MEMORANDUM ORDER This case concerns the November 2020 purchase by plaintiff Groundhog Enterprises d/b/a Merchant Lynx Services (“Merchant Lynx”) of a portfolio of defendant Frontline Processing Corp.’s payment processing contracts with a number of merchants. The largest account in this portfolio, in terms of revenue and profit, was a company called Moroid Inc. Shortly after the Asset Purchase Agreement (“APA”) was entered into, Moroid terminated its processing relationship. Merchant Lynx alleges that Frontline was aware before the APA closed that this termination process had begun and that Frontline concealed that fact despite an alleged contractual obligation in the APA to disclose it as part of the representations and warranties made by Frontline in entering into the contract. Before the Court is Frontline’s motion for partial summary judgment. Frontline seeks dismissal of Merchant Lynx’s fraud claim, which was brought alongside a claim for breach of contract. Frontline has two arguments: that the fraud claim should be struck as duplicative under either of two Delaware state law doctrines, and that there is insufficient evidence in the record to support a fraud claim. After the Court carefully reviewed the helpful papers and oral arguments submitted by counsel, it issued an order on January 13, 2022 denying Frontline’s motion in full. The Court now issues a memorandum order setting forth its reasoning. I. Background Frontline was engaged in the business of marketing, distributing, selling, and supporting electronic payment processing services. 1.1 In July 2020, Frontline and Merchant Lynch began negotiating over the sale of a portfolio of merchant processing agreements owned by Frontline. 2. This transaction ultimately closed through execution of the APA on November 23, 2020, Frontline transferred ownership of all rights related to the merchant accounts in the portfolio.
5-6. Under the APA, Merchant Lynx paid a total of $4.05 million for the portfolio of payment processing relationships.2 The portfolio was defined to include, inter alia, “all of [Frontline's] rights relating to those merchant relationships boarded under the ISO Agreements (such merchant relationships listed on Attachment B and referred to herein as the “Merchants” or the ‘Portfolio’), including all rights to receive residuals and other similar payments relating to the Portfolio.” 4. Among the merchants included on Attachment B was Moroid Inc. See ECF 1-1 at 24. The APA included a set of representations and warranties made by Frontline to Merchant Lynx, including Section 5.5(b), which stated: [Frontline] has fulfilled all material obligations required pursuant to each Material Contract3 to have been performed by [Frontline] on its part prior to the date hereof and no default exists under any Material Contract. There is no existing dispute between [Frontline] and any merchant and to the best of [Frontline's] knowledge, no Merchant intends to terminate or materially reduce its processing volume as a result of the transactions contemplated by this Agreement or otherwise. ECF 26-4 (“APA”) §5.5(b) at 5 (footnote inserted). Frontline further represented that none of Frontline’s representations and warranties in the APA contained any untrue statement of a material fact or any material omission. 8. Finally, the APA limited Frontline’s maximum liability arising from breach of any representations or warranties to $500,000, provided that this limit would not apply to any claims arising from willful breach or breach arising from fraud. Additional Facts 1. During the first half of October 2020, Moroid Inc. stopped processing payments through Frontline. 10. Moroid was, from January 2020 through August 2020, either the largest or second-largest monthly account by sales volume in the Frontline portfolio, yet it was not listed as a Material Contract in SCHEDULE 5.5(A). Additional Facts
