Applied Digital Corporation v. Character Technologies, Inc. — Entry #38

Case 1:25-cv-00739-JCG     Document 32    Filed 07/23/26   Page 1 of 30 PageID #: 223


                IN THE UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF DELAWARE


  CHARACTER TECHNOLOGIES,
  INC.,

        Plaintiff,
                                          Court No. 1:25-cv-00739-JCG
  v.

  APPLIED DIGITAL
  CORPORATION,

        Defendant.


  APPLIED DIGITAL
  CORPORATION,

        Plaintiff,
                                          Court No. 1:25-cv-00909-JCG
  v.

  CHARACTER TECHNOLOGIES,
  INC.,

        Defendant.


                             OPINION AND ORDER

 [Granting in part and denying in part Applied Digital’s Partial Motion to Dismiss
 and granting in part and denying in part Character Tech.’s Motion to Dismiss or
 Consolidate.]

                                                               Dated: July 23, 2026

 Catherine A. Gaul, Ashby & Geddes, P.A., of Wilmington, DE; Justin Ehrlich,


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                       Page 2

 Christian P. Erwin, and Samantha Rifkin, Miller Barondess, LLP, of Los Angeles,
 CA. Attorneys for Plaintiff/Defendant Character Technologies, Inc.

 Kelly E. Farnan, Richards, Layton & Finger, PA, of Wilmington, DE; Gavin J
 Rooney and Julie A. Minicozzi, Lowenstein Sandler LLP, of New York, N.Y.
 Attorneys for Defendant/Plaintiff Applied Digital Corporation.

       Choe-Groves, Judge: Before the Court are motions to dismiss in related

 cases Character Tech., Inc. v. Applied Digital Corp. (“Character Tech.”), Court

 No. 25-00739 and Applied Digital Corp. v. Character Tech., Inc. (“Applied

 Digital”), Court No. 25-00909.

       Character Technologies, Inc. (“Character Tech.”) filed its Complaint in

 Court No. 25-00739 on June 13, 2025, alleging the following four counts:

 (1) Count I, Declaratory Judgment of No Breach of Contract; (2) Count II, Breach

 of the Implied Duty of Good Faith and Fair Dealing; (3) Count III, Promissory

 Estoppel; and (4) Count IV, Fraud. Compl., Court No. 25-00739 (“Character

 Tech. Compl.”) (D.I. 1). Applied Digital Corporation (“Applied Digital”) filed

 Defendant’s Partial Motion to Dismiss (“Applied Digital’s Partial Motion to

 Dismiss”) seeking dismissal of Counts III and IV of Character Tech.’s Complaint.

 See Defendant’s Part. Mot. Dismiss (“Applied Digital Part. Mot. Dismiss”) (D.I.

 9); Opening Br. Supp. Def. Applied Digital Corp.’s Part. Mot. Dismiss (“Applied

 Digital Opening Br.”) (D.I. 10).

       Applied Digital filed its Complaint in Court No. 25-00909 on July 18, 2025,

 alleging the following three counts: (1) Count I, Breach of Contract; (2) Count II,


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                        Page 3

 Anticipatory Repudiation; and (3) Count III, Breach of the Covenant of Good Faith

 and Fair Dealing. Compl., Court No. 25-00909 (“Applied Digital Compl.”) (D.I.

 1). Character Tech. filed Defendant’s Motion to Dismiss, or in the Alternative, for

 Consolidation (“Character Tech.’s Motion to Dismiss or Consolidate”) seeking

 dismissal of Applied Digital’s Complaint under Federal Rules of Civil Procedure

 12(b)(6) and 13(a) or, in the alternative, consolidation of the two actions under

 Federal Rule of Civil Procedure 42(a). Def.’s Mot. Dismiss Alt. Consol.

 (“Character Tech. Mot. Dismiss Alt. Consol.”) (D.I. 11); Def.’s Opening Br. Supp.

 Mot. Dismiss Alt. Consol. (“Character Tech. Opening Br.”) (D.I. 12).

       For the reasons that follow, the Court denies in part and grants in part both

 Applied Digital’s Partial Motion to Dismiss and Character Tech.’s Motion to

 Dismiss or Consolidate, and the Court consolidates Character Tech., Court No. 25-

 00739 into Applied Digital, Court No. 25-00909. Applied Digital, Court No. 25-

 00909 shall be designated as the lead case and Applied Digital shall be designated

 as the Plaintiff, with Character Tech. designated as the Defendant. This case shall

 proceed under Consol. Court No. 25-00909 and Character Tech.’s claims in

 Character Tech., Consol. Court No. 25-00739 shall be deemed filed as

 counterclaims and defenses in Applied Digital, Consol. Court No 25-00909 (except

 for Count I of Character Tech.’s Complaint, which the Court dismisses for the

 reasons explained below).


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                           Page 4

                                     BACKGROUND

           Character Tech. is a Delaware corporation with its principal place of

 business in Menlo Park, California. Character Tech. Compl. at ¶ 3; Applied

 Digital Compl. at ¶ 3. Applied Digital is a Nevada corporation with its principal

 place of business in Dallas, Texas. Character Tech. Compl. at ¶ 4; Applied Digital

 Compl. at ¶ 4. Character Tech. was founded in 2021 and developed an artificial

 intelligence (“AI”) platform on which users can create and engage with

 personalized “Characters” for educational or entertainment purposes. Character

 Tech. Compl. at ¶ 9; Applied Digital Compl. at ¶ 8. Applied Digital is a

 technology company that develops digital infrastructure and sells access to general

 processing units (“GPUs”) where, through a series of data centers, Applied Digital

 offers AI-development solutions designed to meet the needs of high-performance

 computing applications. Character Tech. Compl. at ¶ 10; Applied Digital Compl.

 at ¶ 7.

           The Parties’ Complaints allege that on June 28, 2023, Character Tech. and

 Applied Digital entered into the Service Level Agreement (SLA) Supportive to

 Customer Terms of Service Contract (the “Agreement”), in which Character Tech.

 agreed to pay Applied Digital an hourly fee assessed on a 24-hour per-day, 7-day

 per-week basis for access to a defined number of GPUs. Character Tech. Compl.

 at ¶ 11; Character Tech. Compl., Ex. A (D.I. 1-1); Applied Digital Compl. at


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                       Page 5

 ¶¶ 10–12; Applied Digital Compl., Ex. A (D.I. 1-1). Applied Digital alleges that

 the Agreement required Applied Digital to make available 1,024 GPUs by June

 2023 (“the Phase I Tranche”), and a second group of 1,024 GPUs by August 2023

 (“the Phase II Tranche”). Applied Digital Compl. at ¶ 11. Character Tech. alleges

 that it provided Applied Digital with a prepayment of $22,491,979.78 toward the

 total value of the Agreement, to be drawn down until it ran out, at which point

 Character Tech. would pay any remaining amounts on a per-month basis.

 Character Tech. Compl. at ¶ 11. Applied Digital alleges that Character Tech.

 agreed to pay usage fees of $1.99 per GPU per hour, with a total contract value for

 Phase I Tranche of $35,701,555.20. Applied Digital Compl. at ¶ 13. Thereafter,

 Applied Digital sent quarterly invoices to Character Tech. detailing the charges

 accrued and corresponding reduction in Character Tech.’s prepayment amount.

 Character Tech. Compl. at ¶ 11; Applied Digital Compl. at ¶ 15. The Parties

 contend that after Character Tech. issued the prepayment of $22,491,979.78

 against the Phase I Tranche of 1,024 GPUs, Applied Digital proceeded to make

 1,024 GPUs in the Phase II Tranche available to Character Tech. and received a

 further payment of $8,073,216.00 for the Phase II Tranche GPUs. Character Tech.

 Compl. at ¶ 12; Applied Digital Compl. at ¶¶ 14, 16.

       Applied Digital avers that the Agreement provided that once the

 prepayments were exhausted, Character Tech. would be responsible for the hourly


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                        Page 6

 usage fees for the Phase I Tranche and the Phase II Tranche GPUs until the end of

 the Agreement’s term. Applied Digital Compl. at ¶ 17. Applied Digital contends

 that during negotiations of the Phase II Tranche pricing addendum, Character

 Tech. confirmed that after the prepayment was exhausted, Character Tech. would

 pay in full for the remaining months. Id.

       On or around April 29, 2024, Character Tech. and Applied Digital entered

 into a second addendum to the Agreement (“the Second Addendum”), which

 updated the pricing and payment terms of the Phase II Tranche. Character Tech.

 Compl. at ¶ 13; Applied Digital Compl. at ¶ 18; see Character Tech. Compl., Ex.

 B. Applied Digital alleges that the Second Addendum provided a price of $2.25

 per GPU, per hour, assessed on a 24-hour per-day, 7-day per-week basis for the

 1,024 GPUs over the remaining 16 months of the Agreement, with a total Phase II

 Tranche value of $26,910,720.00. Applied Digital Compl. at ¶ 18; see Applied

 Digital Compl., Ex. B. Applied Digital asserts that pursuant to the Second

 Addendum, Character Tech. would continue to lease both the Phase I Tranche and

 the Phase II Tranche GPUs from March 2024 to August 2025. Applied Digital

 Compl. at ¶ 19. The Second Addendum provides that any dispute related to the

 Agreement or addenda would be “governed and construed in accordance with the

 laws of the State of Delaware[.]” Character Tech. Compl., Ex. B at 2; Applied

 Digital Compl., Ex. B at 2.


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       On or around June 3, 2024, Applied Digital reached out to Character Tech.

 about returning access to the clusters and ending the Agreement early. Character

 Tech. Compl. at ¶ 14; Applied Digital Compl. at ¶ 23. Applied Digital avers that if

 Applied Digital was able to re-lease the clusters to another customer, Applied

 Digital would release Character Tech. from its payment obligations for those re-

 leased GPUs otherwise due under the Agreement. Applied Digital Compl. at ¶ 23.

 Character Tech. alleges that the first time it learned of the precondition of finding

 new customers to assume the GPUs assigned to Character Tech. was through a

 letter sent on March 12, 2025. Character Tech. Compl. at ¶ 34. On July 29, 2024,

 Character Tech. sent a third addendum (“Third Addendum”) allegedly

 memorializing the terms for ending the Agreement early. Character Tech. Compl.

 at ¶ 24; Applied Digital Compl. at ¶ 28; Character Tech. Compl., Ex. E; Applied

 Digital Compl., Ex. C.

       The Third Addendum as drafted by Character Tech. states in relevant part:

       [Character Tech.] made a Phase I prepayment of $22,491,979.78 in July
       2023. [Character Tech.] made a Phase II prepayment of $8,073,216.00
       in December 2023.

       Under this Third Addendum, [Applied Digital] and [Character Tech.]
       agree that:

       1. The two prepayments described above shall constitute the full
       payment by [Character Tech.] under this Addendum and Terms of
       Service.

       2. In consideration of those payments, [Character Tech.] shall have the


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                       Page 8

       right to use the Phase I and Phase II GPUs described on page 1 of this
       addendum through September 4, 2024.

       3. At midnight on September 4, 2024: (a) [Character Tech.’s] right to
       use the Phase I and Phase II GPUs shall cease; and (b) this Addendum
       and the Terms of Service shall be terminated (except to the extent the
       parties agreed that particular terms survive termination).

       4. Both parties will be whole, and neither party shall have the right to
       recover payments or other monies from the other (except to the extent
       damages later become apparent under provisions of the Terms of
       Service, if any, that survive termination).

 Character Tech. Compl., Ex. E at 1–2; Applied Digital Compl., Ex. C at 2.

 Applied Digital avers that it neither accepted nor executed the Third Addendum

 because Applied Digital did not agree with the terms, arguing that the Parties failed

 to accurately memorialize the offer. Applied Digital Compl. at ¶ 30. Character

 Tech. alleges that Applied Digital gave no indication at the time that the Third

 Addendum mischaracterized the terms of the Agreement or that the Third

 Addendum was wrong. Character Tech. Compl. at ¶ 26.

       On September 3, 2024, Character Tech. relinquished exclusive control of the

 GPUs. Character Tech. Compl. at ¶ 29; Applied Digital Compl. at ¶ 31. Applied

 Digital alleges that Character Tech. continued to have access to and utilized the

 GPUs whenever it wished to do so. Applied Digital Compl. at ¶ 31. Character

 Tech. contends that Applied Digital deleted Character Tech.’s data from the

 system, rendering those clusters “essentially useless” to Character Tech. Character

 Tech. Compl. at ¶ 29. On November 15, 2024, Applied Digital issued an invoice


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                          Page 9

 to Character Tech. representing the amount due for the remainder of the

 Agreement. Character Tech. Compl. at ¶ 31; Applied Digital Compl. at ¶ 34.

 Character Tech. replied that it had completed its service with Applied Digital on

 September 3, 2024, and stated that there would be no further payments made.

 Character Tech. Compl. at ¶ 32; Applied Digital Compl. at ¶ 35. Applied Digital

 alleges that Character Tech. failed to pay the remaining balance of $31,957,929.40

 and Applied Digital sent a demand for payment to Character Tech. Applied

 Digital Compl. at ¶¶ 43–44.

       Applied Digital contends that after Character Tech. failed to make the

 payments required under the Agreement and Second Addendum, Applied Digital

 declared that Character Tech. had breached the Agreement and thus, Applied

 Digital was relieved of its own performance obligations and entitled to pursue

 damages. Applied Digital Compl. at ¶ 45. Character Tech. avers that Applied

 Digital’s failure to raise the condition precedent of finding new customers to

 assume Character Tech.’s clusters under the Agreement induced Character Tech. to

 relinquish its exclusive control of the leased clusters and to cease payments that

 were otherwise owed under the Agreement. Character Tech. Compl. at ¶ 37.

 Character Tech. avers that Applied Digital deprived Character Tech. of its

 bargained-for benefit under the Agreement. -
                                            Id.
                                              -

       On June 5, 2025, Applied Digital provided Character Tech. with a draft


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                          Page 10

 complaint that Applied Digital intended to file within 10 days if Character Tech.

 refused to remit payment. Id. at ¶ 36. Character Tech. contends that Applied

 Digital’s threat to sue left Character Tech. “with no choice but to bring [its] action

 to vindicate its rights under the Agreement.” Id. at ¶ 40. On June 13, 2025,

 Character Tech. filed its Complaint, and on July 18, 2025, Applied Digital filed its

 Complaint. See Character Tech. Compl.; Applied Digital Compl.

                                 LEGAL STANDARD

       The Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 2201(a)

 and 1332(a), which grants the Court subject matter jurisdiction over actions in

 which there is complete diversity among the parties and the amount in controversy

 exceeds $75,000, exclusive of interests and costs. 28 U.S.C. § 1332(a).

       Federal Rule of Civil Procedure 8(a) requires that pleadings contain a short

 and plain statement of the claim showing that the pleader is entitled to relief. Fed.

 R. Civ. P. 8(a)(2). If pleadings fail to state a claim, in whole or in part, on which a

 court may grant relief, a defendant may seek to dismiss a complaint under Federal

 Rule of Civil Procedure 12(b)(6). Fed. R. Civ. P. 12(b)(6). “To survive a motion

 to dismiss, a complaint must contain sufficient factual matter, accepted as true, to

 ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal (“Iqbal”),

 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v Twombly (“Twombly”), 550

 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                         Page 11

 factual content that allows the court to draw the reasonable inference that the

 defendant is liable for the misconduct alleged.” Id. Plausibility requires “more

 than a sheer possibility that a defendant has acted unlawfully.” Id. In considering

 a motion to dismiss, the Court must assume the factual allegations contained in the

 complaint to be true and draw all reasonable inferences in favor of the non-moving

 party. Twombly, 550 U.S. at 555–56. However, “[t]hreadbare recitals of the

 elements of a cause of action, supported by mere conclusory statements, do not

 suffice” to state a claim. Iqbal, 556 U.S. at 678; see Donald J. Kochan, While

 Effusive, “Conclusory” is Still Quite Elusive: The Story of a Word, Iqbal, and a

 Perplexing Lexical Inquiry of Supreme Importance, 73 U. Pitt. L. Rev. 215, 307

 (2011) (“‘[C]onclusory’ sets a standard that requires a certain degree of case-by-

 case, contextual analysis.”).

       The Declaratory Judgment Act states that “. . . any court in the United

 States . . . may declare the rights and other legal relations of any interested party

 seeking such declaration, whether or not further relief is or could be sought.” 28

 U.S.C. § 2201(a). When only declaratory relief is sought, federal courts are

 granted more flexibility in exercising their discretion to hear the case. See

 Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 494–95 (1942); Wilton v.

 Seven Falls Co., 515 U.S. 277, 282 (1995). When determining whether to exercise

 jurisdiction under the Declaratory Judgment Act, the Court is guided by the


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                        Page 12

 following factors in addition to the Brillhart factors:1

       (1) the likelihood that a federal court declaration will resolve the
       uncertainty of obligation which gave rise to the controversy; (2) the
       convenience of the parties; (3) the public interest in settlement of the
       uncertainty of obligation; (4) the availability of the relative
       convenience of other remedies; (5) a general policy of restraint when
       the same issues are pending in a state court; (6) avoidance of
       duplicative litigation; (7) prevention of the use of the declaratory action
       as a method of procedural fencing or as a means to provide another
       forum in a race for res judicata; and (8) (in the insurance context), an
       inherent conflict of interest between an insurer’s duty to defend in a
       state court and its attempt to characterize that suit in federal court as
       falling within the scope of a policy exclusion.

 Reifer v. Westport Ins. Corp., 751 F.3d 129, 146 (3d Cir. 2014).

       In a case involving both declaratory relief and legal claims, the Court applies

 the independent claim test to determine the level of discretion it may exercise in

 declining jurisdiction. Rarick v. Federated Serv. Ins. Co., 852 F.3d 223, 229 (3d

 Cir. 2017). Under the independent claim test, “a district court must determine

 whether the legal claims are independent of the declaratory claims.” Id. “Non-

 declaratory claims are ‘independent’ of a declaratory claim when they are alone


 1
   Courts should consider “whether the questions in controversy between the parties
 to the federal suit, and which are not foreclosed under the applicable substantive
 law, can better be settled in the proceeding pending in the state court.” Brillhart,
 316 U.S. at 495. Answering this question may require inquiring: (1) “into the
 scope of the pending state court proceeding[;]” (2) “the nature of the defenses open
 there[;]” (3) “whether the claims of all parties in interest can satisfactorily be
 adjudicated in that proceeding[;]” (4) whether necessary parties have joined[;]” and
 (5) “whether such parties are amenable to process in that proceeding[.]” Reifer v.
 Westport Ins. Corp., 751 F.3d 129, 146 n.21 (3d Cir. 2014) (quoting Brillhart, 316
 U.S. at 495).


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 sufficient to invoke the court’s subject matter jurisdiction and can be adjudicated

 without the requested declaratory relief.” Id. at 228 (quoting R.R. St. & Co. v.

 Vulcan Materials Co., 569 F.3d 711, 715 (7th Cir. 2009)).

       If the legal claims are not independent of the claims for declaratory relief,

 “the court retains discretion to decline jurisdiction of the entire action[.]” Id. at

 229. If the legal claims are independent of the claims for declaratory relief, “the

 court has a ‘virtually unflagging obligation’ to hear those claims, subject

 to . . . exceptional circumstances.” Id. (citing Colorado River Water Conservation

 Dist. v. U.S. (“Colorado River”), 424 U.S. 800, 817–19 (1976)). District courts

 consider the following in determining whether “exceptional circumstances” apply:

       (1) which court first assumed jurisdiction over property; (2) the
       inconvenience of the federal forum; (3) the desirability of avoiding
       piecemeal litigation; (4) the order in which jurisdiction was obtained;
       (5) whether federal or state law controls; and (6) whether the state court
       will adequately protect the interests of the parties.

 Spring City Corp. v. American Bldgs. Co., 193 F.3d 165, 171, 173 (3d Cir. 1999);

 see Colorado River, 424 U.S. at 818. “Only the clearest of justifications will

 warrant dismissal.” Colorado River, 424 U.S. at 819.

                                     DISCUSSION

I.     Motions to Consolidate

       The Court may consolidate actions that “involve a common question of law

 or fact.” Fed. R. Civ. P. 42(a)(2). “The purpose of consolidation is to streamline


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                          Page 14

 and economize pretrial proceedings so as to avoid duplication of effort, and to

 prevent conflicting outcomes in cases involving similar legal and factual issues.”

 In re TMI Litigation, 193 F.3d 613, 724 (3d Cir. 1999) (quotation and citation

 omitted).

       In its Complaint, Character Tech. seeks a declaratory judgment that Applied

 Digital’s failure to provide “dedicated GPU hardware resources” to Character

 Tech. after September 4, 2024, constituted a breach of contract, “which served to

 excuse [Character Tech.] from its contractual obligations to make ongoing

 payments for access to those clusters.” Character Tech. Compl. at ¶ 57. Character

 Tech. also alleges three additional claims: (1) Breach of the Implied Duty of Good

 Faith and Fair Dealing (Count II); (2) Promissory Estoppel (Count III); and (3)

 Fraud (Count IV). Id. at ¶¶ 58–87.

       In its motion to dismiss or, in the alternative, motion to consolidate,

 Character Tech. avers that there is “no basis for the Court to decline to hear

 [Character Tech.’s] case because the [Character Tech.] Action includes claims for

 breach of the implied duty of good faith and fair dealing and fraud that are

 independent of [Character Tech.’s] declaratory judgment claims.” Character Tech.

 Opening Br. at 9. Applied Digital contends that Character Tech.’s argument

 regarding independent claims is “belied by the fact that its ancillary claims rest

 solely on whether the contract was breached and stem from the very same set of


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                        Page 15

 facts as the declaratory judgment claim,” and Applied Digital argues that the Court

 “retains discretion under the Declaratory Judgment Act to consider [Character

 Tech.’s] procedural fencing” because the “crux of the matter is declaratory[.]”

 Pl.’s Answering Br. Opp’n. Def.’s Mot. Dismiss Alt. Consol. (“Applied Digital

 Resp. Br.”) at 10 (D.I. 17).

       The Court agrees with Applied Digital that the claims brought by Character

 Tech. arise out of the same set of facts that underlie the breach of contract claims.

 Applied Digital argues that Character Tech. engaged in “procedural fencing” by

 filing Character Tech.’s Complaint consisting of the declaratory claim and legal

 claims. Applied Digital Resp. Br. at 5, 11. Applied Digital contends that it is

 “improper for a litigant to so misuse the declaratory judgment device to achieve a

 first-filing procedural advantage.” Id. at 6. Applied Digital asserts that the “first-

 to-file rule ‘is not a mandate directing wooden application of the rule without

 regard to rare or extraordinary circumstances, inequitable conduct, bad faith,

 [anticipatory filing] or forum shopping.’” Id. at 7 (quoting FMC Corp. v. AMVAC

 Chem. Corp., 379 F. Supp. 2d 733, 738 (Ed. Pa. 2005) (alteration in original)).

       Applied Digital alleges Breach of Contract (Count I), Anticipatory

 Repudiation (Count II), and Breach of the Covenant of Good Faith and Fair

 Dealing (Count III). Applied Digital Compl. at ¶¶ 46–62. Character Tech. argues

 that the Court should dismiss Applied Digital’s Complaint under Federal Rules of


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                      Page 16

 Civil Procedure 12(b)(6) and 13(a) or, in the alternative, consolidate Applied

 Digital Corp., Court No. 25-00909 into Character Tech., Court No. 25-00739. See

 Character Tech. Opening Br. at 4–12. Applied Digital contends that dismissal

 under Rule 13 is inappropriate and avers that Applied Digital should be designated

 as plaintiff if the Court consolidates the two cases. Applied Digital Resp. Br. at

 11–12.

       The Court notes that Applied Digital’s Complaint arises out of the same

 transaction or occurrence that is the subject matter of Character Tech.’s Complaint.

 Character Tech.’s fraud claim (Count IV) includes allegations that Applied Digital

 fraudulently concealed, or withheld, information regarding Character Tech.’s

 obligations under the Agreement. Character Tech. Compl. at ¶ 75 (“During the

 parties’ negotiation of the Agreement, [Applied Digital] withheld its belief that the

 Agreement was subject to a condition precedent requiring that [Applied Digital]

 locate a replacement customer to take over [Character Tech.’s] leased computing

 clusters before [Character Tech.] would be released from its obligations under the

 [Agreement].”). Similarly, Applied Digital’s Complaint alleges that Applied

 Digital did in fact inform Character Tech. that the Agreement was contingent on a

 condition precedent. Applied Digital Compl. at ¶ 23 (“Mr. Cummins suggested

 that if [Applied Digital] were able to find and contract with new, replacement

 customers willing to take the GPUs, thereby making [Applied Digital] whole on


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                      Page 17

 the revenue attributable to those GPUs under the Agreement, [Applied Digital]

 would release [Character Tech.] from payment obligations for those re-leased

 GPUs otherwise due under the Agreement.”).

       Both Character Tech.’s Complaint and Applied Digital’s Complaint involve

 the Parties’ rights and obligations under the Agreement and whether those rights

 and obligations were modified under the Agreement. See Character Tech. Compl.

 at ¶¶ 45, 53; Applied Digital Compl. at ¶¶ 49–50, 54, 60. The Court observes that

 Applied Digital’s suit did not name any parties who were not already named in

 Character Tech.’s action, therefore affirming that Applied Digital’s claims do not

 require the addition of any party beyond the Court’s jurisdiction.

       The Court finds that the two actions arise from the same “transaction or

 occurrence” and “does not require adding another party over whom the court

 cannot acquire jurisdiction.” Fed. R. Civ. P. 13(a)(1). Additionally, there are no

 applicable exceptions under Rule 13(a)(2) that would preclude any claims being

 considered as counterclaims. The two actions “involve a common question of law

 or fact,” and in order to “streamline and economize pretrial proceedings so as to

 avoid duplication of effort,” the Court orders that the two cases shall be

 consolidated. Fed. R. Civ. P. 42(a)(2); In re TMI Litigation, 193 F.3d at 724

 (internal quotation omitted). Both Character Tech. and Applied Digital requested

 consolidation of the two actions with the only opposition being which Party would


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  Court Nos. 1:25-cv-00739, 1:25-cv-00909                                       Page 18

  retain their status as plaintiff. See Character Tech. Opening Br. at 11; Applied

  Digital Resp. Br. at 11.

        Accordingly, the Court holds that Character Tech., Court No. 25-00739 shall

  be consolidated into Applied Digital Corp., Court No. 25-00909, with Applied

  Digital maintaining its status as Plaintiff, and Character Tech. shall be designated

  as Defendant. Character Tech.’s claims are to be considered as counterclaims in

  the consolidated action. Because Character Tech.’s Count I for Declaratory

  Judgment of No Breach of Contract is substantively duplicative, arises out of the

  same transaction and occurrence, and involves a common question of law and fact

  with Applied Digital’s Count I for Breach of Contract, the Court dismisses Count I

  of Character Tech.’s Complaint for No Breach of Contract.

II.     Applied Digital’s Partial Motion to Dismiss

        Applied Digital moves to partially dismiss Character Tech.’s Complaint as

  to Count III for Promissory Estoppel and Count IV for Fraud. Applied Digital

  Opening Br. at 7–13. Applied Digital argues that Character Tech.’s Promissory

  Estoppel claim should be dismissed because Character Tech.’s Complaint does not

  allege the required elements of promissory estoppel as detrimental reliance was not

  alleged and cannot be established as a matter of law. Id. at 11–13. With respect to

  Count IV of Character Tech.’s Complaint, Applied Digital contends that under

  Delaware’s “anti-bootstrapping rule,” Character Tech. is not permitted to append a


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 fraud claim to a factually indistinct contract claim. Id. at 7–8. Applied Digital

 avers that Count IV of Character Tech.’s Complaint does not set forth

 particularized or plausible allegations concerning fraudulent inducement. Id. at 8–

 11.

       A.     Promissory Estoppel (Count III)

       In Count III of Character Tech.’s Complaint, Character Tech. alleges that the

 doctrine of promissory estoppel bars Applied Digital’s claim that Character Tech.

 breached the Parties’ Agreement by failing to make ongoing payments after

 Character Tech. relinquished its exclusive access to its leased computing clusters.

 Character Tech. Compl. at ¶ 66.

       “Promissory estoppel is applied to enforce a promise not supported by

 consideration, where there is no binding contract.” MDNet, Inc. v. Pharmacia

 Corp., 147 F. App’x. 239, 244 (3d Cir. 2005). To state a claim for promissory

 estoppel, Character Tech. must allege facts sufficient to show that:

       (i) a promise was made; (ii) it was the reasonable expectation of the
       promisor to induce action or forbearance on the part of the promise; (iii)
       the promisee reasonably relied on the promise and took action to his
       detriment; and (iv) such promise is binding because injustice can be
       avoided only by enforcement of the promise.

 Harmon v. State, Delaware Harness Racing Comm’n, 62 A.3d 1198, 1200–01

 (Del. 2013) (citation omitted). “The requirement of a written contract does not

 necessarily prevent an oral waiver or modification,” so long as the plaintiff alleges


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                        Page 20

 “facts showing an intention to waive or modify the requirement of a writing.”

 MDNet, Inc., 147 F. App’x. at 244. In Delaware, “contract provisions deeming

 oral modifications unenforceable can be waived orally” and may be demonstrated

 by course of conduct if there is a “clear intention to alter the express terms.”

 Simon Prop. Grp., L.P. v. Brighton Collectibles, LLC, C.A. No. N21-C-01-258

 MMJ CCLD, 2021 WL 6058522, at *3 (Del. Super. Ct. Dec. 21, 2021) (internal

 quotation omitted). “An oral modification ‘must be of such specificity and

 directness as to leave no doubt of the intention of the parties to change what they

 previously solemnized by formal document.’” Id. (quoting Durig v. Woodbridge

 Bd. of Educ., No. 90C-NO-22, 1992 WL 423926, at *1 (Del. Super. Ct. Dec. 8,

 1992)).

       Section 10 of the Agreement provides that “[a]ny amendments to this

 Agreement must be made in writing and signed by authorized representatives of

 both Parties.” Character Tech. Compl., Ex. A at 3. Accordingly, Character Tech.

 must allege facts sufficient to show an intention by Applied Digital to waive or

 modify the requirement that any amendment be made in writing and signed as set

 forth in Section 10 of the Agreement. MDNet, Inc., 147 F. App’x. at 244.

 Character Tech. alleges in its Complaint that both Applied Digital’s CEO, Mr.

 Cummins, and Applied Digital’s Executive Vice President of Strategic Finance,

 Mr. Raza, confirmed in writing Applied Digital’s oral promises releasing Character


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                     Page 21

 Tech. from its obligations under the Agreement in exchange for an early return of

 the leased computing clusters. See Character Tech. Compl. at ¶¶ 19, 21–23, 28–

 29. Character Tech.’s Complaint cites to the attached Exhibits C and D, showing

 the email and text message exchanges between Character Tech. and Applied

 Digital regarding Character Tech.’s release from the Agreement. -----
                                                                 See id., Exs.

 C, D. Character Tech. alleges that the first time it was alerted about Applied

 Digital’s precondition of finding new customers to assume the GPUs assigned to

 Character Tech. was through a letter sent on March 12, 2025, after the alleged

 writings and oral promises released Character Tech. from its obligations to pay.

 Character Tech. Compl. at ¶ 34.

       Applied Digital argues that Character Tech. has failed to plead that the

 Parties intended to waive the no oral modification clause in Section 10 of the

 Agreement. Applied Digital Opening Br. at 11–12. The Court observes that

 Character Tech. drafted a Third Addendum in an attempt to memorialize the

 Parties’ conversations regarding Character Tech. returning access to the clusters

 and ending the Agreement early. Character Tech. Compl. at ¶¶ 24–26. Character

 Tech. alleges that the proposed Third Addendum was binding on the Parties based

 on Applied Digital’s representations and actions throughout the negotiation of the

 Agreement and because Applied Digital never objected to the proposed Third

 Addendum and did not raise the condition precedent during negotiations. Id. at


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                       Page 22

 ¶¶ 26, 35.

       At this stage of the case, assuming all factual allegations contained in

 Character Tech.’s Complaint to be true, and drawing all reasonable inferences in

 favor of Character Tech., the Court holds that Character Tech. has alleged facts

 sufficient to show an intention by Applied Digital to waive or modify the

 requirement that any amendment be made in writing and signed as contained in

 Section 10 of the Agreement, at least to a sufficient level to proceed to discovery

 on this factual issue. See MDNet, Inc., 147 F. App’x. at 244. Further, Character

 Tech. has alleged facts sufficient to show that Applied Digital promised to release

 Character Tech. from its obligations under the Agreement in exchange for an early

 return of the leased computing clusters, and that it was reasonable for Character

 Tech. to rely on that promise. Character Compl. at ¶¶ 19, 21–23, 28–29. Character

 Tech. alleged facts showing that Character Tech. reasonably relied on Applied

 Digital’s promise to its detriment, given the loss of exclusive access to the clusters

 and subsequent deletion of Character Tech.’s data from those clusters. Id. at ¶ 29.

 Lastly, Character Tech. has sufficiently alleged that Applied Digital’s promise was

 binding because “[r]equiring [Character Tech.] to pay full price for computing

 power that it has not used, and indeed, given [Applied Digital] deleted Character’s

 data from the leased clusters, could not use, would be unfair, particularly in light of

 [Applied Digital’s] promises[.]” Id. at ¶ 72.


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                         Page 23

       Assuming all factual allegations contained in the complaint to be true and

 drawing all reasonable inferences in favor of Character Tech., the Court holds that

 Character Tech. has alleged facts sufficient to establish a claim of promissory

 estoppel. Twombly, 550 U.S. at 555–56. Accordingly, the Court denies Applied

 Digital’s Partial Motion to Dismiss Count III of Character Tech.’s Complaint.

       B.     Fraud (Count IV)

       In Count IV of Character Tech.’s Complaint, Character Tech. alleges that

 Applied Digital “fraudulently concealed, or withheld, material information from

 [Character Tech.] that, based on the [P]arties’ contractual relationship it was under

 a duty to disclose, to induce [Character Tech.] to relinquish its exclusive access to

 the leased computing clusters.” Character Tech. Compl. at ¶ 74. Applied Digital

 argues that Character Tech. has not pled “any separate, particularized, and/or

 plausible fraud allegation,” and avers that Delaware courts do not permit a plaintiff

 to use the words “fraudulently induced” to bootstrap an unsupported fraud claim to

 a contract claim. Applied Digital Opening Br. at 7–8. Applied Digital contends

 further that Character Tech. failed to set forth particularized and plausible

 allegations concerning fraudulent conduct. Id. at 8–11.

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

 circumstances constituting fraud or mistake. Malice, intent, knowledge, and other

 conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b).


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 “[A] heightened pleading standard applies to fraud claims, requiring that ‘in all

 averments of fraud . . . the circumstances constituting fraud . . . shall be stated with

 particularity.’” Am. Gen. Life. Ins. v. Goldstein, 741 F. Supp. 2d 604, 612 (D.

 Del. 2010) (quoting Trenwick Am. Litig. Trust v. Ernst & Young, LLP, 906 A.2d

 168, 207 (Del. Ch. 2006) (alterations in original), aff’d sub nom., Trenwick Am.

 Litig. Trust v. Billett, 931 A.2d 438 (Del. 2007)). Under Delaware law, the

 elements of fraud are:

       (1) a false representation, usually one of fact, made by the defendant;
       (2) the defendant’s knowledge or belief that the representation was
       false, or was made with reckless indifference to the truth; (3) an intent
       to induce the plaintiff to act or to refrain from acting; (4) the plaintiff’s
       action or inaction taken in justifiable reliance upon the representation;
       and (5) damage to the plaintiff as a result of such reliance.

 Snowstorm Acquisition Corp. v. Tecumseh Prods. Co., 739 F. Supp. 2d 686, 708

 (D. Del. 2010) (quoting Norman v. Elkin, 617 F. Supp. 2d 303, 315 n.6 (D. Del.

 2009)). In Delaware, there are three recognized categories of fraud:

 “(1) affirmative falsehoods; (2) active concealment; and (3) silence in the face of a

 duty to speak.” Id. (quoting Airborne Health, Inc. v. Squid Soap, LP, Civ. No.

 4410, 2010 WL 2836391, at *7 (Del. July 20, 2010)). “[O]ne is equally culpable

 of fraud who by omission fails to reveal that which it is his duty to disclose in

 order to prevent statements actually made from being misleading.” Stephenson v.

 Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983) (citations omitted).

       Character Tech. alleges that Applied Digital was under a duty to disclose


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                      Page 25

 Applied Digital’s belief that the Agreement was subject to a condition precedent

 requiring Applied Digital to locate a replacement customer to take over Character

 Tech.’s leased computing clusters before Character Tech. would be released from

 its obligations. Character Tech. Compl. at ¶¶ 74–76. Applied Digital argues that it

 was under no obligation to disclose information to Character Tech. and contends

 that Character Tech.’s Complaint fails to allege the factual basis from which the

 purported duty derives, what it entails, and how and why Applied Digital would be

 under an affirmative duty. Applied Digital Opening Br. at 10.

       Character Tech.’s Complaint alleges that Applied Digital had multiple

 opportunities to disclose its belief that the Agreement was subject to a condition

 precedent. Character Tech. Compl. at ¶ 76. Character Tech. contends that Applied

 Digital did not disclose the condition precedent when Applied Digital first offered

 to end the Agreement early, nor did Applied Digital disclose the condition

 precedent in subsequent communications between the Parties. Id. at ¶¶ 77–79.

 The Complaint alleges that after Character Tech. sent the proposed Third

 Addendum, Applied Digital had a duty to disclose its belief that the Third

 Addendum did not accurately reflect the terms of the Agreement. Id. at ¶ 80.

       The Court observes that Applied Digital received the proposed Third

 Addendum after the Parties communicated the terms that Character Tech.

 attempted to memorialize in the Third Addendum. -----
                                                 See id., Ex. D. Applied Digital


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 did not respond that the proposed Third Addendum failed to accurately reflect the

 terms discussed by the Parties. See id. After Applied Digital was in receipt of the

 proposed Third Addendum, Applied Digital had the opportunity to disclose the

 condition precedent, yet failed to do so. Accordingly, at this stage of the case,

 assuming all factual allegations contained in the complaint to be true and drawing

 all reasonable inferences in favor of Character Tech., the Court holds that

 Character Tech. has alleged facts sufficient to show that Applied Digital had a duty

 to disclose the condition precedent of finding replacement customers before

 releasing Character Tech. from its obligations. See Stephenson, 462 A.2d at 1074.

       With respect to the third element of fraud, Applied Digital’s intent to induce

 Character Tech. to act or refrain from acting, Character Tech. alleges that Applied

 Digital intended to induce Character Tech. to relinquish its exclusive access to the

 leased computing clusters. Character Tech. Compl. at ¶ 74. As to the fourth and

 fifth elements of justifiable reliance and damage because of said reliance,

 Character Tech. relinquished its exclusive access to the leased computing clusters

 to Applied Digital under the belief that Applied Digital would release Character

 Tech. from its obligations under the Agreement. Id. at ¶ 87; see Stephenson, 462

 A.2d at 1074. Character Tech. alleges that Applied Digital deleted all of Character

 Tech.’s data from the clusters and that Character Tech. proceeded to seek

 additional computing power from third-party providers. Character Tech. Compl. at


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 ¶ 87.

         Applied Digital argues that Character Tech. failed to allege damages related

 to the fraud allegation. Applied Digital Opening Br. at 10–11. Under Delaware

 law, however, Character Tech. has sufficiently alleged facts showing that it was

 damaged as a result of its reliance on Applied Digital’s statements. See Latsco,

 L.P. v. Wayport, Inc., No. 4167-VCL, 2009 WL 2246793, at *9 (Del. Ch. July 24,

 2009) (“Lastly, with regard to damages, although how damages would be

 measured should the plaintiffs prevail is unclear, all that the plaintiffs need to plead

 at this stage is that they were harmed by the fraudulent conduct.”). Accordingly,

 assuming all factual allegations contained in the complaint to be true and drawing

 all reasonable inferences in favor of Character Tech., the Court holds that

 Character Tech. has sufficiently pled facts establishing its fraud claim against

 Applied Digital.

         Delaware’s “anti-bootstrapping rule” bars a fraud claim when the plaintiff

 merely “adds the term ‘fraudulently induced’ to a complaint or alleges that the

 defendant never intended to comply with the agreement at issue at the time the

 parties entered into it,” but does not prevent “a fraud claim against defendants who

 ‘knew [contractual representations] were false, and yet made them anyway.’”

 Levy Fam. Invs., LLC v. Oars + Alps LLC, No. CV 2021-0129-JRS, 2022 WL

 245543, at *8 (Del. Ch. Jan. 27, 2022) (alteration in original) (quoting Anschutz


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 Corp. v. Brown Robin Cap., LLC, No. CV 2019-0710-JRS, 2020 WL 3096744, at

 *15 (Del. Ch. June 11, 2020)). “A rule that would limit a plaintiff’s recovery for

 so-called ‘contractual fraud’ solely on the ground that the same conduct also

 constitutes a breach of contract would offend Delaware public policy and the now-

 settled Delaware law regarding ‘contractual fraud’ that is animated, in part, by

 those policy concerns.” Id. Delaware’s “anti-bootstrapping rule” does not prevent

 parties from bringing a fraud claim if: “(1) the plaintiff alleges the seller knowingly

 made false contractual representations[;]” “(2) damages for plaintiff’s fraud claim

 may be different from plaintiff’s own breach of contract claim[;]” “(3) the conduct

 occurs prior to the execution of the contract and thus with the goal of inducing the

 plaintiff’s signature and willingness to close on the transaction[;]” or “(4) the

 breach of contract claim is not well-pled such that there is no breach claim on

 which to ‘bootstrap’ the fraud claim.” Levy Fam. Invs., LLC, 2022 WL 245543, at

 *8 (internal citations omitted).

       Character Tech. alleges that Applied Digital withheld its belief that the

 Agreement was subject to a condition precedent requiring that Applied Digital

 locate a replacement customer to take over Character Tech.’s leased computing

 clusters before Character Tech. would be released from its obligations to pay.

 Character Tech. Compl. at ¶ 75. Character Tech. avers that Applied Digital had

 several opportunities to disclose its belief that the Agreement was subject to this


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 Court Nos. 1:25-cv-00739, 1:25-cv-00909                                     Page 29

 condition. Id. at ¶ 76. Character Tech.’s Complaint refers to email and text

 message communications alleging that Applied Digital should have disclosed its

 belief regarding the condition precedent in this correspondence. Id. at ¶¶ 77–79.

 Lastly, Character Tech. contends that Applied Digital should have disclosed the

 condition precedent when Applied Digital received the proposed Third Addendum

 from Character Tech. Id. at ¶ 80. Although Character Tech.’s fraud claim and

 declaratory judgment claim overlap in some degree, the fraud claim is distinct from

 the declaratory judgment claim, because Character Tech. sufficiently pled that

 Applied Digital engaged in fraudulent inducement by withholding its belief that the

 Agreement was subject to a condition precedent that required Applied Digital to

 locate a replacement customer to take over Character Tech.’s leased computing

 clusters before Character Tech. would be released from its obligations. See Levy

 Fam. Invs., LLC, 2022 WL 245543, at *8. Because Character Tech. has

 sufficiently pled that Applied Digital made pre-agreement misrepresentations and

 omissions intended to induce Character Tech. to relinquish its exclusive control of

 the leased computing clusters, Character Tech.’s fraud claim will not be dismissed

 on the ground that the fraud claim is duplicative and will survive as a counterclaim

 after consolidation. Accordingly, the Court denies Applied Digital’s Partial

 Motion to Dismiss Count IV of Character Tech.’s Complaint.


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                                   CONCLUSION

        Upon consideration of Applied Digital’s Partial Motion to Dismiss in

 Character Tech., Court No. 25-00739 (D.I. 9) and Character Tech.’s Motion to

 Dismiss or Consolidate in Applied Digital, Court No. 25-00909 (D.I. 11), and all

 other papers and proceedings in this action, it is hereby

        ORDERED that Applied Digital’s Partial Motion to Dismiss in Character

 Tech., Court No. 25-00739 (D.I. 9) is granted in part and denied in part; and it is

 further

        ORDERED that Count I of Character Tech.’s Complaint, Declaratory

 Judgment of No Breach of Contract, is dismissed; and it is further

        ORDERED that Character Tech.’s Motion to Dismiss or Consolidate in

 Applied Digital, Court No. 25-00909 (D.I. 11) is granted in part and denied in part;

 and it is further

        ORDERED that Court No. 25-00739 shall be consolidated into Court No.

 25-00909; and it is further

        ORDERED that this case shall proceed under Consol. Court No. 25-00909.

 IT IS SO ORDERED this 23rd day of July, 2026.

                                                        /s/ Jennifer Choe-Groves
                                                           Jennifer Choe-Groves
                                                         U.S. District Court Judge

 
  Judge Jennifer Choe-Groves, of the United States Court of International Trade,
 sitting by designation.