IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE GREAT HILL EQUITY PARTNERS IV, ) LP, GREAT HILL INVESTORS LLC, ) FREMONT HOLDCO, INC., and ) BLUESNAP, INC. (F/K/A PLIMUS), ) ) Plaintiffs, ) ) v. ) C.A. No. 7906-VCG ) SIG GROWTH EQUITY FUND I, ) LLLP, SIG GROWTH EQUITY ) MANAGEMENT, LLC, AMIR ) GOLDMAN, JONATHAN KLAHR, ) HAGAI TAL, TOMER HERZOG, ) DANIEL KLEINBERG, IRIT SEGAL ) ITSHAYEK, DONORS CAPITAL ) FUND, INC., and KIDS CONNECT ) CHARITABLE FUND, ) ) Defendants. ) MEMORANDUM OPINION Date Submitted: August 7, 2018 Date Decided: December 3, 2018 Gregory V. Varallo, Rudolf Koch, and Robert L. Burns, of RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; OF COUNSEL: Stephen D. Poss and Adam Slutsky, of GOODWIN PROCTER LLP, Boston, Massachusetts, Attorneys for Plaintiffs. William B. Chandler III, Ian R. Liston, and Jessica A. Hartwell, of WILSON SONSINI GOODRICH & ROSATI, P.C., Wilmington, Delaware; OF COUNSEL: Mark A. Kirsch, Scott A. Edelman, Aric H. Wu, Jeremy W. Stamelman, and Laura K. O’Boyle, of GIBSON, DUNN & CRUTCHER LLP, New York, New York, Attorneys for Defendants SIG Growth Equity Fund I, LLLP, SIG Growth Equity Management, LLC, Amir Goldman, Jonathan Klahr, Donors Capital Fund, Inc., and Kids Connect Charitable Fund. Lewis H. Lazarus and Meghan A. Adams, of MORRIS JAMES LLP, Wilmington, Delaware; OF COUNSEL: Peter N. Flocos and Joanna A. Diakos, of K&L GATES LLP, New York, New York, Attorneys for Defendants Tomer Herzog and Daniel Kleinberg. David S. Eagle and Sean M. Brennecke, of KLEHR HARRISON HARVEY BRANZBURG LLP, Wilmington, Delaware; OF COUNSEL: Michael K. Coran, William T. Hill, Monica Clarke Platt, and Gregory R. Sellers, of KLEHR HARRISON HARVEY BRANZBURG LLP, Philadelphia, Pennsylvania, Attorneys for Defendants Hagai Tal and Irit Segal Itshayek. GLASSCOCK, Vice Chancellor This matter involves the acquisition of a California company, Plimus, by a private equity firm, Great Hill. Plimus’s business was to facilitate transactions between online retailers of digital goods and credit card holders. Under Plimus’s model, it operated as a “reseller;” where a retail buyer made an online purchase, Plimus would first constructively “acquire” the product from the retailer, and receive payment for that retailer from payment processors with whom Plimus had contractual relationships. Those payment processors, in turn, had contractual relationships with the credit card companies and their banks. The service or product would be delivered directly to the credit card holder/purchaser from the online merchant. The arrangement allowed the payment processors—PayPal being a well- known example—to deal with a single reseller, Plimus, with which they had a relationship, rather than trying to contract with the large number of small retailers, known in the business as “long-tail” vendors, occupying this market. The system works so long as the retailers deliver a satisfactory product. If they do not, the credit card companies are responsible to their card holders for “chargebacks,” cancellation of debt incurred by the card holder for fraudulent or misrepresented services or goods provided by the retailers. In such cases, the banks ...
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