The Harmon 1999 Descendants' Trust v. CGH Investment Management, LLC ( 2021 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
KATHALEEN ST. JUDE MCCORMICK LEONARD L. WILLIAMS JUSTICE CENTER
CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
September 21, 2021
Joanna J. Cline, Esquire Theodore A. Kittila, Esquire
Christopher B. Chuff, Esquire James G. McMillan, III, Esquire
Emily L. Wheatley, Esquire Halloran Farkas + Kittila LLP
Troutman Pepper Hamilton Sanders LLP 5801 Kennett Pike, Suite C/D
1313 Market Street Wilmington, DE 19807
P.O. Box 1709
Wilmington, DE 19899
Re: The Harmon 1999 Descendants’ Trust v. CGH Investment Management,
LLC, C.A. No. 2021-0407-KSJM
Dear Counsel:
Plaintiff The Harmon 1999 Descendants’ Trust (“Plaintiff” or the “Trust”) filed this
action for advancement against Defendant CGH Investment Management, LLC
(“Defendant” or “CGH”), as successor in interest to Traditions, LP (“Traditions”). The
Trust seeks advancement of its reasonable costs, expenses, and fees, including attorneys’
fees, incurred in connection with counterclaims and crossclaims (the “Underlying Claims”)
in litigation pending in the United States District Court for the Eastern District of Virginia
captioned The Harmon 1999 Descendants’ Trust v. Germaine F. Harmon, et al., Case No.
1:20-cv-1442-RDA/TCB (the “Virginia Action”). The Trust also seeks fees-on-fees and
pre-judgment interest.
The Trust has moved for summary judgment on the issue of its entitlement to
advancement. The Defendant has moved to dismiss or, in the alternative, stay this action
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in favor of the Virginia Action. Although it is true that “in all but the most exceptional
circumstances, claims . . . for advancement of expenses should not be stayed or dismissed
in favor of the prior pending foreign litigation that give rise to them,”1 this case presents
unusual circumstances warranting a stay.
The key issue raised by Plaintiff’s motion for summary judgment is whether
Plaintiff is a covered person under Traditions’ Partnership Agreement, which provides
advancement to Traditions’ “Partners, independent contractors and other agents.”2
Plaintiff argues that it meets this definition because it is a limited partner or an agent of
Traditions.
The issue of whether Plaintiff is a limited partner of Traditions is squarely before
the court in the Virginia Action. In the Underlying Claims, Germaine Harmon and CGH
seek a declaration that the Trust is not a limited partner in Traditions and correspondingly
the return of any monies that the Trust received in its capacity as limited partner of
Traditions.3 The Virginia Action is scheduled for a December 2021 jury trial.4
Having reviewed Plaintiff’s arguments in support of summary judgment, and
without resolving that motion, I am convinced that Plaintiff’s status as a limited partner is
1
Fuisz v. Biovail Techs., Ltd., 2000 WL 1277369, at *3 (Del. Ch. Sept. 6, 2000).
2
C.A. No. 2021-0407-KSJM Docket No. (“Dkt.”) 1, Verified Compl. for Advancement
(“Compl.”) Exhibit (“Ex.”) A, Ltd. P’ship Agr. of Traditions, L.P. § 8.1.
3
Compl. Ex. E ¶¶ 65-73; Compl. Ex. F ¶¶ 27-34.
4
See Dkt. 17, Def.’s Opening Br. in Support of Its Mot. to Dismiss or Stay, Ex. 1 at 013.
2
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a material, factually rife, and disputed issue. The Trust maintains that it received the
consent of partners holding at least 50% of the total capital account balances of all partners
in Traditions to be admitted as a limited partner, as required by Section 4.2 of the
Partnership Agreement.5 The Trust’s own statements in the Virginia Action reflect that
this issue is fact intensive and disputed.6
Because Plaintiff’s status as a limited partner is an issue to be decided by the federal
court, efficiencies could be gained by staying this suit in favor of the Virginia Action.
Because the Virginia Action is in its penultimate phase, the federal court is likely to resolve
this factual issue before this court could. Attempting to resolve this factual dispute in
parallel with the federal court would not only waste judicial resources, but it also risks
conflicting rulings that run contrary to principles of comity.7 These factors all weigh in
favor of a stay.
Plaintiff argues that this court could both proceed at an expedited pace and avoid a
collision course with the Virginia Action. Plaintiff contends that this court could dodge
the overlapping question of whether Plaintiff is a limited partner by either deferring that
5
Compl. Ex. A ¶ 4.2.
6
See generally Dkt. 13, Op. Br. in Supp. of Pl.’s Mot. for Summ. J. at 24.
7
See, e.g., In re RJR Nabisco, Inc. S’holders Litig., 576 A.2d 654, 662 (Del. Ch. 1990)
(“Self-imposed obligations of comity in our federal system, springing from our concern for
systemwide efficiency and for the dignity of the courts of other jurisdictions, counsel that
this court not exercise jurisdiction where an earlier filed action between the same parties
or those in privity with them, arising from the same transaction is going forward.”); Third
Ave. Tr. v. MBIA Ins. Corp., 2009 WL 3465985, at *1 (Del. Ch. Oct. 28, 2009) (“The
United States is a federal republic that depends on comity among the states . . .”).
3
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factual determination to the indemnification phase or granting Plaintiff advancement as an
“agent” of Traditions.
In support of deferring the issue until the indemnification stage, Plaintiff cites to
Mooney v. Echo Therapeutics, Inc.8 There, the plaintiff sought to enforce a bylaw granting
advancement to officers and directors who were made a party to an action “by reason of
the fact that such person is or was a director or officer of the Corporation.”9 The defendant
argued that the underlying claims were asserted against the plaintiff by reason of his
personal and not his official capacity. The court rejected this argument, observing that
Delaware courts generally have eschewed attempting to
resolve disputes over whether claims relate to a potential
indemnitee’s personal or official capacity at the advancement
stage unless the answer can be discerned swiftly, accurately,
and consistent with the summary nature of an advancement
proceeding. Deferring resolution of less clear-cut disputes to
the indemnification stage helps avoid excessive litigation over
advancement.10
As the above passage reflects, the dispute at issue in Mooney centered on the by-reason-
of-the-fact standard. The defendant in Mooney did not dispute that the plaintiff was a
covered person in that he was a director or officer of the company. Nor did the court defer
consideration of that issue to the indemnification phase.
8
2015 WL 3413272 (Del. Ch. May 28, 2015).
9
Id. at *3.
10
Id. at *8 (emphasis added).
4
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By contrast, here, the defendant disputes whether Plaintiff qualifies as a covered
person, either as a limited partner or an agent. Generally, where the defendant disputes
that the advancement plaintiff was a covered person, this court has engaged in factfinding
into that discrete issue during the advancement phase.11 Plaintiff’s argument to the contrary
is thus misguided.
Plaintiff’s alternative argument that this court may avoid conflict with the Virginia
Action by awarding Plaintiff advancement as an “agent” of Traditions too fails. For
starters, it would be intolerably inefficient for this court to proceed piecemeal to resolve
the limited question of whether Plaintiff was an agent of Traditions. Moreover, to
demonstrate that Plaintiff was an agent of Traditions, Plaintiff must show that it acted on
behalf of Traditions, and within the scope of its agency, when dealing with third parties.
A quick glance of the pleadings in the Virginia Action reveal that this issue is both fraught
with factual disputes and intertwined with the issues presented to the federal court. Thus,
this court will not expeditiously plow forward to resolve whether Plaintiff is an agent of
Traditions while the Virginia Action is pending.
11
See, e.g., Aleynikov v. The Goldman Sachs Grp., Inc., C.A. No. 10636-VCL, at 15-17
(Del. Ch. July 13, 2016) (Post-Trial Order and Final Judgment) (making a factual finding
post-trial that the evidence “did not provide a convincing basis on which to construe the
term ‘officer’” and denying advancement, as the advancement plaintiff had failed to satisfy
his burden of proof.); Kale v. WellCare Health Plans, Inc., C.A. No. 6393-VCS, at 56-66
(Del. Ch. June 13, 2011) (TRANSCRIPT) (making a factual finding post-trial that the
plaintiff was an officer of the company as a predicate to finding the plaintiff entitled to
advancement).
5
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At bottom, this court has broad discretion to issue a stay,12 and the unique
circumstances of this case warrant a stay in favor of the Virginia Action.13 For these
reasons, Defendant’s motion to stay is GRANTED. Plaintiff’s motion for summary
judgment will be held in abeyance until the stay is lifted. The parties shall report
concerning the status of the Virginia Action as events warrant and no later than January 7,
2021.
IT IS SO ORDERED.
Sincerely,
/s/ Kathaleen St. Jude McCormick
Kathaleen St. Jude McCormick
Chancellor
cc: All counsel of record (by File & ServeXpress)
12
See IMO Ronald J. Mount 2012 Irrevocable Dynasty Tr. U/A/D Dec. 5, 2012, 2016 WL
297655, at *3 (Del. Ch. Jan. 21, 2016) (“This sort of coordination in case management
more readily falls within the Court’s broad discretion in controlling its docket effectively
and is not necessarily driven by the strong deference accorded first-filed actions in the
forum non conveniens analytical context.”); Paolino v. Mace Sec. Int’l, Inc., 985 A.2d 392,
397 (Del. Ch. 2009) (“This Court possesses the inherent power to manage its own docket,
including the power to stay litigation on the basis of comity, efficiency, or simple common
sense.”). Defendant argues for a stay under McWane Cast Iron Pipe Corp. v. McDowell-
Wellman Eng’g Co., 263 A.2d 281 (Del. 1970), but that doctrine is not directly on point.
Under McWane, “as a general rule, litigation should be confined to the forum in which it
is first commenced.” 263 A.2d at 283. Because Plaintiff has not claimed advancement in
the Virginia Action, the issues are not the same. A stay is nevertheless warranted for the
reasons set forth in this letter.
13
It also bears noting that Plaintiff did not move with alacrity when moving to invoke the
heavy machinery of litigation. Although the underlying claims were filed in November
2020, Plaintiff did not demand advancement until May 2021 and did not move for summary
judgment until July 2021.
6