NACCO INDUSTRIES, INC. v. Applica Inc.

OPINION

In 2006, Applica Incorporated embarked on a sale process. Applica initially entered into a merger agreement with NACCO Industries, Inc. Later, Applica terminated its agreement with NACCO and agreed to be acquired by affiliates of Harbert Management Corporation. A bidding contest ensued, which NACCO lost. In this action, NACCO seeks damages and other unspecified relief arising out of its defeated acquisition attempt. NACCO has asserted claims for breach of contract (Count I), breach of the implied covenant of good faith and fair dealing (Count II), tortious interference with contract (Count III), fraud (Count IV), equitable fraud (Count *7 V), aiding and abetting a breach of fiduciary duty (Count VI), and civil conspiracy (Count VII). Applying Rule 12(b)(6)’s plaintiff-friendly standard, I deny the motion to dismiss Counts I, III, IV and VIL I dismiss Counts II, V, and VI.

I. FACTUAL BACKGROUND

I assume the following facts to be true for purposes of the motion to dismiss. The facts are drawn solely from the allegations of the Second Amended Complaint (the “Complaint”) and from publicly filed documents that it incorporates by reference.

A. The Parties

Defendant Harbert Management Corporation is an investment manager that oversees a hedge fund complex. The Complaint names as defendants the Harbert-affiliated entities that were involved in the Applica transaction. Many of the funds operate under the “Harbinger” name, and I refer to the Harbert-affiliated defendants collectively as “Harbinger.” The Complaint previously named as individual defendants three Harbinger principals, all of whom were dismissed for lack of personal jurisdiction.

Defendant Applica is a Florida corporation headquartered in Miramar, Florida. Applica markets, distributes, and sells small household appliances. Applica is now a portfolio company of Harbinger. Prior to being taken private by Harbinger, Applica’s common stock traded on the New York Stock Exchange.

Plaintiff NACCO is a Delaware corporation with its principal place of business in Mayfield Heights, Ohio. NACCO is a holding company whose shares trade on the New York Stock Exchange. NACCO owns plaintiff HB-PS Holding Company, Inc. (“Hamilton Beach”), a Delaware corporation with its principal place of business in Glen Allen, Virginia. Hamilton Beach is a designer, marketer, and distributor of small electric household appliances and commercial products for restaurants, hotels, and bars.

B. NACCO And Applica Enter Into A Merger Agreement.

In early 2005, NACCO approached Ap-plica about a strategic transaction with Hamilton Beach. The parties signed a non-disclosure agreement, exchanged confidential information, and began discussions. Applica broke off talks, inviting NACCO to re-approach in early 2006.

Appliea proved more receptive in 2006. In January, Applica’s board authorized merger discussions with NACCO. On February 16, Applica and NACCO updated their non-disclosure agreement, and NACCO agreed to a standstill provision that limited its ability to act unilaterally to acquire Applica. When NACCO found itself in a bidding contest for Applica some seven months later, the consequences of agreeing to the standstill would prove critical, because NACCO ended up competing against Harbinger, which was not similarly restricted and had used its freedom and the cover of allegedly false Schedule 13 disclosures to accumulate a large block of Applica stock.

On February 28, 2006, Applica announced publicly that it was exploring strategic alternatives. In March, Applica began making outgoing calls to potential strategic partners.

On May 2, 2006, Applica’s board of directors decided to pursue NACCO’s merger proposal. During the week of May 24, Applica conducted due diligence on Hamilton Beach’s operations. On June 6, NAC-CO sent Applica a draft merger agreement. On July 23, the parties executed a merger agreement (the “Hamilton Beach *8 Merger Agreement”). In the contemplated transaction, NACCO would spin off Hamilton Beach, which would acquire Ap-plica in a stock-for-stock merger. Following the transaction, NACCO’s stockholders would own 75% and Applica’s stockholders 25% of the resulting entity. In advance of the spin-off, Hamilton Beach would pay a $110 million cash dividend to NACCO. The parties announced the Hamilton Beach Merger Agreement on July 24.

C. Harbinger Enters The Fray.

On September 14, 2006, Harbinger announced a bid to acquire all of the Applica shares it did not yet own at $6.00 per share. Although Harbinger had been on the scene for some time, this announcement heralded a change in Harbinger’s public role.

Harbinger began purchasing Applica stock on February 24, 2006, at the direction of Harbinger principal Phillip Fal-cone, who instructed one of Harbinger’s brokers to “START ACCUMULATING [APPLICA] QUIETLY. SIZE.” That same day, Harbinger purchased 191,350 shares. On the next trading day, February 27, Falcone told the same broker, “I CAN USE MORE [APPLICA] TODAY.” Within two days, Harbinger acquired another 518,285 shares. On February 28, Applica announced publicly that it was exploring strategic alternatives.

NACCO alleges that Harbinger’s propitious timing resulted from Applica’s management tipping Harbinger advisor David Maura. At the time, Applica and NACCO were bound by a non-disclosure agreement, which barred Applica from disclosing to any third pai*ty that “discussions relating to a possible Transaction are taking place, or ... any other facts with respect to such discussions.” According to NACCO, this was the first in a series of actions taken by Applica management to aid Harbinger. NACCO alleges that Ap-plica senior executives knew their jobs were at risk in a strategic deal with Hamilton Beach, which already had a management team, and that Applica’s insiders therefore favored Harbinger as a financial buyer who was likely to retain them.

On March 13, 2006, Harbinger filed a Schedule 13G disclosing its ownership of 8.9% of Applica’s outstanding common stock. Schedule 13G only can be used by filers who acquire shares strictly for investment purposes. In the filing, Harbinger certified that the shares “were not acquired and are not held for the purposes of or with the effect of changing or influencing the control of [Applica]” and were “not held in connection with or as a participant in any transaction having such purpose or effect.”

NACCO contends that in reality, Harbinger planned to influence the outcome of Applica’s process for exploring strategic alternatives. At least as early as March 31, 2006, Maura pitched Falcone on the idea of combining Applica with Saltón, Inc., a competing small electronic appliance distributor. Falcone responded, “I like it. Take control of that and buy [Salton] and [Applica].” On April 4, Falcone reminded Maura to focus on the opportunity-

Harbinger filed an amended Schedule 13G on April 4, 2006, disclosing additional purchases of Applica stock. The Complaint alleges that Applica CFO Terry Pol-istina and Applica Chairman Harry Schul-man assisted Harbinger in obtaining large blocks of stock and increasing its position.

On April 26, 2006, Maura advised Fal-cone that he had modeled Saltón and Ap-plica “as one company” and recommended that Harbinger “take our [Applica] position up to 30%.” He continued: “I am hearing the bids are in the $4 -l- range — we *9 sont [sic] make much money buying additional shares at $3.5 — $8.76—but we can use a bigger position to keep the bidders honest and if we see enough value in the [Applica]/[Salton] combo — we can bid for [Applica] outright ourselves.” He noted it was “cheaper to build the position now— rather than in Jun [sic] when there is a $4 bid on the table.” The next day, he wrote Falcone that “[t]he biggest risk to this strategy is if we buy Saltón preferred and get out bid by a strategic for [Applica].”

By May 14, 2006, Harbinger had acquired 24.7% of Applica’s outstanding shares. Harbinger filed a Schedule 13D disclosing its position and stating as follows:

The Shares held by the Reporting Persons were acquired for, and are being held for, investment purposes only. The acquisitions of the Shares were made in the ordinary course of the Reporting Persons’ business or investment activities, as the case may be.

The Reporting Persons have no plan or proposal which relates to, or would result in, any of the actions enumerated in Item 4 of the instructions to Schedule 13D.

On May 22, Maura wrote to Falcone that he was expecting a merger announcement from Applica “in the next 2-3 weeks.” At the time, NACCO was conducting due diligence on Applica. On June 6, after purchasing additional shares that brought its holdings up to 30.8% of the outstanding stock, Harbinger filed an amended Schedule 13D, in which it made the same disclosure.

Also in May 2006, Harbinger moved on Saltón. According to the Complaint, by June 2, Harbinger had acquired $100 million of the company’s preferred stock and established a position in excess of $100 million in its debt. On June 22, Maura emailed Falcone: “I think we pay cash for [Applica]' — take it private — then bid [REDACTED] for Saltón — then the world [would] be knocking on our door ... and we can take the new company public in 24-36 months for a massive gain.” Maura described for Falcone the proposed structure of the Hamilton Beach merger, which was not yet public. In e-mails on June 24, Maura and Falcone discussed the details of a Saltón bid for Applica. Maura outlined his plan and wrote, “In the process we completely replace both boards with a new board of people we know and who get the joke.” Also in June, Harbinger retained a financial advisor to evaluate gaining “full/complete control of Applica.”

In the midst of these internal exchanges, on June 21, 2006, Harbinger filed another Schedule 13D, in which it disclosed that it had increased its position to 32% of Appli-ca’s outstanding shares. The Schedule 13D stated: “The Reporting Persons have acquired their Shares of the Issuer for investment.” Harbinger thus dropped the word “only” from its disclosure. Harbinger added a disclosure that “[t]he Reporting Persons evaluate their investment in the Shares on a continual basis including, without limitation, for possible synergies with their other current investments.” Harbinger “reserve[d] the right to be in contact with members of [Applica’s] management, the members of [Applica’s] Board of Directors, other significant shareholders and others regarding alternatives that [Applica] could employ to maximize shareholder value.” NACCO alleges that these disclosures were false not only because Harbinger already planned to influence or control Applica, but also because Harbinger already had been in covert contact with members of Applica’s management who were tipping Harbinger about the deal process and because Harbinger had zeroed in on and was pursuing the specific alternative of an Applica-Salton combination.

*10 In July 2006, Maura advised Harbinger not to enter into a confidentiality agreement with Applica because Maura did not think Harbinger “would learn more than we already know.” By declining to sign the confidentiality agreement, Harbinger also avoided the standstill restriction that bound NACCO. Later that month, Maura’s information again proved to be excellent. On Friday, July 21, Maura knew that Applica “has a deal” and that “it will be announced shortly.” That same day, the Applica board approved the Hamilton Beach Merger Agreement. On Monday, July 24, the deal was announced.

On the same day that the Hamilton Beach merger was announced, Applica management contacted Harbinger through intermediaries and signaled that an all-cash offer for Applica would likely be successful. Harbinger responded by moving forward with plans for a Salton-Applica combination. Two days after the announcement of the Hamilton Beach Merger Agreement, Maura told a former Saltón board member that Harbinger and Saltón were going to bid for Applica. That same day, the Saltón board approved a bid to be financed by Harbinger. The Saltón board resolved that Applica be contacted and notified of the bid. Harbinger and Saltón agreed that if Applica did not respond positively, Saltón would tell Applica’s lawyers that it was a breach of fiduciary duty for Applica’s directors not to consider the Salton/Applica deal. Harbinger and Salton agreed that if Applica remained unresponsive, they would try other means, including a tender offer. NACCO believes, consistent with these plans, that a Saltón representative contacted Applica on July 26, 2006.

At the time these communications were taking place, Applica was bound by a no-shop provision in the Hamilton Beach Merger Agreement and was obligated to give NACCO prompt notice of “any inquiry or proposal relating to an [Applica] Competing Transaction.” The term “[Ap-plica] Competing Transaction” broadly included “any merger, consolidation, share exchange, business combination or other transaction or series of transactions involving [Applica] that is conditioned on the termination of this Agreement or could reasonably be expected to preclude or materially delay the completion of the Merger.” Applica did not disclose to NACCO either the outgoing communication from Applica management or the incoming call from Saltón.

Nor did Harbinger revise its Schedule 13D disclosures. Thus, during the time that it was increasing its position in Appli-ca to a nearly 40% stake, establishing effective control over Saltón, receiving an outgoing communication from Applica management, and causing Saltón to make a competing proposal to Applica, Harbinger continued to maintain that it was holding Applica shares “for investment purposes.”

But just as Harbinger and Saltón put their plans into motion, they hit a snag. Harbinger learned that its acquisition of Applica shares had triggered the Florida Control Shares Act (the “Florida Act”) and that under the statute, Harbinger lost the right to vote its shares. Harbinger naturally sought to remedy this issue. On July 31, 2006, Maura contacted a senior Applica officer, expressed dissatisfaction with the Hamilton Beach Merger Agreement, and asked whether Applica intended to apply the Florida Act to Harbinger. The Appli-ca officer assured Maura that Applica did not intend to rely on the Florida Act and that Harbinger would be able to vote its shares. On August 2, Harbinger asked Applica to seek a shareholder vote that would restore Harbinger’s voting rights under the Florida Act. When Applica ad *11 vised NACCO of the request, Applica assured NACCO that Harbinger planned on voting for the Hamilton Beach Merger Agreement.

Harbinger continued to increase its position in Applica, and on August 3, August 8, and August 11, 2006, Harbinger filed additional Schedule 13D forms disclosing its increased holdings. In its August 3 filing, Harbinger disclosed Maura’s July 31 call to the “Applica senior officer” but stated that it was the Applica officer who raised the Florida Act and Applica’s plan not to invoke it against Harbinger. Harbinger did not disclose that one subject of the call was Harbinger’s dissatisfaction with the Hamilton Beach deal.

On August 17, 2006, Harbinger filed another Schedule 13D disclosing that its position now amounted to 39.24% of Applica’s outstanding stock. Harbinger attached as an exhibit to its Schedule 13D an August 14 demand for books and records in which Harbinger requested stockholder lists as of May 10 and August 4 and information about representations Applica made in the Hamilton Beach Merger Agreement relating to whether the Florida Act applied.

In all of its August 2006 Schedule 13D filings, Harbinger continued to state that it was holding its shares for investment purposes and not with any plan or intention to influence or control Applica. None of the filings disclosed the July communication by Applica management or the Saltón response. None of the filings disclosed that in Maura’s calls to Applica, he had expressed Harbinger’s dissatisfaction with the Hamilton Beach Merger Agreement. NACCO asserts that in reliance on Harbinger’s Schedule 13D filings, Applica’s reassurances that Harbinger would support the deal, and Harbinger’s lack of any prior deal jump attempts, NACCO believed that Harbinger would not make a competing bid or seek to influence the outcome of the merger vote.

On September 14, 2006, Harbinger topped the Hamilton Beach Merger by offering to acquire all of the outstanding shares of Applica that Harbinger did not already own for $6.00 per share. In conjunction with its bid, Harbinger filed a Schedule 13D/A amending the disclosure in its prior Schedule 13 forms. The amended disclosure stated that rather than acquiring its shares for “investment purposes,” Harbinger “acquired [its] Shares of [Applica] in order to acquire control of [Applica].” NACCO points to this amendment as an admission by Harbinger that its prior statements of intent were false.

Approximately one month later, on October 19, 2006, Harbinger amended its statement of intent once more. Harbinger now stated that as of September 14, its investment intent had changed, and as of that point it “now propose[d] to aequir[e] all of [Applica’s shares].”

D. Applica Jilts NACCO For Harbinger.

The Hamilton Beach Merger Agreement contained a no-shop provision limiting Ap-plica’s ability to explore competing transactions. If Applica received an unsolicited bona fide written offer that the Applica board determined was reasonably likely to constitute a “Superior Proposal,” as defined in the Hamilton Beach Merger Agreement, then Applica could provide information to and enter into discussions with the offeror. On September 14, 2006, Applica advised NACCO that it had received Harbinger’s offer. On September 16, Applica informed NACCO that Harbinger’s $6.00 per share cash bid was reasonably likely to constitute a “Superior Proposal,” such that Applica was initiating discussions with Harbinger. On Septem *12 ber 26, Applica informed NACCO that it had entered into a confidentiality agreement with Harbinger.

On October 10, 2006, Applica notified NACCO that it was terminating the Hamilton Beach Merger Agreement and would enter into a merger agreement with Harbinger. Under the Hamilton Beach Merger Agreement, Applica was permitted to terminate the agreement to accept a “Superior Proposal.”

On October 11, 2006, NACCO disputed Applica’s ability to terminate the Hamilton Beach Merger Agreement, asserting that Applica had breached the no-shop provision and failed to notify NACCO promptly of developments involving Harbinger. On October 12 and 13, Applica and NACCO each reiterated their positions. On October 17, NACCO asserted that it had been misled by Harbinger and the statements in Harbinger’s Schedule 13 filings.

In an effort to cure any violation of the prompt notice provision, Applica did not take any further action until October 19, 2006. On that date, Applica again informed NACCO that the Hamilton Merger Agreement was terminated. Applica paid NACCO the $4 million termination fee and $2 million in expense reimbursement that the Hamilton Beach Merger Agreement called for in the event the agreement was validly terminated to accept a topping bid. Applica then entered into a merger agreement with Harbinger (the “Harbinger Merger Agreement”).

On November 2, 2006, Applica filed a preliminary proxy statement to solicit proxies in favor of a merger with Harbinger (the “Harbinger Proxy Statement”). The “Background of the Merger” section contained disclosures markedly different from what Harbinger had disclosed in its Schedule 13D filings. For example, the Harbinger Proxy Statement disclosed that “[i]n mid-July, a representative of Harbinger ... contacted [Applica’s] financial advisor concerning the exploration of a possible strategic transaction.” None of Harbinger’s Schedule 13D filings disclosed that contact. The Harbinger Proxy Statement also disclosed that when Maura called the Applica senior officer on July 31, Maura “expressed dissatisfaction with the terms of the NACCO merger.” Harbinger’s Schedule 13D’s had not disclosed this but rather portrayed the call as concerning only whether Harbinger could vote its shares in light of the Florida Act. According to the Harbinger Proxy Statement, Harbinger’s expressed its dissatisfaction sufficiently strongly for the Applica board to discuss it on August 2.

E. NACCO Files Suit.

On November 13, 2006, NACCO filed this action against Applica and Harbinger seeking, among other things, a decree of specific performance enforcing the Hamilton Beach Merger Agreement and an order enjoining the Harbinger merger. NACCO sought expedited discovery and a trial, but was informed that the Court’s calendar could not accommodate a full trial prior to the anticipated closing of the Harbinger merger. NACCO then moved for a preliminary injunction. After a preliminary exchange of documents, NACCO withdrew its injunction application on December 1.

Two weeks later, on December 18, 2006, NACCO filed an action in the United States District Court for the Northern District of Ohio seeking injunctive relief against the Harbinger merger based on allegedly false statements in Harbinger’s Section 13 filings and in the Harbinger Proxy Statement. On December 20, the district court denied NACCO’s applications for a temporary restraining order, preliminary injunction, and expedited discovery. The district court held that on the prelimi *13 nary record before it, NACCO had failed to present a sufficiently strong likelihood of success on the merits. In a passage understandably embraced by the defendants, the district court noted, “[cjontrary to Plaintiffs’ position, the Court does not perceive any falsity in Harbinger’s filings when they are properly viewed alongside unfolding events.” NACCO Indus., Inc. v. Applica, Inc., 2006 WL 3762090, at *7 (N.D.Ohio Dec.20, 2006). On January 10, 2007, NACCO dismissed this federal action without prejudice.

F.A Bidding Contest Ensues.

Between December 15, 2006, and January 17, 2007, NACCO and Harbinger bid against each other for Applica. On December 15, NACCO launched a tender offer for Applica at $6.50 per share. Harbinger matched. On December 21, NACCO raised its bid to $7.00. Harbinger matched. Incremental bidding continued, with NACCO ultimately offering $8.05 per share on January 16, 2007.

On January 17, 2007, Harbinger raised its bid to $8.25 per share. In consideration for the increased bid, Applica nearly doubled Harbinger’s termination fee— from $4 million to $7 million — and increased Harbinger’s expense reimbursement from $2 million to $3.3 million.

NACCO points out that throughout the bidding, Harbinger had the benefit of owning a nearly 40% block that it had acquired for much lower prices at a time when NACCO was limited by a standstill agreement. Harbinger thus effectively was bidding for 60% of Applica, while NACCO was bidding for the whole thing. Put differently, every time NACCO put a dollar on the table, Harbinger could match with 60 cents. NACCO claims Harbinger only enjoyed this advantage because of its fraudulent Section 13 disclosures.

On January 24, 2007, Applica’s stockholders approved the Harbinger Merger Agreement. NACCO terminated its offer.

G. Harbinger Causes Applica To Merge With Saltón.

Shortly after Applica’s stockholders approved the Harbinger merger, Applica and Saltón entered into a merger agreement. Harbinger was the driving force behind the deal. On December 28, 2007, the Salton-Applica transaction closed. Harbinger owned 92% of the combined company.

H. This Action Continues.

After the bidding contest ended, this action resumed. In October 2007, NACCO amended its complaint. The individual defendants disputed whether they were subject to personal jurisdiction, and NACCO sought jurisdictional discovery. In February 2008, NACCO moved to file a second amended complaint. Notwithstanding the liberal standard for amendment under Rule 15(a), the defendants opposed that motion. Vice Chancellor Lamb granted plaintiffs leave to amend in a letter opinion dated May 7, 2008.

Meanwhile, the individual defendants were opposing NACCO’s efforts to conduct jurisdictional discovery, and NACCO was forced to move to compel. During argument after full briefing, Vice Chancellor Lamb assisted the parties in working out a stipulation that could be used in lieu of jurisdictional discovery. That stipulation was finally entered in December 2008.

It then came time for the defendants to brief their motions to dismiss the second amended complaint. The motions were argued in May 2008. Vice Chancellor Lamb ruled that this Court could not exercise personal jurisdiction over the individual defendants, who were dismissed from the case.

*14 As I discuss below, NACCO’s fraud claim rests on statements in federal securities filings mandated by the Securities Exchange Act of 1934 (the “Exchange Act”). In their briefing, the parties did not meaningfully discuss whether the Exchange Act’s grant of exclusive jurisdiction to the federal courts prevented this Court from entertaining NACCO’s fraud claim. As a court of limited jurisdiction, this Court has an independent obligation to inquire into the basis for invoking its powers. Vice Chancellor Lamb raised the issue during argument on the motion to dismiss, and the parties undertook to provide supplemental briefing.

II. LEGAL ANALYSIS

A Rule 12(b)(6) motion will be denied “unless it appears with reasonable certainty that the plaintiff would not be entitled to relief under any reasonable set of facts” supported by the complaint. Bonham v. HBW Holdings, Inc., 2005 WL 3589419, at *6 (Del.Ch. Dec.23, 2005). Applying this plaintiff-friendly standard, I deny the motion to dismiss Counts I, III, IV and VII. I dismiss Counts II, V, and VI.

A. Count I States A Claim For Breach Of Contract.

The Hamilton Beach Merger Agreement became effective as of July 23, 2006. From that point on, Applica was bound by Section 6.12 of the agreement, entitled “No Solicitation.” Count I of the Complaint asserts that Applica breached Section 6.12.

I find it helpful to break Section 6.12 into subparts. Under Sections 6.12(a) and (b), Applica had the obligation to stop all discussions about any competing transaction. Framed in customary language, these sections stated:

(a) [Applica] will immediately cease, terminate and discontinue any discussions or negotiations with any Person conducted before the date of this Agreement with respect to any [Applica] Competing Transaction....

(b) Prior to the Effective Time, [Appli-ca] will not, and will cause its Affiliates and representatives not to, directly or indirectly solicit, initiate or encourage any inquiries or proposals from, discuss or negotiate with, or provide any nonpublic information to, any Person (other than [NACCO], [Hamilton Beach] and their respective representatives) relating to any merger, consolidation, share exchange, business combination or other transaction or series of transactions involving [Applica] that is conditioned on the termination of this Agreement or could reasonably be expected to preclude or materially delay the completion of the Merger (an “[Applica] Competing Transaction ”).

I will refer to these subsections as the “No-Shop Clause.”

Section 6.12(d) created an exception to the No-Shop Clause. In similarly customary language, Section 6.12(d) permitted Applica “to engage in any discussions or negotiations with, or provide any information to, any Person” if Applica “received an unsolicited bona fide written offer regarding an [Applica] Competing Transaction from a third party (which has not been withdrawn) and its board of directors has determined in good faith that there is a reasonable likelihood that such [Applica) Competing Transaction would constitute [an Applica] Superior Proposal.” Section 6.12(e) defined “Applica Superior Proposal” as, in substance, an Applica Competing Transaction “which the board of directors of [Applica] concludes, after consultation with its financial advisors and following the receipt of the advice of its outside counsel, would, if consummated, result in a transaction that is more favorable to the [Applica] Shareholders than the Transactions.” I *15 will refer to this aspect of Section 6.12(d) as the “Superior Proposal Clause.”

In addition to the No-Shop and Superior Proposal Clauses, Sections 6.12(c) and (d) required Applica to keep NACCO informed of any inquiry or proposal relating to an Applica Competing Transaction. Section 6.12(c) provided:

[Applica] will promptly (and in any event •within 24 hours) notify [NACCO] of its or any of its officers’, directors’ or representatives’ receipt of any inquiry or proposal relating to, an [Applica] Competing Transaction, including the identity of the Person submitting such inquiry or proposal and the terms thereof.

In language following the Superior Proposal Clause, Section 6.12(d) provided that “[Applica] will use its commercially reasonable efforts to keep [NACCO] informed promptly of the status and terms of any such proposal or offer and the status and terms of any such discussions or negotiations and will promptly provide [NACCO] with any such written proposal or offer.” I will refer to these aspects of Section 6.12 as the “Prompt Notice Clause.”

1. The Period From July 23 Until September 14, 2006.

In asserting its breach of contract claim, NACCO first focuses on the period of time from July 23, 2006, when the Hamilton Beach Merger Agreement became effective, until September 14, when Applica advised NACCO that it had received Harbinger’s $6.00 per share proposal. I find that the Complaint contains allegations sufficient to support a claim for breach of the Hamilton Beach Merger Agreement during this period under the plaintiff-friendly Rule 12(b)(6) standard.

The Complaint alleges that “[o]n July 24, 2006, the morning after the stock-for-stock Hamilton Beach Merger Agreement was signed, Applica caused Harbinger to be informed that Harbinger would likely succeed with an all-cash offer for Applica.” The Complaint thus alleges that an indirect, outgoing call was made by Applica management in violation of the No-Shop Clause.

The Complaint further alleges that on July 26, 2006, a Saltón representative contacted Applica about a Salton-Applica transaction. Although the Complaint makes this allegation upon information and belief, it supports the allegation with specific facts that make it reasonable to infer that the communication occurred. The Saltón call responded to the outgoing solicitation by Applica management. The same day it was made, Harbinger advisor Maura told a former Saltón board member that Harbinger and Saltón were making a competing bid for Applica. That same day, the Saltón board of directors “approved a Saltón bid, financed by Harbinger, to acquire Applica” and “directed that Applica be informed that Saltón was making a bid for Applica.” Harbinger and Saltón agreed that if Applica did not respond positively, “Saltón would inform Applica’s lawyers that Applica was in breach of its fiduciary duties.” The Harbinger Proxy Statement disclosed that “[i]n mid-July, a representative of Harbinger ... contacted [Applica’s] financial advisor concerning the exploration of a possible strategic transaction.” I find it reasonable to infer at the pleading stage that a Saltón contact took place. The Complaint alleges that, in violation of the Prompt Notice Clause, Appli-ca never disclosed the Saltón contact to NACCO.

The Complaint then alleges additional communications between Harbinger and Applica. It alleges that on July 31, 2006, a Harbinger representative “contacted a senior Applica officer and expressed dissatisfaction with the Hamilton Beach Merger Agreement.” During the conver *16 sation, the Harbinger and Applica representatives discussed whether Applica would take the position that Harbinger had triggered the Florida Act, thereby limiting Harbinger’s ability to vote on the Hamilton Beach Merger Agreement. The Complaint alleges that the Applica representative “assured [the Harbinger representative] that Applica did not intend to apply the Florida Act to Harbinger.” The Complaint alleges that by September, it was “common knowledge at Applica that Harbinger intended to seek control of Ap-plica.” The Complaint also alleges that at least one Applica employee advised an outsider not to sell his Applica shares because “Harbinger has something up the sleeve.”

These allegations are sufficient to plead a claim for breach of the No-Shop and Prompt Notice Clauses. In reaching this conclusion, I focus on the breadth of both clauses and the related definition of Appli-ca Competing Transaction. The No-Shop Clause barred Applica from taking any action to “directly or indirectly solicit, initiate or encourage any inquiries or proposals from, discuss or negotiate with, or provide any non-public information to, any Person (other than [NACCO], [Hamilton Beach] and their respective representatives)” regarding an Applica Competing Transaction. It was thus not limited to soliciting a competing bid (which the Complaint sufficiently alleges took place), but also extended to engaging in discussions or negotiations relating to an Applica Competing Transaction. The Prompt Notice Provision likewise was not limited to a competing bid or firm offer, but extended to any “inquiry or proposal” relating to an Applica Competing Transaction. The definition of “Applica Competing Transaction” encompassed “any merger, consolidation, share exchange, business combination or other transaction or series of transactions involving [Applica] that is [1] conditioned on the termination of this Agreement or [2] could reasonably be expected to preclude or materially delay the completion of the Merger.” Hamilton Beach Merger Agreement § 6.12(b) (emphasis added). The second half of this definition thus encompassed any “transaction or series of transactions that ... could reasonably be expected to preclude or materially delay the completion of the Merger.”

The No-Shop Clause and Prompt Notice Provision thus covered the outgoing communication by Applica management and the incoming call from Saltón. They also covered the discussions regarding Harbinger’s dissatisfaction with the Hamilton Beach Merger Agreement and its request for a waiver of the vote-stripping effect of the Florida Act, which related to a “transaction or series of transactions that ... could reasonably be expected to preclude or materially delay the completion of the Merger.”

In denying the motion to dismiss Count I with respect to this period, I am also influenced by the Complaint as a whole, which alleges that throughout the deal timeline, Harbinger representatives received timely and accuraté tips and assistance from Applica insiders. Just four days before Applica announced publicly that it was exploring strategic alternatives, Falcone gave the order to “START ACCUMULATING [APPLICA] QUIETLY. SIZE.” In May, when NACCO was conducting due diligence, Harbinger knew to expect a merger announcement “in the next 2-3 weeks.” In June 2006, Harbinger already knew the structure of the proposed Hamilton Beach merger. In July, Harbinger decided not to enter into a confidentiality agreement with Applica because the Harbinger representatives did not believe they “would learn more than we already know.” On Friday, July 21, the same day the Applica board approved the Hamilton Beach Merger Agreement, *17 Harbinger knew that Applica “has a deal” and that “it will be announced shortly.” The deal was announced on Monday, July 24.

Although these communications pre-dat-ed the execution of the Hamilton Beach Merger Agreement and thus do not give rise in themselves to any claim for breach, they support the inferences that NACCO asks me to draw about the relationship between Applica insiders and Harbinger and the communications that occurred. As the Complaint alleges, Applica’s senior management feared they would lose their jobs following a strategic deal with Hamilton Beach, and they favored Harbinger as a financial buyer that needed a management team. The pre-merger agreement communications involved highly confidential information and took place at a time when the NACCO-Applica non-disclosure agreement prevented precisely those types of communications. These allegations support a pleading stage inference of a pattern of contacts between Applica insiders and Harbinger representatives that continued after the execution of the Hamilton Beach Merger Agreement and in violation of its terms.

I recognize that each of the allegations in the Complaint, when viewed separately and in isolation, can be minimized. I also recognize that there are potentially legitimate explanations for each of the communications and for Applica’s and Harbinger’s conduct. My task at the pleadings stage, however, is not to weigh competing inferences but rather to draw reasonable inferences in favor of the plaintiff.

2. The Period From September 14 Until October 10, 2006.

As a second basis for its breach of contract claim, NACCO focuses on the time period starting on September 14, 2006, when Applica advised NACCO that it had received Harbinger’s $6.00 per share proposal. On that date, Applica exercised its right under the Superior Proposal Clause to enter into discussions with Harbinger. NACCO alleges that from that point on, NACCO breached its obligations under the Prompt Notice Clause to “use its commercially reasonable efforts to keep [NACCO] informed promptly of the status and terms of [Harbinger’s proposal] and the status and terms of any such discussions or negotiations.”

According to the Complaint, the sum total of Applica’s communications to NAC-CO during this period consisted of: (i) informing NACCO on September 14, 2006, of Harbinger’s competing proposal, which Harbinger announced publicly; (ii) advising NACCO on September 22 that Applica had entered into a confidentiality agreement with Harbinger, which also was publicly disclosed; and (iii) notifying NACCO on October 10 that Applica was terminating the Hamilton Beach Merger Agreement. Applica claims it was not “commercially reasonable” to disclose anything else about the Harbinger discussions. In other words, according to Applica, NACCO bargained for nothing more than the right to receive the same information that Applica made publicly available to its stockholders. For purposes of its motion to dismiss, Ap-plica argues that this level of notice was commercially reasonable as a matter of law.

I disagree and conclude that the Complaint states a claim for breach of the Prompt Notice Clause during the twenty-seven day period from September 14 until October 10, 2006. According to the Complaint, Applica made no effort to keep NACCO informed about the status of its discussions. Applica said nothing to NAC-CO about its negotiation of a confidentiality agreement with Harbinger beginning on September 14 and extending “over the *18 next few days.” It was not until after the close of business on September 21 that NACCO heard from Applica, and then only to be told that a confidentiality agreement had been signed. This fact was in any event disclosed in an SEC filing.

Between September 22 and September 27, 2006, NACCO heard nothing more from Applica regarding the competing Harbinger proposal. The Complaint alleges that on September 27, in response to NACCO’s request for information, Applica informed NACCO that “Harbinger had not even contacted Applica regarding any due diligence materials.”

Between September 27 and October 10, 2006, Applica again went silent. On Friday, October 6, consistent with its belief that Harbinger would not make a binding competing offer, NACCO asked Applica for input regarding the SEC’s comments on the September 12 preliminary Form S-4 for the Hamilton Beach transaction. Ap-plica told NACCO that its Form S-4 information “would be forthcoming.” Then on October 10, Applica notified NACCO of its board’s October 9 decision to proceed with the “fully negotiated” Harbinger transaction.

These allegations readily support a claim that Applica did not act in a commercially reasonable fashion by effectively going radio silent between September 14 and October 10, 2006. Applica had an affirmative obligation to use commercially reasonable efforts to keep NACCO informed about the “status” of the discussions or negotiations. NACCO could reasonably expect Applica to have regularly picked up the phone. Merger and acquisition activity typically proceeds at an expedited pace. Particularly in the context of a topping bid, days matter. At the pleading stage, I have no difficulty inferring that Applica breached the Hamilton Beach Merger Agreement by dragging its feet (at best) in providing information to NACCO and offering up only minimal and parsimonious disclosures that it was making publicly in any event.

The generally reasonable inference that Applica and Harbinger delayed the flow of information to NACCO has specific support. On Wednesday, October 4, 2006, Falcone received an e-mail from Maura, Harbinger’s representative in the Applica negotiations, in which Maura reported on his October B discussion with Applica’s CFO. According to the e-mail, a week before NACCO was informed of the Harbinger negotiations, Harbinger instructed Applica to “deny NACCO the weekend over which to think about” a matching bid. Even though Maura conceded that this would provide NACCO a “[v]ery short fuse,” he wrote that “I like this strategy.” The Maura e-mail fits with an overall pattern in which Applica and Harbinger worked together to gain an advantage over NACCO that was inconsistent with NAC-CO’s rights under the Hamilton Beach Merger Agreement.

Although the allegations I have described are sufficient to state a claim, the Complaint goes further and alleges that in response to NACCO’s efforts to exercise its rights under the Prompt Notice Clause, Applica went so far as to provide false information to NACCO. The pleading alleges that on September 27, 2006, in response to a NACCO inquiry about the status of discussions with Harbinger, Ap-plica told NACCO that “Harbinger had not even contacted Applica regarding any due diligence materials.” Yet according to the Harbinger Proxy Statement, Harbinger had been engaged in “detailed” due diligence by that point for almost a week. And again on October 6, in response to NACCO’s request for Applica’s input on the preliminary Form S-4, Applica informed NACCO that its comments “would *19 be forthcoming.” The Harbinger Proxy Statement reveals that by that time, Appli-ca had received a draft of the Harbinger Merger Agreement, Applica had negotiated its terms, and Applica’s board was scheduled to meet to approve it. What was ultimately “forthcoming” was Appli-ca’s notice purportedly terminating the Hamilton Beach Merger Agreement in favor of a “fully negotiated” transaction with Harbinger. The Prompt Notice Clause certainly does not contemplate that Appli-ca would provide false information to NACCO.

3. The Complaint Adequately Pleads Damages.

Defendants argue aggressively that despite having pled breaches of the Hamilton Beach Merger Agreement, NACCO has not sufficiently pled damages and thus its contract claims should be dismissed. The crux of the “no damages” argument is that NACCO subsequently engaged in a bidding war for Applica and lost. Having been defeated in the marketplace, the defendants claim that NACCO should not have a remedy in court.

If embraced as grounds for a pleadings-stage dismissal, the defendants’ theory would have serious and adverse ramifications for merger and acquisitions practice and for our capital markets. Parties bargain for provisions in acquisition agreements because those provisions mean something. Bidders in particular secure rights under acquisition agreements to protect themselves against being used as a stalking horse and as consideration for making target-specific investments of time and resources in particular acquisitions. Target entities secure important rights as well. It is critical to our law that those bargained-for rights be enforced, both through equitable remedies such as injunc-tive relief and specific performance, and, in the appropriate case, through monetary remedies including awards of damages.

I am comfortable inferring at the pleading stage that if NACCO succeeds in establishing a breach of the Hamilton Beach Merger Agreement, it will be able to establish harm sufficient to invoke this Court’s remedial powers. NACCO is entitled to make its case that it should receive its full expectancy damages for breach of the Hamilton Beach Merger Agreement. If it cannot obtain expectancy damages, then NACCO is entitled to prove an alternative damages measure, such as its reliance interest.

In terms of any reliance-based recovery, NACCO will have to contend with its receipt of a bargained-for $4 million termination fee and $2 million in expense reimbursement. But as is customary in merger agreements, Applica’s right to terminate the Hamilton Beach Merger Agreement under Section 8.1(h) and pay the fees without further liability depended on Applica complying with its obligations under Section 6.12, including the No-Shop and Prompt Notice Clauses. And Section 8.2 of the Hamilton Beach Merger Agreement excludes from the limitation on liability any termination resulting “from the willful and material breach by a party of any of its representations, warranties or covenants in this Agreement.” It is far from clear at this stage that NACCO is bound contractually or factually to the termination fee and expense reimbursement as a measure of recovery.

Without question, the damages inquiry will present difficult legal and factual issues. But it is premature to address those now or to expect NACCO to have quantified its damages claims at the pleading stage. It is certainly a reasonable inference that NACCO has been damaged.

*20 For all these reasons, I conclude that Count I pleads a claim for breach of Hamilton Beach Merger Agreement.

B. Count II Fails To State A Claim For Breach Of The Implied Covenant Of Good Faith And Fair Dealing.

In Count II,