Principal Growth Strategies, LLC v. AGH Parent LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

PRINCIPAL GROWTH STRATEGIES, )
LLC, et al., )
)
Plaintiffs, )
)
v. ) C.A. No. 2019-0431-JTL
)
AGH PARENT LLC, et al., )
)
Defendants. )

MEMORANDUM OPINION ADDRESSING PLEADING-STAGE
ARGUMENTS FOR DISMISSAL

Date Submitted: November 30, 2023
Date Decided: January 25, 2024

Brett D. Fallon, FAEGRE DRINKER BIDDLE & REATH LLP, Wilmington,
Delaware; Warren E. Gluck, Richard A. Bixter, Jr., HOLLAND & KNIGHT LLP, New
York, New York; Attorneys for Plaintiffs.

R. Craig Martin, Amy Evans, DLA PIPER LLP (US), Wilmington, Delaware; Ellen E.
Dew, DLA PIPER LLP (US), Baltimore, Maryland; Aidan M. McCormack, R. Brian
Seibert, Steven M. Rosato, DLA PIPER LLP (US), New York, New York; Attorneys
for Defendants Senior Health Insurance Company of Pennsylvania (in Rehabilitation)
and Fuzion Analytics, Inc.

Paul D. Brown, Joseph B. Cicero, CHIPMAN BROWN CICERO & COLE, LLP,
Wilmington, Delaware; Aaron Z. Tobin, Kendal B. Reed, Michael J. Merrick,
CONDON TOBIN SLADEK, THORNTON, PLLC, Dallas, Texas; Attorneys for
Defendants BHLN-Agera Corp., BOLN-Agera Corp., and BBLN-Agera Corp.

A. Thompson Bayliss, April M. Kirby, ABRAMS & BAYLISS LLP, Wilmington,
Delaware; Adam J. Kaiser, Elizabeth A. Buckel, ALSTON & BIRD LLP, New York,
New York; Attorneys for Defendants Bankers Conseco Life Insurance Company,
Washington National Insurance Company, CNO Financial Group, Inc., and 40|86
Advisors, Inc.

Joanna J. Cline, Emily L. Wheatley, TROUTMAN PEPPER HAMILTON SANDERS
LLP, Wilmington, Delaware; Counsel for Defendant Universal Life Insurance
Company of Puerto Rico.

LASTER, V.C.
Two hedge funds made risky and illiquid investments. When those

investments generated losses, the funds faced a liquidity crisis. To secure additional

capital, the fund principals formed a reinsurer. The reinsurer entered into

agreements with insurers that authorized the reinsurer to invest the insurers’

reserves. The reinsurer invested the reserves in the funds’ risky and illiquid

investments.

The injection of liquidity from the reinsurer provided the funds with some relief

and supported payouts to the fund principals. But the risky and illiquid investments

continued to perform poorly, and the insurers began to worry about the reinsurer’s

ability to pay claims. After investigating the reinsurer and its ties to the funds, the

insurers wanted their money back. When law enforcement agencies began

investigating the fund principals, the insurers became desperate.

Through plaintiff Principal Growth Strategies, LLC (the “Company”), the

hedge funds made one investment that turned out well. Facing pressure from the

insurers, the fund principals worked with the reinsurer and the insurers to swap

nearly worthless investments for the one good investment. They structured a complex

transaction that enabled the insurers to recover much of their capital while leaving

the Company holding the bag. The reinsurer benefitted as well, and the fund

principals benefitted through the reinsurer.

In this action, the Company has sued the various defendants who engineered

or participated in the asset-swap transaction. Joint liquidators overseeing the
bankruptcy of one of the hedge funds have sued as well, seeking to assert claims

under Cayman Islands law.

All but one of the defendants moved to dismiss the complaint. This decision

grants the motions as to one of the claims under Cayman Islands law. Otherwise, the

motions are denied.

I. FACTUAL BACKGROUND

The facts are drawn from the operative complaint, the documents it

incorporates by reference, and information subject to judicial notice. At this stage of

the case, the complaint’s allegations are assumed to be true, and the plaintiffs receive

the benefit of all reasonable inferences.

A. The Platinum Funds And Beechwood

Mark Nordlicht, David Bodner, and Murray Huberfeld were the principals of

a hedge fund complex that operated under the trade name “Platinum Partners.” In

the early 2000s, they formed two hedge funds: Platinum Partners Value Arbitrage

Fund L.P. (“Platinum Arbitrage”) and Platinum Partners Credit Opportunities

Master Fund L.P. (“Platinum Credit”). Each fund consisted of a master fund and

several feeder funds (collectively, the “Platinum Funds”).

Platinum Management (NY) LLC served as the general partner of the

Platinum Funds. Nordlicht served as the managing member of Platinum

Management.

The Platinum Funds made risky and illiquid investments. The investments

performed poorly, and by 2012, investors were making withdrawal requests. The

Platinum Funds faced a liquidity crisis.

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The principals of Platinum Management (including Nordlicht) saw

reinsurance as a solution. Under a reinsurance relationship, a reinsurer contracts to

bear the risks on a group of policies that an insurer cedes to the reinsurer. As part of

the transaction, the ceding insurer transfers reserves associated with the ceded

policies with the expectation that the reinsurer will manage the reserves and pay the

claims. If the reinsurer does not pay the claims, the ceding insurer remains liable to

its insureds.

For Platinum Management, the beauty of reinsurance lay in access to

investable reserves. Using those reserves, a reinsurer could purchase illiquid

Platinum-sponsored investments. The capital infusion would relieve the liquidity

crisis and prop up the value of the Platinum-sponsored investments. The higher

valuations would generate higher fees for Platinum Management.

To implement their scheme, the principals of Platinum Management formed a

Bermuda-based reinsurance company called Beechwood International Ltd.

(“Beechwood”).1 They planned for Beechwood to target insurance companies that had

suffered losses and either needed to increase their reserves or obtain reinsurance.

B. The Insurers

CNO Financial Groups, Inc. (“CNO”) is a Delaware corporation that wrote

long-term care policies through three subsidiaries: Bankers Conseco Life Insurance

Company (“Bankers Conseco”), Washington National Insurance Company

1 Beachwood’s affiliates include Beechwood Re Ltd. and Beechwood Omnia Ltd.

3
(“Washington National”), and Senior Health Insurance Company of Pennsylvania

(“SHIP”). The policies were based on actuarial assumptions that proved incorrect. As

actual and projected claims mounted, the insurers needed to increase their reserves

or secure reinsurance. They had difficulty doing either.

In 2008, CNO placed SHIP in runoff and transferred its equity to the Senior

Healthcare Oversight Trust (“Oversight Trust”). After the transfer, SHIP’s financial

condition continued to deteriorate. Bankers Conseco and Washington National also

fared poorly.

In 2012, the Oversight Trust authorized SHIP’s management team to form a

new affiliate, Fuzion Analytics, Inc., that would manage SHIP’s business and provide

advisory services to other distressed insurers. All of SHIP’s management and

employees moved over to Fuzion. CNO did something similar by forming 40|86

Advisors, Inc. as a subsidiary to manage Bankers Conseco and Washington National.

In 2013, 40|86 Advisors turned to Beechwood to obtain reinsurance for

Bankers Conseco and Washington National. At the time, Beechwood was a nascent

reinsurance company, and the initial meetings took place in Platinum Management’s

offices. The Beechwood team consisted of Platinum Management employees led by

David Levy, the twenty-eight-year-old nephew of Huberfeld, one of Platinum

Management’s principals.

Bankers Conseco and Washington National executed reinsurance agreements

that ceded substantial blocks of policies to Beechwood along with the associated

reserves. Bankers Conseco ceded $196 million of reserves and paid $198 million in

4
cash to Beechwood. Washington National ceded $357 million of statutory reserves

and paid $394 million in cash to Beechwood.

Because Beechwood was an offshore reinsurer, Beechwood created onshore

reinsurance trusts to manage the assets it received and pay out claims as they came

due. In 2014, the trustee for the onshore reinsurance trusts hired Fuzion to

administer their policies. Through that engagement, Fuzion learned about the

reinsurance agreements with Beechwood.

Fuzion was still managing SHIP’s insurance business, and SHIP needed to

increase its reserves. Fuzion thought that Beechwood could provide a solution. Later

in 2014, Fuzion caused SHIP to enter into several investment management

agreements that gave Beechwood the discretion to manage SHIP’s reserves. Under

those agreements, Beechwood guaranteed SHIP an annual return of 5.85% on the net

value of the assets Beechwood invested. If actual returns fell short of that mark, then

Beechwood was obligated to make up the difference. If actual returns exceeded that

mark, then Beechwood kept the upside. Fuzion caused SHIP to place $270 million in

accounts for Beechwood to manage.

The Universal Life Insurance Company of Puerto Rico (“ULICO”) was another

life insurance company that found itself in financial distress and turned to Beechwood

for reinsurance. ULICO entered into a reinsurance agreement with an off-shore

Beechwood affiliate and ceded policies and associated reserves to that affiliate. As

with the relationships established by Bankers Conseco and Washington National, the

investable reserves were placed in a reinsurance trust.

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C. The Investments

Beechwood used the reserves and SHIP’s assets to engage in transactions with

the Platinum Funds or purchase investments sponsored by Platinum Management.

As compensation, Beechwood received profit interests in the investments.

The investments provided the Platinum Funds with liquidity and supported

inflated valuations for their assets, which led to higher fees for Platinum

Management and more money for its principals. But the investments meant that the

reinsurance trusts and SHIP ended up owning illiquid and poorly performing

investments sponsored by Platinum Management.

The insurers soon became concerned about the investments Beechwood made.

By mid-2014, the insurers were asking questions and contending that some of the

investments violated insurance regulations. By the end of 2014, the insurers wanted

new personnel managing their investments. Internally, the insurers discussed how

to unwind their agreements with Beechwood. During 2015, the insurers became more

assertive.

D. The Federal Investigations

In March 2016, Platinum Management and its affiliates learned that the

United States Attorney’s Office for the Southern District of New York was

investigating the firm’s relationship with Beechwood. In April 2016, Reuters

published an article about the investigation. The insurers discussed the article and

its implications.

On June 7, 2016, the United States Attorney’s Office for the Eastern District

of New York issued grand jury subpoenas to Bodner and Levy. The next day

6
witnessed a flurry of subpoenas. The United States Attorney’s Office for the Eastern

District of New York issued a grand jury subpoena to Platinum Management. The

United States Attorney’s Office for the Southern District of New York issued grand

jury subpoenas to Bodner, Levy, and Platinum Management. The SEC served a

subpoena of its own on Platinum management. The day culminated in Huberfeld’s

arrest. The FBI searched Beechwood’s offices, interviewed employees, and seized

Huberfeld’s computer. On June 22, the FBI searched Platinum Management’s offices.

E. The Agera Note

As those events unfolded, the insurers confronted the fact that a firm under

criminal investigation had invested the reserves securing their policies in poorly

performing and illiquid investments. The insurers wanted their reserves back.

The insurers’ desire to extract whatever they could from the sinking ship

aligned with the interests of Platinum Management’s principals, who were also

Beechwood’s principals. They too wanted to extract whatever value they could.

The solution was to swap lots of bad assets for one good one. The Platinum

Funds had made one high-risk investment that actually turned out well. Agera

Energy LLC was a promising energy company created through a bankruptcy

reorganization in 2013. The Platinum Funds created the Company and caused it to

acquire a promissory note convertible into approximately 95% of the equity in Agera

Energy (the “Agera Note”). The Company was a shell. It had no employees of its own.

Nordlicht signed its operating agreement as its managing member. Platinum

Arbitrage owned 55% of its member interest, and Platinum Credit held the rest.

7
Agera prospered, and the value of the Agera Note increased. By 2016, Agera

was worth $210 million to $330 million. That meant the Agera Note was worth $200

million to $315 million.

F. The Agera Transaction

In March 2016, as the federal investigators closed in, Nordlicht proposed to sell

the Agera Note to a Beechwood-led consortium of investors (the “Agera Transaction”).

Nordlicht and his Platinum Management colleagues would participate in the

consortium as buyers.

Nordlicht would only sell to the consortium. When a strategic acquirer asked

about Agera, Nordlicht said it was not for sale.

The negotiations took place between affiliates without any protective devices.

David Steinberg, Platinum Management’s Chief Risk Officer, represented the

Company. Dhruv Narain, Beechwood’s Chief Investment Officer, represented the

consortium. The negotiations were one sided. At one point, when discussing the non-

cash consideration that the consortium would pay, Steinberg told Narain: “I’m sorry

but a feel like I’m totally being. . . taken advantage of and this is not in good faith.”

Meanwhile, the insurers were clamoring about red flags associated with

Beechwood’s investments. When they demanded their reserves back, Beechwood

invited them to participate in the Agera Transaction.

As the first step in the Agera Transaction, Beechwood created a new Delaware

limited liability company named AGH Parent LLC. Next, under a subscription

agreement, SHIP and the reinsurance trusts selected virtually worthless interests in

8
Platinum-sponsored investments and assigned them to AGH Parent. In return, they

received member interests in AGH Parent.

Beechwood engaged in a similar exchange. Beechwood formed three

corporations (the “Beechwood-Agera Corporations”) and transferred its profit

interests in Platinum-sponsored investments to those entities.2 Beechwood also

transferred worthless investments from the ULICO reinsurance trust to those

entities. Like the insurance companies, the Beechwood-Agera Corporations

transferred interests in Platinum-sponsored investments to AGH Parent. In return,

they received member interests in AGH Parent.

Having moved poorly performing Platinum-sponsored investments into AGH

Parent, the second step of the Agera Transaction moved them into the Company.

Under a purchase agreement between the Company and AGH Parent, the Company

sold the Agera Note to AGH Parent in return for a package of securities ostensibly

valued at $170 million. That valuation already represented a significant discount to

the fair market value of the Agera Note, which was $200 to $300 million. Regardless,

the assets that the Company received were not worth anywhere close to $170 million.

Only $65,293,540 was in cash. The next $43,666,460 consisted of poorly performing

debt and equity investments in Platinum-affiliated entities that AGH Parent had

received in the first step of the transaction. The final $61,040,000 consisted of junior

The Beechwood-Agera Corporations are BHLN-Agera Corp., BOLN-Agera Corp.,
2

BBLN-Agera Corp.

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equity interests in AGH Parent: 3,438 Class B-2 Units valued at $2 million and

590,400 Class C Units valued at $59,040,000.

The Class C Units were another way for Beechwood, SHIP, and the

reinsurance trusts to increase their ownership in the Agera Note. Under AGH

Parent’s operating agreement, AGH Parent had the right to redeem 354,000 of the

Class C Units for more poorly performing debt and equity investments. With 354,000

Class C Units no longer outstanding, the proportionate ownership of the other holders

of AGH Parent’s equity would increase.

The Agera Transaction was not supposed to close until August 2016, but as the

investigations intensified, the closing date was pushed up. On June 9, 2016, one day

after Huberfeld was arrested, the Agera Transaction closed. Huberfeld later pled

guilty to federal charges of conspiracy to commit wire fraud.

On October 28, 2016, AGH Parent exercised its right to redeem the Class C

Units that the Company had received. Between November 2016 and January 2017,

Beechwood, SHIP, and the reinsurance trusts selected additional Platinum-related

investments and assigned them to AGH Parent to use as the consideration for the

redemption. In January 2017, AGH Parent completed the redemption, thereby

stuffing more bad Platinum-related investments into the Company, reducing the

value of the consideration that the Company received for the Agera Note, and

increasing the relative equity stakes that Beechwood, SHIP, and the reinsurance

trusts owned in AGH Parent.

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G. The Insurers Sever Ties With Beechwood.

After the Agera Transaction closed, the insurance companies cut a deal with

Beechwood to exchange their remaining interest in Platinum-sponsored investments

for additional interests in AGH Parent. As part of that process, CNO retained a

forensic examiner to evaluate the Agera Transaction. The examiner summarized the

deal as an exchange of bad debt (the Platinum-related investments) for good debt (the

Agera Note).

H. Beechwood And Certain Reinsurance Trusts Sell Their Interests In
AGH Parent.

In September 2017, Beechwood and the reinsurance trusts affiliated with the

Bankers Conseco, Washington National, and CNO sold their interests in AGH Parent

to a third party. The price corresponded to a $230 million valuation for Agera Energy.

I. This Litigation

The Company and joint liquidators of Platinum Arbitrage filed this action in

June 2019. The joint liquidators are attempting to assert claims on behalf of Platinum

Arbitrage. No one questions that the joint liquidators have the authority to cause

Platinum Arbitrage to assert claims, so this decision refers simply to Platinum

Arbitrage.

The currently operative complaint contains six counts.

• In Count One, the Company asserts that the Agera Transaction constituted a
breach of fiduciary duty by Platinum Management and Nordlicht and that the
defendants aided and abetted those breaches of duty.

• In Count Two, the Company asserts that the defendants were unjustly
enriched through the Agera Transaction.

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• In Count Three, the Company asserts that the defendants who received
member interests in AGH Parent breached the implied covenant of good faith
and fair dealing that inheres in the operating agreement of AGH Parent.

• In Count Four, Platinum Arbitrage asserts a claim under Cayman Islands law
for fraudulently trading.

• In Count Five, Platinum Arbitrage asserts a claim under Cayman Islands law
to void fraudulent transfers and recover property from AGH Parent.

• In Count Six, the Company and Platinum Arbitrage seek the remedy of a
constructive trust.

The defendants have moved to dismiss all of the counts of the complaint except Count

Five. This decision therefore does not address Count Five.

The court previously stayed all claims against SHIP in deference to an

insurance company liquidation proceeding in Pennsylvania. See Principal Growth

Strategies, LLC v. AGH Parent LLC, 288 A.3d 1138 (Del. Ch. 2023). This decision

does not address any claims against SHIP.

II. LEGAL ANALYSIS

The defendants have moved for dismissal under Rule 12(b)(6). When

considering such a motion, the court (i) accepts as true all well-pled factual

allegations in the complaint, (ii) credits vague allegations if they give the opposing

party notice of the claim, and (iii) draws all reasonable inferences in favor of the

plaintiffs. Dismissal is inappropriate “unless the plaintiff would not be entitled to

recover under any reasonably conceivable set of circumstances.” Cent. Mortg. Co. v.

Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 535 (Del. 2011).

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A. Choice of Law

As a threshold matter, 40|86 Advisors, Bankers Conseco, Washington

National, and CNO (the “CNO Defendants”) argue that New York law governs the

claims for aiding and abetting and unjust enrichment.3 To the contrary, Delaware

law governs both claims.

To determine what law governs, Delaware applies “the most significant

relationship test from the Restatement (Second) of Conflict of Laws.” UbiquiTel Inc.

v. Sprint Corp., 2005 WL 3533697, at *3 (Del. Ch. Dec. 14, 2005) (cleaned up). The

analysis calls for analyzing multiple factors. Restatement (Second) of Conflict of Laws

§ 145(1) (Am. L. Inst. 1971), Westlaw (database updated Oct. 2023) (the “Restatement

of Conflicts”).

1. Delaware Law Governs The Aiding And Abetting Claim.

An aiding and abetting claim is a tort claim. It seeks to impose secondary

liability for knowing participation in a breach of fiduciary duty, which is an equitable

tort. In re Rural Metro Corp., 88 A.3d 54, 98 (Del. Ch. 2014). Both are claims that

relate to the internal affairs of an entity, and under the internal affairs doctrine, the

chartering state has the greatest interest in those claims. Delaware is the chartering

state, and its law controls. In re Am. Int’l Gp., Inc. (AIG I), 965 A.2d 763, 817, 822

(Del. Ch. 2009), aff’d sub nom. Tchrs.’ Ret. Sys. of La. v. PricewaterhouseCoopers LLP,

3 They also say that New York law governs the claim for a constructive trust. As
discussed below, a constructive trust is a remedy, and there is no need to consider remedies
at the pleading stage. This decision therefore does not reach any choice of law issues
associated with the request for a constructive trust.

13
11 A.3d 228 (Del. 2011) (citing Draper v. Paul N. Gardner Defined Plan Tr., 625 A.2d

859, 865 (Del.1993)); see also Hamilton P’rs, L.P. v. Englard, 11 A.3d 1180, 1211–12

(Del. Ch. 2010); Shandler v. DLJ Merch. Banking, Inc., 2010 WL 2929654, at *19

(Del. Ch. July 26, 2010).

In a footnote, the CNO Defendants argue that the internal affairs doctrine does

not apply because the alleged tortfeasors aided and abetted fiduciary breaches by

entering into contracts and engaging in acts “external to the corporation are at issue.”

CNO Defendants Reply Br. at 19 n.14. A claim for breach of fiduciary duty often will

have an external component, such as a transaction agreement, and the external

component often gives rise to the aiding and abetting claim. See New Enter. Assocs.

14, L.P. v. Rich (NEA I), 292 A.3d 112, 175–76, 178 (Del. Ch. 2023). That does not

change the choice of law analysis. See Shandler, 2010 WL 2929654, at *19. Delaware

law governs.

2. Delaware Law Governs The Unjust Enrichment Claim.

Delaware law also governs the claim for unjust enrichment. The Restatement

of Conflicts calls for a court to consider the following factors when determining what

law applies to an unjust enrichment claim:

(a) the place where a relationship between the parties was centered,
provided that the receipt of enrichment was substantially related to the
relationship,

(b) the place where the benefit or enrichment was received,

(c) the place where the act conferring the benefit or enrichment was
done,

(d) the domicil[e], residence, nationality, place of incorporation and place
of business of the parties, and

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(e) the place where a physical thing, such as land or a chattel, which was
substantially related to the enrichment, was situated at the time of the
enrichment.

Restatement of Conflicts § 221 (formatting added). Comment d to Section 221 clarifies

that “[w]hen the enrichment was received in the course of the performance of a

contract between the parties, . . . [t]he applicable law will be that chosen by the

parties if they have made an effective choice under the circumstances stated in

[Section] 187.” Id.

The source of the alleged unjust enrichment is the Agera Transaction. The

various agreements governing the Agera Transaction all have Delaware choice of law

provisions. The subscription agreements under which Beechwood and the

reinsurance trusts contributed investments and received Agera interests have

Delaware law choice of law provisions. So does the purchase agreement under which

AGH Parent acquired the Agera Note. So does AGH Parent’s LLC agreement. So does

the trust agreement between ULICO, Wilmington Trust, and Beechwood that

governs the ULICO reinsurance trust.

Delaware law therefore governs the unjust enrichment claim unless (i)

Delaware lacks a substantial relationship to the parties or the transaction or (ii)

applying Delaware law will offend a fundamental policy of a state with a materially

greater interest. Neither is the case.

Delaware has a substantial relationship to the parties and the transaction at

issue. This case centers around a Delaware LLC (the Company) transferring an

interest in a Delaware LLC (Agera Energy) to a Delaware LLC (AGH Parent). Most

15
of the other defendants are Delaware entities, including Fuzion, CNO, 40|86

Advisors, the Beechwood-Agera Corporations, and the reinsurance trusts.

No state has a materially greater interest than Delaware. Various participant

entities are domiciled in New York, Pennsylvania, Indiana, the Cayman Islands,

Bermuda, and Puerto Rico, but there is no other critical mass of entities similar to

Delaware’s plurality. There are contacts with New York that give it a meaningful

interest in the scheme, but not an interest that is materially greater than Delaware’s.

Applying Delaware law comports with broader factors that govern a choice of

law analysis. When a more specific section does not apply, the Restatement of

Conflicts instructs a court to consider:

(a) the needs of the interstate and international systems,

(b) the relevant policies of the forum,

(c) the relevant policies of other interested states and the relative
interests of those states in the determination of the particular issue,

(d) the protection of justified expectations,

(e) the basic policies underlying the particular field of law,

(f) certainty, predictability and uniformity of result, and

(g) ease in the determination and application of the law to be applied.

Restatement of Conflicts § 6 (formatting added). Applying Delaware law to the unjust

enrichment claim based on the choice of law provisions in the related agreements

fulfills the expectations of the parties and increases the certainty, predictability, and

uniformity of the choice of law result. Delaware law applies to the unjust enrichment

claim.

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B. Count One: Aiding and Abetting Breaches Of Fiduciary Duty

In Count One, the Company contends that the defendants aided and abetted

breaches of fiduciary duty by Platinum Management and Nordlicht. Under Delaware

law, the claim has four elements: (i) the existence of a fiduciary relationship, (ii) a

breach of the fiduciary’s duty, (iii) knowing participation in the breach by the non-

fiduciary defendants, and (iv) damages proximately caused by the breach. Malpiede

v. Townson, 780 A.2d 1075, 1096 (Del. 2001). The complaint pleads all of the requisite

elements, and Count One states a claim on which relief can be granted.

1. A Fiduciary Relationship

The first element of the claim is the existence of a fiduciary relationship. The

managing member of a limited liability company owes fiduciary duties unless the

operating agreement limits or eliminates them. 6 Del. C. § 18–1101(c); Feeley v.

NHAOCG, LLC, 62 A.3d 649, 661 (Del. Ch. 2012). Any language restricting or

eliminating fiduciary duties must be explicit and clear. Feeley, 62 A.3d at 664; Bay

Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at *9 (Del.

Ch. Apr. 20, 2009). Unless a limited liability company agreement provides otherwise,

a party that controls the managing member owes the same fiduciary duties as the

managing member. Feeley, 62 A.3d at 667–68.

The Company’s limited liability company agreement (the “LLC Agreement” or

“LLCA”) establishes the following governance regime:

Management of the Company shall be vested in all of the Members who
shall also serve as Operating Managers of the Company. The Operating
Managers shall vote in proportion to their Membership Interests in the
Company. Except as otherwise provided in this Agreement, all decisions
of the Operating Managers shall be by a majority in interest of the

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Members. All Operating Managers must be Members of the Company.
No Member will take part in or interfere in any manner with the conduct
or control of the business of the Company or have any right or authority
to act for or bind the Company except as provided in this Agreement.

LLCA § 5.1. The LLC Agreement later states that “[t]he Company shall by [sic]

managed by the Operating Managers and the conduct of the Company’s business

shall be controlled and conducted solely and exclusively by the Operating Managers

in accordance with this Agreement.” Id. § 5.4.

Under this governance regime, the Operating Managers are managing

members who owe fiduciary duties. The only members of the Company are the

Platinum Funds. At the pleading stage, it is reasonable to infer that both were

Operating Managers. Both owed fiduciary duties.

The complaint alleges that Platinum Management was the general partner of

the Platinum Funds. As the party that controlled the Platinum Funds, Platinum

Management owed fiduciary duties.

The complaint alleges that Nordlicht was the managing member of the

Company. Under the terms of the LLC Agreement, that does not seem possible,

because Nordlicht was not a member of the Company, and only members could serve

as Operating Managers. Nevertheless, Nordlicht signed the LLC Agreement on

behalf of the Company in his capacity as “Managing Member.” At the pleading stage,

the court must credit that Nordlicht was the “Managing Member” of the Company,

as he represented. He therefore owed fiduciary duties. It is also reasonably

conceivable that Nordlicht owed duties to the Company as the managing member of

Platinum Management.

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The defendants argue that Platinum Arbitrage was a passive investor who did

not owe fiduciary duties. The LLC Agreement defeats that contention. Platinum

Arbitrage held a 55% membership in the Company, making it a controlling member.

Regardless, under the LLC Agreement, both members exercised managerial

authority as Operating Managers. Both owed fiduciary duties.

The defendants also argue that only a party to the LLC Agreement could owe

fiduciary duties, and they note that Platinum Management is not a party to the LLC

Agreement. But while equity starts with the de jure fiduciary, equity also reaches the

party that controls the de jure fiduciary.4 Fiduciary duties do not depend for their

existence on party consent; they arise based on the parties’ status and the nature of

the relationship. A contract may establish a relationship that has a fiduciary

character, but a contract is neither necessary nor dispositive.5 The fact that Platinum

Management and Nordlicht are not parties the LLC Agreement does not prevent

them from owing fiduciary duties.

4 See Feeley, 62 A.3d at 668; In re USACafes, L.P. Litig., 600 A.2d 43, 48–49 (Del. Ch.

1991); accord Glidepath Ltd. v. Beumer Corp., 2019 WL 855660, at *18 (Del. Ch. Feb. 21,
2019); Cancan Dev., LLC v. Manno, 2015 WL 3400789, at *23 (Del. Ch. May 27, 2015)
aff’d, 132 A.3d 750 (Del. 2016); In re Atlas Energy Res., 2010 WL 4273122, at *10 (Del. Ch.
Oct. 28, 2010).

5 See, e.g., J. Leo Johnson, Inc. v. Carmer, 156 A.2d 499, 585–86 (Del. 1959) (rejecting

defendant’s argument that the parties’ relationship was purely contractual, in part, because
defendant “was acting as either trustee or agent.”); see also New Enter. Assocs. 14, L.P. v.
Rich (NEA II), 295 A.3d 520, 545–47 (Del. Ch. 2023) (discussing non-contractible aspects of
fiduciary relationships).

19
2. Breach Of Fiduciary Duties

The second element of an aiding and abetting claim is a breach of the

fiduciary’s duty. The duty of loyalty requires that a fiduciary act in the best interests

of its beneficiaries.6 To act loyally, a fiduciary must subjectively believe that the

action taken advances the best interests of its beneficiaries.7 And a fiduciary must in

fact pursue the interests of its beneficiaries, rather than succumbing to conflicting or

divergent interests. A fiduciary who makes decisions based on private interests

violates the standard of conduct. Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939).

The complaint pleads that Nordlicht and Platinum Management breached

their duty of loyalty by causing the Company to engage in the Agera Transaction.

Through that transaction, the Company harmed itself by transferring its only

valuable asset to AGH Parent in return for consideration worth far less. It is

reasonable to infer that Nordlicht and Platinum Management engaged in the Agera

Transaction to benefit themselves—through Beechwood—and to help the insurers

who were clamoring for their money back.

6 See Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993) (“[T]he duty of

loyalty mandates that the best interest of the corporation and its shareholders takes
precedence over any interest possessed by a director, officer or controlling shareholder and
not shared by the stockholders generally.”).

7 See Stone v. Ritter, 911 A.2d 362, 369 (Del. 2006) (“A failure to act in good faith may

be shown, for instance, where the fiduciary intentionally acts with a purpose other than that
of advancing the best interests of the corporation . . . .”) (quoting In re Walt Disney Co. Deriv.
Litig., 906 A.2d 27, 67 (Del. 2006)); Gagliardi v. TriFoods Int’l, Inc., 683 A.2d 1049, 1051 n.2
(Del. Ch. 1996) (Allen, C.) (defining a “bad faith” transaction as one “that is authorized for
some purpose other than a genuine attempt to advance corporate welfare or is known to
constitute a violation of applicable positive law.”) (emphasis removed)).

20
A fiduciary defendant can avoid a finding of breach by proving a self-interested

transaction is entirely fair. See Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156,

1162 (Del. 1995). At the pleading stage, it is reasonably conceivable that the Agera

Transaction was not entirely fair. The complaint supports an inference that the

Company transferred an asset worth between $200 and $300 million in exchange for

consideration worth far less. The complaint contains detailed factual allegations

supporting the inference that the Agera Transaction did not result from a fair process,

because it was negotiated between affiliates, under time pressure, and for the purpose

of extracting value from the Company.8

3. Knowing Participation

The most critical element for an aiding-and-abetting claim is knowing

participation. A defendant can be secondarily liable for “harm resulting . . . from the

tortious conduct of another” if the defendant

(a) does a tortious act in concert with the other or pursuant to a common
design with him, or

(b) knows that the other’s conduct constitutes a breach of duty and gives
substantial assistance or encouragement to the other so to conduct
himself, or

8 The allegations of the complaint would even support a claim for waste because it is

reasonably conceivable that no disinterested person of ordinary business judgment could
conclude that the Agera Transaction was beneficial to the Company. Harbor Fin. P’rs v.
Huizenga, 751 A.2d 879, 893 (Del. Ch. 1999). A claim for waste is a type of claim for breach
of fiduciary duty, with waste operating as a means of pleading bad faith. IBEW Local Union
481 Defined Contribution Plan & Tr. v. Winborne, 301 A.3d 596, 622 (Del. Ch. 2023)
(“Although waste historically was viewed as a type of ultra vires act that was beyond a
fiduciary’s power to take, contemporary Delaware authorities have integrated the concept
into the business judgment rule as a means of pleading bad faith.”) (citing In re McDonald’s
Corp. S’holder Deriv. Litig., 291 A.3d 652, 693–94 (Del. Ch. 2023)).

21
(c) gives substantial assistance to the other in accomplishing a tortious
result and his own conduct, separately considered, constitutes a
breach of duty to the third person.

Restatement (Second) of Torts § 876 (Am. L. Inst. 1979), Westlaw (database updated

Aug. 2023).

Knowing participation “involves two concepts: knowledge and participation.”

NEA I, 292 A.3d at 175. To establish knowledge, “the plaintiff must demonstrate that

the aider and abettor had actual or constructive knowledge that their conduct was

legally improper.” RBC Cap. Mkts., LLC v. Jervis, 129 A.3d 816, 862 (Del. 2015)

(cleaned up). Under Rule 9(b), a plaintiff can plead knowledge generally; “there is no

requirement that knowing participation be pled with particularity.” Dent v. Ramtron

Int’l Corp., 2014 WL 2931180, at *17 (Del. Ch. June 30, 2014). A complaint need only

plead facts supporting a reasonable inference of knowledge. See id.; Wells Fargo &

Co. v. First Interstate Bancorp., 1996 WL 32169, at *11 (Del. Ch. Jan. 18, 1996) (Allen,

C.) (“[O]n the question of pleading knowledge, however, Rules 12(b)(6) and Rule 9(b)

are very sympathetic to plaintiffs.”).

“When a plaintiff alleges that a third-party acquirer knowingly participated in

a breach of fiduciary duty by sell-side [fiduciaries], Delaware law imposes an

appropriately high pleading burden because an acquirer is expected to bargain in its

own interest.” NEA I, 292 A.3d at 175. A plaintiff “must plead meaningful facts to

support an inference that the acquirer attempted to create or exploit conflicts of

interest [of the fiduciary] or otherwise conspired with the [fiduciary] to engage in a

fiduciary breach.” Id.

22
When a plaintiff alleges an aiding and abetting claim against an affiliate of an

allegedly culpable fiduciary, inferring knowing participation is straightforward. Id.

at 175–77. Knowledge of the breach is imputed to the affiliate because of the culpable

fiduciary’s control. A common design exists because there is but “a single human mind

. . . that both engaged in the breach of duty and caused [the affiliate] to act in support

of it.” Id. at 177.

All of the defendants actually participated in the Agera Transaction, so the

real question is whether they had actual or constructive knowledge that the Agera

Transaction constituted a breach of duty. For purposes of analysis, the defendants

fall into three groups.

The first group is the Beechwood-Agera Corporations. For them, inferring

knowing participation is easy. Principals of Platinum Management, including

Nordlicht, formed Beechwood and selected its officers, including Narain. Beechwood

and its officers formed the Beechwood-Agera Corporations to facilitate the Agera

Transaction. Narain negotiated the terms of the Agera Transaction. He knew about

the gross disparity in price between the value of the Agera Note and the value of the

investments being contributed to AGH Parent. His knowledge is attributable to the

Beechwood-Agera Corporations. It is reasonable to infer that the Beechwood-Agera

Corporations knowingly participated in the Agera Transaction.

The second group is the CNO Defendants. For them, inferring knowing

participation is only marginally more difficult. CNO and 40|86 Advisors actively

managed the policies held by Bankers Conseco and Washington National. They also

23
monitored Beechwood’s investing activities. They were involved at every stage of the

events that led to the Agera Transaction, from the formation of the reinsurance

relationship with Beechwood to the efforts to unwind it. From March through April

2016, executives of the CNO Defendants were directly involved in planning the Agera

Transaction. Compl. ¶¶ 390–94. The one-sided nature of the Agera Transaction was

readily apparent to any observer, yet the CNO Defendants engaged in the

transaction. Those allegations support an inference that the CNO Defendants

advocated for the Agera Transaction as a means of minimizing their losses and

cutting ties with Beechwood, then knowingly participated in the Agera Transaction

to achieve those goals.

The last defendant is Fuzion, which managed SHIP’s policies and reserves.

After learning about the Beechwood-Platinum relationship and its reinsurance

agreements with Bankers Conseco and Washington National, Fuzion caused SHIP to

enter into a similar relationship. As the relationship turned sour, Fuzion wanted

SHIP’s assets back. Fuzion knew the Agera Transaction was structured to do just

that. Beechwood made presentations to Fuzion in May 2016 which valued Agera

Energy between $227 and $344 million, while showing that the purchase price for the

Agera Note would be less than $200 million. Id. ¶¶ 151–52. Fuzion then caused SHIP

to exchange near-worthless securities for interests in AGH Parent. Later, Fuzion

caused SHIP to provide $50 million in financing for the Agera Transaction. Those

allegations support an inference of knowing participation in the Agera Transaction.

24
4. Damages

The final element of an aiding and abetting claim is causally related damages.

Malpiede, 780 A.2d at 1096. Relying on New York authorities, the CNO Defendants

argue that the complaint must pled facts supporting an inference that their

participation was the proximate cause of the Company’s harm.9 Those authorities do

not accurately reflect Delaware law, which requires only a reasonably conceivable

inference of causally related harm.

At this stage of the proceeding, it is reasonably conceivable that the Agera

Transaction harmed the Company by depriving the entity of its only asset in

exchange for consideration worth far less. It is also reasonably conceivable that the

CNO Defendants were a driving force behind the transaction. The complaint alleges

that as Beechwood’s largest client, the CNO Defendants pushed Beechwood to engage

in the Agera Transaction for the purpose of extricating the CNO Defendants from

their involvement in Platinum-sponsored investments. The CNO Defendants then

approved of and participated in the Agera Transaction, despite knowing about the

relationship between Beechwood and Platinum Management and the gross disparity

9 Although the standard in Malpiede uses the term “proximate cause,” that term has

a different meaning in Delaware than it does in New York for purposes of an aiding and
abetting claim. Compare RBC, 129 A.3d at 864 (“Under Delaware law, a proximate cause is
one which in natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury and without which the result would not have occurred. Our law has long
recognized that there may be more than one proximate cause of an injury. To establish
proximate cause, a plaintiff must show that the result would not have occurred ‘but for’ the
defendant’s action.”) (cleaned up)) with Vasquez v. H.K. & Shanghai Banking Corp., 2019 WL
2327810, at *19 (S.D.N.Y. May 30, 2019) (“Allegations of ‘but for’ causation are insufficient;
an alleged aider and abetter will be liable only where the plaintiffs’ injury is a direct and
reasonably foreseeable result of defendant’s conduct.”) (cleaned up)).

25
in value between the Agera Note and the assets that the CNO Defendants contributed

to AGH Parent.

Count One states a claim for aiding and abetting breaches of fiduciary duty.

The motion to dismiss Count One is denied.

C. Count Two: Unjust Enrichment

In Count Two, the Company asserts a claim for unjust enrichment. To state a

claim for unjust enrichment a plaintiff must prove: (1) an enrichment, (2) an

impoverishment, (3) a relation between the enrichment and impoverishment, and (4)

the absence of justification. Garfield v. Allen, 277 A.3d 296, 341 (Del. Ch. 2022). The

absence of a remedy at law “is required only if an unjust enrichment claim is brought

in the Court of Chancery and there is no other independent basis for equitable

jurisdiction.” State v. Monsanto Co., 299 A.3d 372, 391 (Del. June 22, 2023). Here, the

claim for aiding and abetting a breach of fiduciary duty provides a basis for equitable

jurisdiction. The complaint pleads all the other elements, so Count Two states a claim

on which relief can be granted.

1. An Enrichment

The first element is an enrichment. The complaint alleges that the Beechwood-

Agera Corporations received valuable interest in AGH Parent in exchange for

consideration worth far less.

The complaint pleads facts which support a reasonable inference that CNO,

Bankers Conseco, Washington National, and ULICO were unjustly enriched because

the Agera Transaction allowed them to swap interests in poorly performing Platinum-

sponsored investments for valuable interests in AGH Parent. The complaint pleads

26
that 40|86 Advisors and Fuzion were unjustly enriched because they were paid by

entities that benefitted from the Agera Transaction, which therefore inured to their

benefit. That is sufficient.

2. An Impoverishment

The next element is an impoverishment. Technically, this is not a necessary

element. “A person who is unjustly enriched at the expense of another is subject to

liability in restitution.” Restatement (Third) of Restitution and Unjust Enrichment

§ 1 (Am. L. Inst. 2011), Westlaw (database updated Oct. 2023). The claim is about

unjust enrichment, not impoverishment. See id. § 1 cmt. a (“[T]he consecrated

formula ‘at the expense of another’ can also mean ‘in violation of the other’s legally

protected rights,’ without the need to show that the claimant has suffered a loss.”).

Regardless, the Company suffered an impoverishment. It received a

combination of consideration that was inferably worth far less than the Agera Note.

3. A Relationship Between The Impoverishment And The
Enrichment

The third element calls for a relationship between the impoverishment and the

enrichment. Because an impoverishment is not strictly necessary, a relationship

between the impoverishment and the enrichment is also not strictly necessary.

Instead, a plaintiff can plead and later prove “a relationship between the challenged

enrichment and an invasion of the plaintiff’s protected interests.” Garfield, 277 A.3d

at 346.

Here, there is an obvious relationship. The enrichment and the

impoverishment are directly linked. One caused the other.

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4. The Absence Of Justification

The fourth element of the claim calls for an absence of justification. The

complaint asserts that the defendants engaged in a scheme to enrich themselves

rather than suffering the consequences of their decisions. That satisfies this element.

The defendants argue that their benefit cannot be unjustified because they

were also victims of a scheme by Platinum Management. Arguments of that sort may

play a role at a later phase of the case. They cannot defeat an unjust enrichment

claim at the pleading stage.

5. The Duplicative Claims Argument

The CNO Defendants argue that the unjust enrichment claim must be

dismissed as duplicative of the aiding and abetting claim. “Delaware law . . . permit[s]

a plaintiff to simultaneously assert two equitable claims even if they overlap.”10 A

plaintiff therefore can assert an aiding and abetting claim and an unjust enrichment

claim.11 Admittedly, the claim for unjust enrichment often adds little and could be

10 See Frank v. Elgamal, 2012 WL 1096090, at *11 (Del. Ch. Mar. 30, 2012) (denying

motion to dismiss an unjust enrichment claim that defendants argued was duplicative of a
fiduciary breach claim because “Delaware law . . . appears to permit a plaintiff to
simultaneously assert two equitable claims even if they overlap.”) (citing MCG Cap. Corp. v.
Maginn, 2010 WL 1782271, at *25 n.147 (Del. Ch. May 5, 2010) (“In this case, then, for all
practical purposes, the claims for breach of fiduciary duty and unjust enrichment are
redundant. One can imagine, however, factual circumstances in which the proofs for a breach
of fiduciary duty claim and an unjust enrichment claim are not identical, so there is no bar
to bringing both claims against a director.”)).

11 See Dubroff v. Wren Hldgs., LLC, 2011 WL 5137175, at *11 (Del. Ch. Oct. 28, 2011);

see also Calma v. Templeton, 114 A.3d 563, 592 (Del. 2015) (concluding that it was reasonably
conceivable the plaintiff could recover on an unjust enrichment claim where it stated a claim
for breach of fiduciary duty on the same, “duplicative” allegations); Delman v.
GigAcquisitions3, LLC, 288 A.3d 692, 729 (Del. Ch. 2023) (observing that there is no bar to

28
duplicative or unnecessary. But that determination need not be made at the pleading

stage.12

The complaint pleads all of the elements of an unjust enrichment claim. The

motion to dismiss Count Two is denied.

D. Count Three: Breach Of The Implied Covenant

In Count Three, the Company asserts that the defendants who received

member interests in AGH Parent breached the implied covenant of good faith and

fair dealing when they redeemed the Company’s Class C Units. Count Three states a

claim on which relief can be granted.

“Every contract imposes upon each party a duty of good faith and fair dealing

in its performance and its enforcement.” Restatement (Second) of Contracts § 205

(Am. L. Inst. 1981), Westlaw (database updated Oct. 2023). The Delaware Supreme

Court has summarized the implied covenant concisely as follows:

The implied covenant is inherent in all contracts and is used to infer
contract terms to handle developments or contractual gaps that . . .
neither party anticipated. It applies when the party asserting
the implied covenant proves that the other party has acted arbitrarily
or unreasonably, thereby frustrating the fruits of the bargain that the

allowing parallel unjust enrichment and fiduciary duty claims to survive a motion to dismiss,
but noting that double recovery is prohibited).

12 McPadden v. Sidhu, 964 A.2d 1262, 1276 (Del. Ch. 2008) (“[D]efendants’ argument

that plaintiff has conflated the unjust enrichment claim and the breach of fiduciary [duty]
claim is unavailing. If plaintiff has pleaded and then prevails in demonstrating that the same
conduct results in both liability for breach of [defendant’s] fiduciary duties and disgorgement
via unjust enrichment, plaintiff then will have to elect his remedies. But, at this time,
defendants have [ ] wholly failed to satisfy their burden to justify dismissal of this count.”).

29
asserting party reasonably expected. The reasonable expectations of the
contracting parties are assessed at the time of contracting.

Dieckman v. Regency GP LP, 155 A.3d 358, 367 (Del. 2017).

The Delaware Supreme Court has made clear that the implied covenant

constrains a party’s exercise of discretion under an agreement. The implied covenant

generally requires that a party to a contract refrain from arbitrary or unreasonable

conduct that has the effect of preventing a counterparty from receiving the fruits of

the bargain. That rule operates with special force “when a contract confers discretion

on a party.” Glaxo Gp. Ltd. v. DRIT LP, 248 A.3d 911, 920 (Del. 2021). “At a minimum,

the implied covenant requires that the party empowered with the discretion ‘use good

faith in making that determination.’” Cygnus Opportunity Fund, LLC v. Wash. Prime

Gp., LLC, 302 A.3d 430, 460 (Del. Ch. 2023). (quoting Gilbert v. El Paso Co., 490 A.2d

1050, 1055 (Del. Ch. 1984), aff’d, 575 A.2d 1131 (Del. 1990)).

The Company argues that AGH Parent’s operating agreement gave AGH

Parent the discretion to select the debt instruments to be exchanged for the

Company’s Class C Units. Section 9.06 states:

(a) Subject to the terms and conditions set forth in this Section 9.06,
[AGH Parent] shall have the right at any time to redeem all, or any
portion, of the outstanding Class C Preferred Units held by any holder
of Class C Preferred Units for a per Unit redemption price equal to (A)
the sum of the Class C Preferred Unreturned Capital Value plus the [sic]
any unpaid Class C Preferred Return calculated as of date of
redemption, which sum is divided by (B) the number of outstanding
Class C Preferred Units, payable:

(i) with respect to the Class C Preferred Units held by [the
Company], in the case of a redemption of Class C Units pursuant to a
Class C Redemption Notice delivered by [AGH Parent] on or prior to
October 31, 2016, in the form of PGS Value, with the remainder to be
paid in cash; or

30
(ii) in all other cases, in cash.

Compl. Ex. 20 § 9.06(a)(i)–(ii) (fourth and fifth emphasis added). The operating

agreement defines “PGS Value” as

investments held by [AGH Parent] in Platinum Partners Credit
Opportunities Master Fund LP, a Delaware limited partnership,
Platinum Partners Value Arbitrage Fund L.P., an exempted limited
partnership under the laws of the Cayman Islands, their respective
shareholders or any of their respective Affiliates, with an approximate
aggregate value equal to $35,400,000 of all amounts payable thereunder
(including principal and interest) . . . . The value attributable to PGS
Value in connection with Section 9.06 shall be (x) with respect to debt
instruments, face value (including principal and interest) and (y) with
respect to limited partnership interests, the capital account value as
carried on the books of the applicable partnership.

Id. at 12 (emphasis added).

The Company contends that AGH Parent and the defendants who selected

investments to be used for the redemption had to exercise their discretion so as not

to frustrate the basic purpose of the agreement, which was to provide the Company

with consideration worth $35,400,000. In other words, even though the operating

agreement called for giving qualifying debt instruments their face value, AGH Parent

and the defendants who received member interests in AGH Parent had to select a

package of investments that they reasonably believed was worth the target amount.

They could not intentionally select investments whose value would come nowhere

close to that amount, even if the selected investments were the kind of investment

that the AGH Parent operating agreement permitted them to select. That is the type

of obligation that the implied covenant can supply.

31
The complaint alleges that the defendants worked with Beechwood and

Platinum Management to select debt that they knew to be worthless or nearly so.

Compl. ¶¶ 471–477, 521. The Company claims that this exchange of worthless

consideration for their membership units robbed the Company of the fruit of its

bargain. Those allegations support an implied covenant claim.

Fuzion and the Beechwood-Agera Corporations respond that they were free to

contribute any qualifying debt instruments to AGH Parent, regardless of their true

worth or collectability, simply because the operating agreement (i) provided that the

investments were in the universe of investments that could be selected and (ii) called

for valuing the debt instruments at face value. Those specifications do not occupy the

field and displace the implied covenant. The choice of which qualifying investments

to select was still a matter of discretion. It is therefore reasonably conceivable that

Fuzion and the Beechwood-Agera Corporations breached the implied covenant by

acting unreasonably.

Count Three states a claim for breach of the implied covenant of good faith and

fair dealing upon which relief can be granted. The motion to dismiss Count Three is

denied.

E. Count Four: Fraudulent Trading Under Cayman Law

In Count Four, the joint liquidators for Platinum Arbitrage asserts a claim for

fraudulent trading under Section 147 of the Cayman Islands Companies Act. That

effort fails.

Many readers will be familiar with the concept of wrongful trading under

English law. That claim asserts that “the directors have continued to operate the

32
company after the point they knew, or should have known, that there was no

reasonable prospect of the company avoiding liquidation.” Quadrant Structured

Prods. Co., Ltd. v. Vertin, 102 A.3d 155, 173 (Del. Ch. 2014) (citation omitted).

Fraudulent trading is a distinct concept more akin to the law governing

fraudulent transfers. Section 147 states:

(1) If in the course of the winding up of the company it appears that any
business of the company has been carried on with intent to defraud
creditors of the company or creditors of any other person or for any
fraudulent purpose the liquidator may apply to the Court for a
declaration under this section.

(2) The Court may declare that any persons who were knowingly parties
to the carrying on of the business in the manner mentioned in
subsection (1) are liable to make such contributions, if any, to the
company’s assets as the Court thinks proper.

Id. Section 147 thus applies to a company in liquidation under Cayman Islands law

and requires that the company have conducted business with the intent to defraud

creditors. The liquidators of the company can seek a remedy against anyone

knowingly involved in the fraud.

The joint liquidators cannot use Platinum Arbitrage and the Company to

assert a Section 147 claim, because the Company is not in liquidation under Cayman

Islands law. The defendants have tried to frame this proposition using the concept of

standing. Standing “refers to the right of a party to invoke the jurisdiction of a court

to enforce a claim or redress a grievance.” Stuart Kingston, Inc. v. Robinson, 596 A.2d

1378, 1382 (Del. 1991). “Standing is therefore properly viewed as a threshold issue to

ensure that the litigation before the tribunal is a ‘case or controversy’ that is

appropriate for the exercise of the court’s judicial powers.” Brookfield Asset Mgmt.,

33
Inc. v. Rosson, 261 A.3d 1251, 1262 (Del. 2021) (cleaned up). A dispute over standing

is concerned “only with the question of who is entitled to mount a legal challenge and

not with the merits or the subject matter of the controversy.” Stuart Kingston, 596

A.2d at 1382. Thus, “standing does not implicate the court’s power to hear a particular

claim. It asks whether a particular party can assert it.” Gandhi-Kapoor v. Hone

Capital LLC, --- A.3d ---, ---, 2023 WL 8480970, *7 (Del. Ch. Dec. 4, 2023).

Standing is not the right framework. If the Company could assert a Section

147 claim, then the joint liquidators could cause Platinum Arbitrage to cause the

Company to assert it. Platinum Arbitrage is an Operating Manager and owns 55% of

the Company’s member interests. The joint liquidators control Platinum Arbitrage.

Just as they have caused the Company to assert a claim for aiding and abetting

breaches of fiduciary duty, they could cause the Company to assert a claim under

Section 147.

The joint liquidators respond that they have standing to sue as official Cayman

Island liquidators under chapter 15 of the United States Bankruptcy Code. Among

other things, that chapter allows a foreign representative of a debtor conducting a

liquidation proceeding in another country to sue and be sued in a court in the United

States and to apply for appropriate relief in that court. 11 U.S.C. §§ 1509(b), 1521(a);

In re Condor Ins. Ltd., 601 F.3d 319, 329 (5th Cir. 2010). That means the foreign

representative of a foreign debtor can assert claims on behalf of a foreign debtor.

34
The foreign debtor here is Platinum Arbitrage. If Platinum Arbitrage had a

claim under Section 147, then the joint liquidators could cause Platinum Arbitrage to

assert it. Instead, they are trying to assert a claim on behalf of the Company.

In substance, the joint liquidators are trying to pierce the Company’s entity

veil, collapse the separate identities of Platinum Arbitrage and the Company, and

then combine Platinum Arbitrage’s claim under Section 147 with the injury that the

Company suffered from the Agera Transaction.

Delaware law, not Cayman Islands law, governs whether Platinum Arbitrage

can achieve this feat. “[T]he separate legal existence of juridical entities is

fundamental to Delaware law.” Feeley, 62 A.3d at 667. “Thus, there exists a

presumption of corporate separateness, even when a parent wholly owns its

subsidiary and the entities have identical officers and directors.” Wenske v. Blue Bell

Creameries, Inc., 2018 WL 5994971, at *5 (Del. Ch. Nov. 13, 2018).

A court can override an entity’s separate legal existence by piercing the entity

veil. That doctrine permits “creditors to reach the assets of the owners of the entity

based on a multi-factor test.” Feeley, 62 A.3d at 667 (citing Robert B. Thompson, The

Limits of Liability in the New Limited Liability Entities, 32 Wake Forest L. Rev. 1,

9–10 (1997)). In substance, a court can overcome entity separateness so that the

sovereign’s creation cannot be used to facilitate fraud or similarly wrongful conduct.13

13See, e.g., In re Verizon Ins. Coverage Appeals, 222 A.3d 566, 577 (Del. 2019) (“The

alter ego doctrine is used to pierce the corporate veil when a corporation has created a sham
entity designed to defraud investors and creditors.”) (cleaned up); Crosse v. BCBSD, Inc., 836
A.2d 492, 497 (Del. 2003) (“A veil-piercing claim is usually invoked when the shell corporate
entity is insolvent and the plaintiff wishes to reach the personal assets of the corporation’s

35
This is not a setting where piercing could apply. The Platinum Funds created

the Company as a special purpose vehicle to engage in the Agera bankruptcy and

acquire the Agera Note. The Platinum Funds benefitted from the Company’s status

as a separate entity. The Company was not used to commit a fraud; it appears to have

acquired the Agera Note legitimately. Nor did the Company commit a fraud through

the Agera Transaction. The Company was a victim of fraud, not a perpetrator. As a

55% owner of the Company, Platinum Arbitrage suffered as well, but indirectly

through its equity stake. The proper outcome in this setting is for the Company to

assert its own claims, not to disregard the Company’s separate entity status to enable

the joint liquidators to assert a new, hybrid claim grounded in Cayman Islands law.

Count Four is therefore dismissed. AGH Parent did not move to dismiss Count

Four, but because the claim fails in its entirety, the dismissal extends to AGH Parent

as well.

F. In Pari Delicto

The CNO Defendants, Fuzion, and ULICO argue even if the complaint could

state claims against them, the in pari delicto doctrine bars the plaintiffs from

asserting those claims through the Company. That argument fails.

“Delaware, like most American jurisdictions and our federal common law

(where applicable), embraces to some extent the venerable in pari delicto doctrine.”

stockholders or alter egos.”); Williams v. Lester, 2023 WL 4883610, at *3 (Del. Ch. Aug. 1,
2023) (“Where a corporate entity exists only as a vehicle for fraud, equity, if required, can
pierce the metaphorical veil of limited liability, and, where appropriate, find the principals
liable for obligations of the entity.”).

36
In re Am. Int’l Gp., Inc., Consol. Deriv. Litig. (AIG II), 976 A.2d 872, 882 (Del. Ch.

2009) (italics added). Under that doctrine, courts “will not extend aid to either of the

parties to a criminal act or listen to their complaints against each other but will leave

them where their own act has placed them.” Id. (quoting 1 Am. Jur. 2d Actions § 40,

Westlaw (database updated Oct. 2023)). Put differently, “a party is barred from

recovering damages if his losses are substantially caused by activities the law forbade

him to engage in.” In re LJM2 Co–Inv., LP, 866 A.2d 762, 775 (Del. Ch. 2004) (cleaned

up)). The doctrine reflects a policy judgment that a court should not use its limited

resources to resolve fights between co-conspirators over the consequences of their

illicit conduct. See AIG II, 976 A.2d at 877 (“[T]here is no societal interest in making

sure that each party gets its ‘fair’ share of the conspirators’ societally unfair

bargain.”).

The in pari delicto doctrine has exceptions. One is the adverse inference

exception, “derived from the same body of agency law imputation principles that gave

rise to the in pari delicto rule itself.” Stewart v. Wilm. Tr. SP Servs., Inc., 112 A.3d

271, 309 (Del. Ch. 2015), aff’d, 126 A.3d 1115 (Del. 2015). If an agent acts in a manner

adverse to the interests of his principal, the law will not impute the act to the

principal, “because it seems nonsensical to presume that a thieving agent would tell

his principal about the theft.” Id.; accord Restatement (Third) of Agency § 5.04 (Am.

L. Inst. 2006), Westlaw (database updated Oct. 2023). For purposes of in pari delicto,

if a party acts “solely to advance his own personal financial interest, rather than that

of the corporation itself, the adverse interest exception comes into play and permits

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the corporation to state a claim[.]” Stewart, 112 A.3d at 309 (cleaned up). “In that

unusual context, it can be said that the corporation, although responsible to innocent

third parties and the polity for any offense to them, is more conspired against than a

conspirator.” AIG II, 976 A.2d at 891.

In AIG II, the court provided an instructive example:

To the extent that third parties conspire with the faithless insider in a
plan to impoverish the corporation for the benefit of the insider and the
other conspirators, courts have held that the doctrine of in pari delicto
gives way in order to allow recovery from anyone who helped steal from
the corporation. For example, where a fiduciary acts with third parties
in order to siphon off corporate funds, that fiduciary is not just working
for her own benefit, she is acting to harm the corporation. Thus, the
corporation should be able to sue the third party that helped the
fiduciary harm the corporation.

Id. (italics added) (footnote omitted). That is precisely what happened to the

Company.

The complaint alleges that the defendants conspired with the Company’s

fiduciaries to loot the Company so that the defendants could shift their losses to the

Company and extract value through the Agera Transaction. The Company’s

fiduciaries “act[ed] with third parties in order to siphon off corporate funds” and

therefore were “not just working for [their] own interest” but “acting to harm” the

Company affirmatively.

The defendants respond that the Company benefited from the Agera

Transaction because it received $170 million in cash and securities in exchange for

the Agera Note. Only a lawyer representing a client could make that argument. For

purposes of the motion to dismiss, the court must assume that the Agera Note was

worth at least $250 million, so there was zero benefit to the Company in exchanging

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$250 million for $170 million. “To hold that any amount of cash received is a benefit,

even if that cash pales in comparison to the value of the assts for which it was

exchanged, would render the term ‘benefit’ meaningless.” In re Platinum-Beechwood

Litig., 2019 WL 2569653, at *13 (S.D.N.Y. June 21, 2019).

Finally, the defendants argue that the “sole actor” exception to the adverse

inference exception applies. “Courts have applied the sole actor exception where the

agent committing the fraud was the sole stockholder of the corporation, or otherwise

‘dominated’ the corporation.” Stewart, 112 A.3d at 310. The sole actor rule “overrides

the adverse interest exception where the principal and the agent are the same,

because it is absurd to presume that the one actor involved and affected somehow

could keep secrets from himself, and because the principal, as the same sole owner,

benefits from the fraud.” Id. at 310–11. Thus, where the faithless fiduciary also solely

owns or otherwise dominates the entity, the principal-agent distinction virtually

disappears. See id. at 311. “In terms of a claim against a third party that dealt with

the [entity,] therefore, the adverse interest exception will not aid an agent-principal

who does wrong by protecting the [entity] he controls from the effect of in pari delicto.”

Id.

The defendants argue that because Platinum Management and its principals

formed the Company and managed its affairs, Platinum Management acted as both

agent and principal. Applying the sole actor exception makes sense not only because

of the theoretical unity of mind, but also because there are no innocent parties on the

corporation’s side of the equation. When the bad actor owns all of the entity, the bad

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actor is asserting the entity’s claim to benefit itself. But Platinum Management did

not own 100% of the Company.

When there are other innocent parties in the mix, applying the sole actor

doctrine leaves those innocent parties without a remedy. By asserting an entity-level

claim against third parties, the derivative plaintiff recovers value for the benefit of

the entity, and that value is distributed to the entity’s claimants in order of priority.

The entity-level claim may create value for creditors, including involuntary creditors

who were injured by the bad actor’s scheme. The entity level claim also may create

value for innocent equity investors. Applying the sole actor exception whenever a sole

actor dominates the affairs of an entity, despite not owning 100% of the entity, would

leave those innocent parties without any path to recover. A court of equity can prevent

the bad actor from benefiting from its misconduct through more targeted limitations,

such as by foreclosing the bad actor from participating in the recovery or by awarding

an investor-level recovery that bypasses the bad actor.

It may be that some potentially innocent parties in the capital stack turn out

to be not so innocent. The Company’s investors were the Platinum Funds. If it turns

out that many of the investors in the Platinum Funds were principals of Platinum

Management who were themselves culpable participants in the scheme, then any

remedy must take that into account. If the Company’s investors were third parties

who knew about and approved of Platinum Management’s aggressive tactics and who

benefitted from similar schemes, then they will have to take the bitter with the sweet.

A court of equity can address issues of that sort in more nuanced ways.

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None of these considerations should be addressed at the pleading stage

through expansive, potentially overbroad, claim-terminating rulings. The court can

apply the doctrine of in pari delicto or its equitable variant—unclean hands—in a

more tailored way at a later stage of the case. In pari delicto therefore does not bar

the plaintiffs’ claims at the pleading stage.

G. The Pleading Issues

We have almost approached the end of the defendants’ multitudinous attacks

on the plaintiffs’ claims. The last two are a grab bag of criticisms about the specificity

of the pleadings. They fall under two headings. None are persuasive.

1. Rule 9(b)

The defendants argue that the complaint fails to plead with particularity as

required by Rule 9(b). That rule states that “[i]n all averments of fraud or mistake,

the circumstances constituting fraud or mistake shall be stated with particularity.

Malice, intent, knowledge and other condition of mind of a person may be averred

generally.” Ct. Ch. R. 9(b). “The reference to ‘circumstances’ in the rule is to matters

such as the time, place, and contents of the false representations or omissions, as well

as the identity of the person making the misrepresentation or failing to make a

complete disclosure and what that defendant obtained thereby.” 5A Arthur R. Miller

et al., Federal Practice and Procedure § 1297 (4th ed.), Westlaw (database updated

Apr. 2023). But the test of particularity is “not scientific.” Kahn Bros. & Co., Inc.

Profit Sharing Plan & Tr. V. Fischbach Corp., 1989 WL 109406, at *4 (Del Ch. Sept.

19, 1989). “[T]he plaintiff is required to allege the circumstances of the fraud with

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detail sufficient to apprise the defendant of the basis for the claim.” Abry P’rs V, L.P.

v. F & W Acq. LLC, 891 A.2d 1032, 1050 (Del. Ch. 2006).

The parties join issue on whether the counts of the complaint are subject to

Rule 9(b). There is good reason to conclude that none of the counts require

particularized pleading under Rule 9(b), but this decision passes over that question.

Assuming for purposes of analysis that the entire complaint is subject to a

particularity standard, the complaint’s allegations meet it.

The facts of the complaint put the defendants on notice of the plaintiffs’

assertions about the Agera Transaction operating as a scheme to extract value from

the Company. The complaint is 130 pages long and contains 582 total paragraphs,

including 497 paragraphs of factual allegations. In those nearly 500 paragraphs, the

plaintiffs identify who participated in the scheme, how and why the Agera

Transaction came about, meetings at which the Agera Transaction was discussed, the

terms of the Agera Transaction, the agreements governing the Agera Transaction,

and how the defendants benefitted from the Agera Transaction. To say that the

defendants do not understand the claims they face is preposterous.

Rule 9(b) does not require a plaintiff to plead every individual fact necessary

to prevail at trial. Rule 9(b) certainly does not require pleading the evidence that the

plaintiff will present. The detailed complaint more than satisfies the level of

particularity that Rule 9(b) contemplates.

2. Group Pleading

The defendants next argue that the complaint engages in impermissible group

pleading. The defendants contend that the complaint does not spell out allegations

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against each individual entity. That is generally true but beside the point. The

complaint pleads that the defendants acted as a group because the defendants

participated together in the Agera Transaction.

Delaware law does not prohibit group pleading, but the practice is disfavored

because Delaware prioritizes the pleading of facts. See In re Swervepay Acq., LLC,

2022 WL 3701723, at *9 (Del. Ch. Aug. 26, 2022); accord River Valley Ingredients,

LLC v. Am. Proteins, Inc., 2021 WL 598539, at *3 (Del. Super. Feb. 4, 2021). When

defendants invoke the doctrine successfully, the case usually involves a claim for

breach of fiduciary duty against directors protected by an exculpatory provision,

where Delaware law requires that the complaint plead specific facts supporting non-

exculpated conduct by each director. See In re Cornerstone Therapeutics Inc, S’holder

Litig., 115 A.3d 1173, 1182 (Del. 2015); accord In re Tangoe, Inc. S’holder Litig., 2018

WL 6074435, at *12 (Del. Ch. Nov. 20, 2018). The defendants have gathered a

smattering of cases involving that issue, often involving motions to dismiss under

Rule 23.1. Those cases address different issues in a different setting. They are

inapposite.

In other settings, this court permits plaintiffs to plead that defendants have

acted together and to refer to them collectively when describing their actions. E.g., In

re Pattern Energy Gp., Inc. S’holders Litig., 2021 WL 1812674, at *58 n.737 (Del. Ch.

May 6, 2021). That technique is often warranted for close affiliates, particularly when

one entity manages another. See, e.g., In re WeWork Litig., 2020 WL 7343021, at *11

(Del. Ch. Dec. 14, 2020).

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The defendants object to the multi-party definitions the complaint uses, but

none of those terms raise problems. The term “Beechwood-Agera Corporations” refers

appropriately to entities created in parallel as special purpose vehicles to participate

in the Agera Transaction. The defendants themselves refer to the entities collectively

in the complaint’s exhibits.

The same is true for the SHIP Defendants, defined as Fuzion and SHIP. That

term is appropriate because SHIP has no employees of its own, and Fuzion managed

SHIP’s affairs. That means both that Fuzion’s actions are attributed to SHIP and

that if SHIP acts, then Fuzion inferably caused it to act. The defendants themselves

refer to SHIP and Fuzion together in exhibits attached to the complaint.

In response, SHIP and Fuzion cite a decision in related litigation where the

court relied on a group pleading argument, stating:

Fuzion is lumped together with SHIP as the “SHIP Defendants,” and
Fuzion is broadly mentioned as having “advised” SHIP. The allegations
lack particularity as to what and how Fuzion specifically advised SHIP.
Essentially, the FAC treats Fuzion and SHIP as interchangeable and
identical, when they are separate legal entities with different business
functions.

In re Platinum-Beechwood Litig., 427 F. Supp. 3d 395, 454 (S.D.N.Y. 2019). That

decision involved a different complaint, different pleading standards, and different

claims. Here, the plaintiffs have sufficiently pled facts establishing Fuzion’s

relationship with SHIP.

H. The Remedy Of A Constructive Trust

Not content with moving to dismiss the plaintiffs’ claims, Fuzion and the

Beechwood-Agera Corporations try to obtain a pleading stage dismissal of a remedy.

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They contend the plaintiffs cannot obtain a constructive trust for their unjust

enrichment claims because that remedy requires a confidential or fiduciary

relationship.

“While courts have listed elements for constructive trusts, it has also been

found that no rigid requirements exist for imposing a constructive trust, and any

factors considered relevant to the establishment of a constructive trust are simply

guidelines, their rigid application not being required.” 90 C.J.S. Trusts § 176,

Westlaw (database updated Aug. 2023). A constructive trust allows the court to treat

defendants who hold property as if they were holding it in trust for the plaintiff.

Samuel L. Bray, Fiduciary Remedies, in OXFORD HANDBOOK OF FIDUCIARY LAW 449,

454 (Evan J. Criddle et al. eds., 2019).

A constructive trust is the typical remedy for an unjust enrichment claim when

specific property can be identified, regardless of whether or not there was a fiduciary

relationship between the parties. See B.A.S.S. Gp. LLC v. Coastal Supply Co. Inc.,

2009 WL 1743730, at *7 (Del. Ch. 2009) (“The typical remedy for unjust enrichment

is restitution. A constructive trust is simply a form of restitution in specie. . . . If the

unjustly obtained funds can be traced into specific property, then a constructive trust

can be imposed on the property, regardless of the culpability of the party possessing

the property . . . .”); Tchrs.’ Ret. Sys. of La. v. Aidinoff, 900 A.2d 654, 670 n.22, 671–

73 (Del. Ch. 2006) (same). The defendants thus have not provided any basis for

rejecting a constructive trust as a potential remedy. The court need not go any further

at the pleading stage.

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III. CONCLUSION

The defendants’ motions to dismiss under Rule 12(b)(6) are granted as to Count

Four. Otherwise, they are denied. Within thirty days, the parties must submit a

schedule designed to bring this case to trial within eighteen months.

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