTD at 3 (quoting Merger Agreement § 11.4).

6
Notwithstanding anything in this Agreement to the contrary, no Party
shall be prevented from bringing claims for Fraud based upon, arising
out of or relating to the representations, warranties, and covenants
contained in this Agreement, any other certificate, instrument or
document delivered in connection herewith.27

III. PROCEDURAL HISTORY
Cytotheryx initiated this action for common law fraud and promissory

estoppel against Castle Creek.28 It amended to add parent Paragon.29 Cytotheryx

alleges damages in the amount of $3.2 million as a result of Defendants’ false

misrepresentations,30 and Cytotheryx’s reliance on the promise that it would be

entitled to exercise its right to redemption.31

Defendants filed their Motion to Dismiss. 32 They assert both the fraud and

promissory estoppel are barred as a matter of law because 1) the claims are directly

belied by the integrated contract and fail to state a claim; 2) the integration clause

bars claims based on alleged contradictory statements and future promises; 3) there

has been no allegation of an actionable misrepresentation or promise; and 4) there is

27
MTD Opp’n at 12 (quoting Merger Agreement § 11.5(a)).
28
Verified Compl., D.I. 1.
29
Compl. ¶¶ 30-40.
30
Id. ¶ 35.
31
Id. ¶ 40.
32
MTD.

7
no viable claim against Paragon. 33 After full briefing, the Court heard oral

arguments on July 16, 2024.34 The matter is ripe for decision.

IV. STANDARD OF REVIEW
Upon a motion to dismiss under Rule 12(b)(6), the Court (i) accepts all well-

pled factual allegations as true, (ii) accepts even vague allegations as well-pled if

they give the opposing party notice of the claim, (iii) draws all reasonable inferences

in favor of the non-moving party, and (iv) only dismisses a case where the plaintiff

would not be entitled to recover under any reasonably conceivable set of

circumstances.35 The Court does not, however, accept “conclusory allegations that

lack specific supporting factual allegations.” 36 But “it is appropriate. . .to give the

pleader the benefit of all reasonable inferences that can be drawn from its

pleading.”37

33
See id.
34
Judicial Action Form for July 16, 2024, D.I. 23.
35
See ET Aggregator, LLC v. PFJE AssetCo Hldgs. LLC, 2023 WL 8535181, at *6 (Del. Super.
Dec. 8, 2023).
36
Id. (quoting Ramunno v. Cawley, 705 A.2d 1029, 1034 (Del. 1998)).
37
TrueBlue, Inc. v. Leeds Equity Partners IV, LP, 2015 WL 5968726, at *2 (Del. Super. Sept. 25,
2015) (quotation omitted).

8
V. DISCUSSION
Defendants ask this Court to accept their contract interpretation to bar all

claims. This necessarily requires the Court to “effectuate the parties’ intent based

on the parties’ words and the plain meaning of those words.” 38 Contract

interpretation is driven by the “assumption that the parties never include superfluous

verbiage in their agreement.”39 The Court must give each word its plain “meaning

and effect.”40 Additionally, to uphold “the intentions of the parties, a court must

construe the agreement as a whole, giving effect to all provisions therein.” 41

A. The Fraud Claim is Reasonably Conceivable

The elements of common-law fraud are: 42
(1) a false representation made by the defendant; (2) the defendant
knew or believed the representation was false or was recklessly
indifferent to its truth; (3) the defendant intended to induce the plaintiff
to act or refrain from acting; (4) the plaintiff acted or refrained from
acting in justifiable reliance on the representation; and (5) damage
resulted from such reliance. 43

38
Zimmerman v. Crothall, 62 A.3d 676, 690 (Del. Ch. 2013) (citation omitted).
39
NAMA Hldgs., LLC v. World Mkt. Ctr. Venture, LLC, 948 A.2d 411, 419 (Del. Ch. 2007), aff’d.,
945 A.2d 594 (Del. 2008).
40
Id.
41
GMG Capital Invs., LLC v. Athenian Venture P’rs. I, L.P., 36 A.3d 776, 779 (Del. 2012)
(quotation omitted).
42
Maverick Therapeutics, Inc. v. Harpoon Therapeutics, Inc., 2020 WL 1655948, at *26 (Del. Ch.
Apr. 3, 2020).
43
Valley Joist BD Hldgs., LLC v. EBSCO Indus., Inc., 269 A.3d 984, 988 (Del. 2021) (citing Prairie
Cap. III, L.P. v. Double E Hldg. Corp., 132 A.3d 35, 49 (Del. Ch. 2015)).

9
1. The Integration Clause Does Not Bar Plaintiff’s Fraud Claim.

Defendants first contend Cytotheryx is barred as a matter of law from relying

on representations that are “expressly contradicted by the parties’ written

agreement.”44 Specifically, that the integration clause prohibits any reliance on

extra-contractual statements. 45 In support, Defendants rely primarily on Black

Horse, 46 Flores, 47 and Ogus, 48 in conjunction with the integration clause in support

of dismissal.49 Their refrain contends “[t]he Black Horse holding rings true here.

Cytotheryx cannot shirk the deal it signed and tout redemption rights that are wholly

devoid of basis in the Charter.”50

As the Court of Chancery has held, “[i]t is unreasonable to rely on oral

representations when they are expressly contradicted by the parties’ written

agreement” (emphasis added). 51 And it is correct that the Black Horse Court strictly

44
MTD Opp’n at 12; Defs. Castle Creek Biosciences, Inc. and Paragon Biosciences, LLC’s Reply
Br. in Further Supp. of Their Mot. to Dismiss the Verified Am. Compl. at 4, D.I. 19 (hereafter
“MTD Reply”).
45
Id.
46
Black Horse Cap., LP v. Xstelos Holdings, Inc., 2014 WL 5025926 (Del. Ch. Sept. 30, 2014).
47
Chapter 7 Tr. Constantino Flores v. Strauss Water Ltd., 2016 WL 5243950 (Del. Ch. Sept. 22,
2016).
48
Ogus v. SportTechie, Inc., 2020 WL 502996 (Del. Ch. Jan. 31, 2020).
49
The analysis of Defendants’ arguments focuses on Black Horse because the Defendants (to use
Defendants’ phrase,) “spills much ink discussing” it. MTD at 10.
50
See MTD at 20.
51
Flores, 2016 WL 5243950, at *7 (quoting Carrow v. Arnold, 2006 WL 3289582, at *11 (Del.
Ch. Oct. 31, 2006), aff’d, 993 A.2d 1249 (Del. 2007)); see also MicroStrategy Inc. v. Acacia
Research Corp., 2010 WL 5550455, at *14 (Del. Ch. Dec. 30, 2010) (granting motion to
10
enforced the integration clauses to bar reliance on extra-contractual

representations. 52 But this case is distinguishable.

Black Horse focused on the enforceability of an allege oral promise that never

translated into a written agreement despite evidence that the parties executed six

negotiated written agreements after that merger agreement. 53 That Court determined

no reasonable conceivability finding could be made under those circumstances,

especially where the purported misrepresentations from that alleged oral agreement

contradicted the terms of all other written agreements. 54 As such,

“[t]he facts as alleged [did] not support a reasonable inference of an
objective manifestation of the parties’ shared intent to be bound by the
[that alleged oral] [a]greement at the time of its alleged formation.
Indeed, the behavior of the parties in the days and weeks surrounding
the alleged…[a]greement undermines the possibility that the Court
could find it reasonably conceivable that they had a shared intent.
Further the Complaint’s non-conclusory factual allegations concerning
the parties’ actions after the time of the [alleged oral agreement] do not
support a reasonable inference that the parties intended to be bound,
either.55

dismiss fraud claim based on three oral statements that were expressly contradicted by a later
contract).
52
See Black Horse Capital, LP, 2014 WL 5025926, at *15-17, *22-24.
53
The alleged oral promises were made before executing multiple detailed written agreements that
did not reflect those promises. See id. at *13-14.
54
See id. at *16.
55
Id. at *17.

11
Delaware adheres to the objective theory of contract law. 56 So, “[t]he relevant

inquiry, therefore, is not what the parties’ subjective intent was then or is currently.

This Court, and all Delaware courts, look to the parties’ outward manifestations of

intent and construe them according to the meaning they would have in the eyes of a

reasonable person in like circumstances—i.e., their objective meaning.”57

Unlike Black Horse, where the alleged misrepresentations directly

contradicted the terms of the agreement, 58 here, the alleged misrepresentations about

lender approval for redemption are not expressly contradicted by the Agreement.

The Charter’s provision on which Defendants rely does not necessarily contradict

representations that lender approval had been obtained or would not be an issue.

Further distinguishing Black Horse, 59 the alleged misrepresentations here occurred

before and after closing of the Merger Agreement to include statements made by

Castle Creek’s CEO over a year after closing that Castle Creek would honor its

obligation to redeem the shares.

56
See Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (“Delaware adheres to the ‘objective’
theory of contracts, i.e. a contract’s construction should be that which would be understood by
an objective, reasonable third party.”).
57
Black Horse Cap., LP, 2014 WL 5025926, at *16.
58
See id. Similarly, Defendants’ reliance on Flores and Ogus is unconvincing. Both involved
alleged oral promises that directly contradicted clear written terms in the contracts. See Flores,
2016 WL 5243950, at *8-9; Ogus, 2020 WL 502996, at *7.
59
The alleged oral agreement sought to be enforced involved a promise made only prior to the
execution of six post-merger written agreements. See Black Horse Capital, LP, 2014 WL
5025926, at *13-14.

12
Moreover, the Merger Agreement preserves Cytotheryx’s right to bring an

action for fraud, “relating to the representations, warranties, and covenants contained

in this Agreement.”60 Defendants do not dispute this. The fraud reservation is

“explicit and unambiguous.”61 Delaware law does “not protect a defendant from

liability for a plaintiff’s reliance on fraudulent statements made outside of an

agreement absent a clear statement by that counterparty—that is, the one who is

seeking to rely on extra-contractual statements—disclaiming such reliance.” 62

Not only does Cytotheryx not give a clear statement of non-reliance, the

parties—by agreement—clearly and explicitly reserve to Cytotheryx that right to

bring fraud actions arising from the Merger Agreement and related documents.63

Notably, Defendants accuse Cytotheryx of “pick[ing] and choos[ing] what

contractual provisions should apply, and which do not.”64 Yet, Defendants

emphasize the criticality of the integration clause in its Opening Brief, affording very

60
MTD Opp’n at 12 (quoting Merger Agreement § 11.5(a)).
61
TrueBlue, Inc., 2015 WL 5968726, at *8 (holding a contractual anti-reliance clause only
precludes a fraud claim based on extra-contractual representations if it is explicit and
unambiguous); see also Adviser Invs., LLC v. Powell, 2023 WL 6383242, at *5 (Del. Ch. Sept.
29, 2023) (applying the TrueBlue standard to a Chancery matter).
62
Adviser Invs., 2023 WL 6383242, at *5 (emphasis in original) (quoting FdG Logistics LLC v.
A&R Logistics Holdings, Inc., 131 A.3d 842, 859 (Del. Ch. 2016) (emphasis added), aff’d sub
nom, 148 A.3d 1171 (Del. 2016)). See MTD Opp’n at 16 (“Absent such a provision, Cytotheryx
never agreed that it would not rely on representations by [Castle] in connection with the
Agreement.”)
63
Merger Agreement § 11.5(a)
64
MTD at 20.

13
little (if any) attention to the fraud reservation. Only in their Reply do they address

and downplay its significance. 65 And now ask this Court to find that the reservation

only applies to intentional fraud. 66 This the Court cannot do.

First, they assert that a “false representation” made “without knowledge” does

not constitute “an intent to defraud,” 67 and that the carefully selected phrase used by

Cytotheryx in opposition to dismissal that “Castle Creek had its lender’s approval,”68

“obvious[ly]” refers to approval of the Merger Agreement.69 This ipse dixit

argument is unavailing. There is nothing “obvious” about the intended scope of the

phrase on which Defendants rely. Indeed, a fair inference can be drawn, and should

be at this stage, that “approval” includes the redemption. 70 Any meaning to that

phrase is for the factfinder. Defendants’ insistence that “[o]ne must assume that [ ]

65
Pellaton v. Bank of New York, 592 A.2d 473, 477 (Del. 1991) (a “party to a contract cannot
silently accept its benefits, and then object to its perceived disadvantages).
66
MTD Reply, at 8-9, (emphasizing that the Merger Agreement “excludes any claim based on
negligent misrepresentation, equitable fraud or any other fraud…that requires something less
than actual knowledge.”).
67
MTD at 8.
68
Id. at 7 (emphasis in original).
69
Id. That the parties “carefully and extensively” negotiated the Merger Agreement to include a
specific definition of “Fraud” supports their intention to preserve claims for fraud outside the
Integration Clause. See MTD at 6; MTD Reply at 8-9, and discussion of Express Scripts, Inc. v.
Bracket Holdings Corp., 248 A.3d 824 (Del. 2021) (holding that parties to a contract could limit
fraud claims to ‘deliberate acts’ constituting an intentional state of mind).
70
See MTD Opp’n at 6-7, 12-13; Comp. ¶ 22; See TrueBlue, Inc., 2015 WL 5968726, at *2 (“it is
appropriate…to give the pleader the benefit of all reasonable inferences that can be drawn from
its pleading”) (quotation omitted).

14
any alleged reference to lender approval would be to [ ] the Merger Agreement . . ,

not the future redemption of shares” (emphasis added), fails for the same reasons. 71

At this stage, one can reasonably infer that defendants’ various representations

regarding approval of the redemption were false. Cytotheryx’s statement derives

from the general proposition that Defendants knowingly made representations for a

discrete purpose at a strategic point in time, in disregard of its truth or falsity, which

“constitutes a false representation when made.”72 Any determination of whether

that alleged conduct constitutes “actual and intentional fraud” involves factual issues

that cannot be resolved now,73 especially where intent, a critical factual component,

remains at issue. 74

2. Cytotheryx Sufficiently Pleads Fraud.

Defendants argue that even if the Merger Agreement does not preclude

Cytotheryx’s fraud claim, it is insufficiently pleaded.75 While Delaware generally

permits “notice” pleading, 76 Court of Chancery Rule 9(b) heightens the requirement

71
MTD Reply at 3.
72
See MTD Opp’n at 7.
73
See Eurofins Panlabs, Inc. v. Ricerca Biosciences, LLC, 2014 WL 2457515, at *7 (Del. Ch. May
30, 2014).
74
Pellaton, 592 A.2d, at 478; See In re Wayportm Inc. Litig., 76 A.3d 296, 315 (Del. Ch. 2013)
(holding the question of a defendant’s state of mind is generally inappropriate for resolution on
a motion to dismiss).
75
MTD at 21-24.
76
Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Holdings LLC, 27 A.3d 531, 536 (Del. 2011).

15
that fraud be pleaded with particularity.77 Specifically, the rule requires that “[i]n

alleging fraud or mistake, a party must state with particularity the circumstances

constituting fraud or mistake.”78 However, “[m]alice, intent, knowledge and other

condition of mind of a person may be averred generally.”79

In Pearce v. NeueHealth, Inc., 80 after pleading a fraud claim largely based

upon seemingly inactionable “imprecise statements and predictions[,]”81 that Court

explained that “[it] is not tasked with tailoring Plaintiffs’ pleading to include only

actionable statements.” 82 Instead, “[its] role at the pleading stage is only to

determine whether the plaintiff has brought a reasonably conceivable claim of

fraud.”83 It has. Cytotheryx has provided details about the alleged

misrepresentations, including dates, content, and the person making them (i.e.,

Ghias).84 Defendants concede as much that the “alleged, pre-closing representations

. . . identify the speaker, time, place, and contents, as required by Rule 9(b).”85

77
Del. Ch. Ct. R. 9.
78
Id.
79
Id.
80
2024 WL 3421900 (Del. Super. July 15, 2024).
81
Id. at *7.
82
Id. at *6 (collecting authority).
83
Id.
84
Compl. ¶ 18.
85
MTD Opp’n at 21-22.

16
Moreover, “less particularity is required when the facts lie more in the

knowledge of the opposing party than of the pleading party.” 86 The details regarding

lender approval would naturally be in Defendants’ possession, not Cytotheryx’s.

Contrasted to Black Horse, where that Court found the alleged oral agreement terms

to be vague and indefinite,87 here the alleged written misrepresentations are

presented with sufficient details, meeting the particularity requirements of Rule

9(b). 88 Even if it were determined that Section 11.5(a) applied only to intentional

fraud, Cytotheryx has also sufficiently so pleaded. 89

86
Kahn Bros. & Co. Profit Sharing Plan & Tr. v. Fischbach Corp., 1989 WL 109406, at *4 (Del.
Ch. Sept. 19, 1989).
87
Id. at *20.
88
“[W]here pleading a claim of fraud has at its core the charge that the defendant knew something,
there must, at least, be sufficient well-pled facts from which it can reasonably be inferred that
this ‘something’ was knowable and that the defendant was in a position to know it.” Trenwick
Am. Litig. Tr. v. Ernst & Young, L.L.P., 906 A.2d 168, 208 (Del. Ch. 2006), aff'd sub nom.
Trenwick Am. Litig. Tr. v. Billett, 931 A.2d 438 (Del. 2007).
89
Compl. ¶¶ 4, 17-20, 23-24, 26, 32-33. Specifically, that (1) Defendants falsely represented that
they were unaware of any obstacles by Castle Creek’s lender to Cytotheryx’s redemption of the
Castle Creek Shares, and that Castle Creek would not have an issue obtaining lender’s approval,
if needed. Id. ¶ 31. (2) Defendants knew the representations were false at the time made, or they
falsely represented that Castle Creek would not have issues obtaining the approval without
knowing whether the lender had, in fact, approved. Id. ¶ 32. (3) the representations were made
with intent to induce Cytotheryx to enter into the Merger Agreement and accept the Castle Creek
Shares as payment in exchange for the sale of the novavita shares. Id. ¶ 33. (4) Cytotheryx
reasonably relied on the representations that there was no objection to redemption of the shares
by the lender nor that Castle Creek would encounter issues obtaining lender approval. Id. ¶ 34.
and (5) it suffered damages in the amount of $3.2 million as a result of such reliance. Id. ¶ 39.

17
Accepting the allegations as true at this juncture, the integration clause does

not unambiguously preclude reliance on extra-contractual representations.90

Cytotheryx sufficiently pleads intentional fraud.91 As to Count I (fraud,) the

integration clause does not bar plaintiffs claim as a matter of law. The claim is

further sufficiently plead under Rule 9.

The same analysis applies to Paragon. Defendants maintain it merely

provided management services to Castle Creek and does not own any interest in

Castle Creek.92 Defendants further “reserve the right to seek Rule 11 sanctions

unless Cytotheryx can produce a basis for the claims of ownership.”93 This is

unnecessary. Cytotheryx alleges it was actively involved in pre-merger negotiations

with Ghias, who was acting in a dual capacity as an officer of Paragon as well as

Castle Creek.94 At this stage, these allegations regarding Ghias’ role and Paragon’s

controlling interest support a reasonable conceivable claim for fraud. 95

90
“Where the contract is ambiguous, or where it merely recites that the parties meant to integrate
all their prior dealings into its terms, that contract does not preclude a party’s proof of extra-
contractual fraud.” ChyronHego Corp. v. Wight, 2018 WL 3642132, at *1 (Del. Ch. July 31,
2018).
91
See Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1050-51 (Del. Ch. 2006).
92
MTD Reply at 17.
93
Id. n 5.
94
Compl. ¶ 16.
95
See Prairie Cap. III, L.P. v. Double E Holding Corp., 132 A.2d 36, 65 (Del. Ch. 2015).

18
B. The Promissory Estoppel Claim is Reasonably Conceivable

With minimal argument, Defendants also ask the Court to dismiss Count II

(promissory estoppel). 96 The argument for dismissal of this claim rises and falls with

Cytotheryx’s fraud claim as the two are based on the same alleged material

misrepresentations. For completeness, the Court briefly addresses the argument. A

claim for promissory estoppel requires by clear and convincing evidence that:

(i) A promise was made; (ii) it was the reasonable expectation of the
promisor to induce action or forbearance on the part of the promisee;
(iii) the promisee reasonably relied on the promise and took action to
his detriment; and (iv) such promise is binding because injustice can be
avoided only by enforcement of the promise. 97
Cytotheryx alleges Defendants made promises that they were “unaware of any

obstacles by Castle Creek’s lender to Cytotheryx’s redemption,” and that “Castle

Creek would not have an issue obtaining its lender’s approval to do so.”98

Cytotheryx further alleges it reasonably relied on these promises when it decided to

enter into the Merger Agreement. 99 Specifically, that they relied on Castle Creek’s

assurance that the Castle Creek Shares would be redeemable, in deciding whether to

accept a lump sum payment or a mixed compensation structure to avoid taxes. 100

96
MTD at 21.
97
SIGA Techs., Inc. v. PharmAthene, Inc., 67 A.3d 330, 348 (Del. 2013).
98
Compl. ¶ 37.
99
See id. ¶ 20.
100
See id. ¶¶ 11-13; 18; MTD Opp’n at 3-4, 19.

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Whether reliance on the alleged promises was reasonable is a factual question

that cannot be resolved on a motion to dismiss.101 Similarly, whether enforcement

of the promise is necessary to prevent injustice is a factual inquiry not suitable for

resolution at this stage. 102 Cytotheryx has alleged sufficient facts to support a

reasonably conceivable claim for promissory estoppel.

For the foregoing reasons, Defendants’ Motion to Dismiss as to both Counts I

(Fraud) and II (Promissory Estoppel) is DENIED.

/s/ Vivian L. Medinilla
Vivian L. Medinilla
Judge

101
See Grunstein v. Silva, 2009 WL 4698541, at *10 (Del. Ch. Dec. 8, 2009).
102
Id.

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