Carlyle Investment Management, LLC ( 2014 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
D ONALD F. PARSONS, J .
R New Castle County Courthouse
VICE CHANCELLOR 500 N. King Street, Suite 11400
Wilmington, Delaware 19801-3734
Date Submitted: May 20, 2014
Date Decided: August 21, 2014
R. Judson Scaggs, Esq. Michael F. Bonkowski, Esq.
Kevin M. Coen, Esq. Cole, Schotz, Meisel,
Shannon E. German, Esq. Forman & Leonard, P.A.
Morris, Nichols, Arsht & Tunnell LLP 500 Delaware Avenue, Suite 1410
1201 North Market Street Wilmington, DE 19801
Wilmington, DE 19801
RE: Carlyle Investment Management, LLC, et al.
v. Moonmouth Company, S.A., et al.
Civil Action No. 7841-VCP
Dear Counsel:
This matter is before the Court on Defendants’ Motion for Protective
Order and for Reconsideration (“Motion for Reconsideration”) as to this Court’s
May 6, 2014 ruling that Plaintiffs could proceed with general jurisdictional
discovery. For the reasons stated in this Letter Opinion, the Motion for
Reconsideration is denied.
Carlyle Investment Management, LLC, et al.
v. Moonmouth Company, S.A., et al.
Civil Action No. 7841
August 21, 2014
Page 2
I. BACKGROUND
Plaintiffs served their Complaint in this action on Defendant Plaza
Management Overseas S.A. (“Plaza”) in late October 2012.1 On December 18,
2012, Plaza removed this action to the United States District Court for the District
of Delaware (the “District Court”). On January 9, 2013, Plaza moved in the
District Court to dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(1), (2),
and (6). Defendant Louis J.K.J. Reijtenbagh purportedly was served with the
Complaint on January 15, 2013. On April 8, 2013, Reijtenbagh filed his own
motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(1), (2), (4), (5), and (6).
On August 14, 2013, the District Court concluded that Defendants had
removed this case properly, but that the 2006 Moonmouth Subscription
Agreement,2 to which Defendants contend they are not parties, constituted a waiver
by Defendants of the right to remove any claim related to that Agreement. The
District Court also found that Plaintiffs’ claims to enforce the releases to the 2009
Transfer Agreements, to which Defendants also deny being parties, were “related
1
The document served on October 23, 2012 was actually Plaintiff’s First
Amended Verified Complaint, D.I. 3 (the “Complaint”).
2
Capitalized terms in this Letter Opinion have the definitions ascribed to
them in the Complaint.
Carlyle Investment Management, LLC, et al.
v. Moonmouth Company, S.A., et al.
Civil Action No. 7841
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to” the 2006 Moonmouth Subscription Agreement. Based on those findings, the
District Court granted Plaintiffs’ motion to remand the District Court action to this
Court.
On August 15, 2013, Plaza appealed the remand order to the United States
Court of Appeals for the Third Circuit. The Third Circuit heard argument on that
appeal on June 4, 2014.
After the remand, Defendants filed on December 11, 2013 a Motion to
Dismiss the Complaint or to Strike the Complaint or Certain Allegations Therein
(“Motion to Dismiss”). Among other things, Defendants’ motion argued that
neither Plaza nor Reijtenbagh is subject to personal jurisdiction in Delaware.
Specifically, Defendants asserted that the Complaint pleads no basis for personal
jurisdiction other than consent, and that it pleads no facts that would support a
reasonable inference of consent to jurisdiction by either Plaza or Reijtenbagh.3
On May 6, 2014, I heard argument on Defendants’ Motion to Dismiss and
two related motions: (1) a motion by Plaintiffs to strike what they considered an
impermissible sur-reply; and (2) Defendants’ motion to stay this action pending
3
Opening Br. in Supp. of Defs.’ Mot. to Dismiss, D.I. 31, at 5.
Carlyle Investment Management, LLC, et al.
v. Moonmouth Company, S.A., et al.
Civil Action No. 7841
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resolution of the appeal of the remand order to the Third Circuit. 4 For the reasons
stated on the record at argument, I denied Plaintiffs’ motion to strike the so-called
sur-reply, and allowed Plaintiffs to file a written response to it. I granted
Defendants’ motion for a stay pending the outcome of the outstanding appeal to the
Third Circuit from the District Court’s order remanding this action to the Court of
Chancery, subject to one exception requested by Plaintiffs at the argument.5 That
exception authorized Plaintiffs to proceed with discovery on personal jurisdiction.
Defendants have challenged the existence of personal jurisdiction in both this
Court and the District Court.
On May 13, 2014, Defendants filed their Motion for Reconsideration
regarding the Court’s decision to allow Plaintiffs to proceed with jurisdictional
discovery. Defendants also requested a protective order barring that discovery.
Plaintiffs opposed the motion. I turn next, therefore, to the parties’ respective
arguments on Defendants’ Motion for Reconsideration.
4
Defendants effectively sought a similar stay of this action from the federal
courts, as well. Both the District Court and the Third Circuit, however,
refused to stay this action pending the appeal.
5
Tr. 41-52.
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v. Moonmouth Company, S.A., et al.
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II. DISCUSSION
The standard applicable to a motion for reargument under Court of Chancery
Rule 59(f) is well-settled. To obtain reargument, the moving party must
demonstrate either that the Court overlooked a controlling decision or principle of
law that would have a controlling effect, or the Court misapprehended the facts or
the law such that the outcome of the decision would be different.6 It is the moving
party’s burden to show that “the court’s misunderstanding of a factual or legal
principle is both material and would have changed the outcome of its earlier
decision.”7 Motions for reargument, therefore, must be denied when a party
merely restates its prior arguments.8
In their motion, Defendants purport to present three questions, the first two
of which have several subparts. First, Defendants contend that Plaintiffs waived
all rights to discovery on general jurisdiction over them by: “(i) failing to timely
6
See, e.g., Medek v. Medek, 2009 WL 2225994, at *1 (Del. Ch. July 27,
2009); Reserves Dev. LLC v. Severn Sav. Bank, FSB, 2007 WL 4644708, at
*1 (Del. Ch. Dec. 31, 2007).
7
Medek, 2009 WL 2225994, at *1 (internal quotation marks omitted); see
also Serv. Corp. of Westover Hills v. Guzzetta, 2008 WL 5459249, at *1
(Del. Ch. Dec. 22, 2008).
8
Guzzetta, 2008 WL 5459249, at *1.
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v. Moonmouth Company, S.A., et al.
Civil Action No. 7841
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request any such discovery; (ii) failing to make any showing of any plausible basis
for general jurisdiction; (iii) permitting briefing on the motion to dismiss for lack
of [personal] jurisdiction to close without arguing or providing any basis for
general jurisdiction; and (iv) allowing the motion to be submitted for decision with
no showing of grounds for general jurisdiction.” Second, Defendants argue that
this Court should reconsider its order granting Plaintiffs’ oral request for
jurisdictional discovery of Reijtenbagh, because: “(a) Plaintiff’s request for
jurisdictional discovery and submission of previously undisclosed documentary
evidence in support of that request were procedurally improper; and (b) Plaintiff’s
sole proffered basis for personal jurisdiction is groundless.” And, third,
Defendants’ motion poses the question of whether a protective order should be
granted barring jurisdictional discovery.9
In my view, however, Defendants’ Motion for Reconsideration raises only
two issues that warrant further discussion. The first is whether Plaintiffs, by failing
to raise the issue of possible jurisdiction under Delaware’s long-arm statute,
10 Del. C. § 3104(c), have waived that issue. The second is whether, in any event,
9
Mem. in Supp. of Defs.’ Mot. for a Protective Order and for Recons., D.I.
65, at 3-4.
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v. Moonmouth Company, S.A., et al.
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August 21, 2014
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Plaintiffs should be barred from pursuing discovery related to jurisdiction, because
they have failed to make even a colorable showing that such jurisdiction might
exist in the circumstances of this case.
On the question of waiver, Defendants’ cries of unfair surprise are
understandable, but they are insufficient to warrant this Court granting reargument
or issuing a protective order. The somewhat unusual procedural posture of this
action contributes to my decision. In that regard, I note that this dispute has
proceeded and is proceeding in parallel in both this Court and the federal courts
and that its progress has been slowed by the need to resolve a threshold issue as to
removal. The issue now before the Third Circuit is whether the District Court
erred in remanding this action to the Court of Chancery. That question, in turn,
depends to a significant extent on what effect the Third Circuit gives to the consent
to jurisdiction provision in the 2006 Moonmouth Subscription Agreement and to
the releases in the allegedly related 2009 Transfer Agreements. If the Court of
Appeals rules in Defendants favor and reverses the remand order, that may obviate
the need for further proceedings in this Court and could lead to additional motion
practice in the federal courts on issues such as personal jurisdiction. On the other
hand, if the Third Circuit affirms the remand, that may reinforce Plaintiffs’
Carlyle Investment Management, LLC, et al.
v. Moonmouth Company, S.A., et al.
Civil Action No. 7841
August 21, 2014
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argument that the two remaining Defendants, Plaza and Reijtenbagh, have
consented to this Court’s personal jurisdiction over them. In these circumstances,
it is not unreasonable or surprising that Plaintiffs focused in the preliminary phases
of this litigation as they did, on the issues pertaining to consent to jurisdiction and
related questions. In retrospect, it might have been more efficient for Plaintiffs to
have raised in the opposition to the Motion to Dismiss all grounds they might have
had for asserting the existence of personal jurisdiction over Plaza and Reijtenbagh,
including any arguments under 10 Del. C. § 3104(c) independent of the alleged
consent to jurisdiction. Nevertheless, I do not consider Plaintiffs’ failure to allude
to those alternative contentions until the argument before me on Defendants’
Motion to Dismiss to be sufficient grounds for concluding that Plaintiffs have
waived any argument as to general jurisdiction over Defendants or the right to seek
discovery pertaining to such argument.10
10
The cases Defendants rely on for their argument that Plaintiffs waived
discovery on general personal jurisdiction are distinguishable from this case.
Pls.’ Mem. 6. The motion before me was a motion to dismiss with some
unusual characteristics, as discussed in the text supra. Emerald Partners
involved a different procedural posture in that the Supreme Court was
reviewing a decision that granted summary judgment. Emerald P’rs v.
Berlin, 726 A.2d 1215, 1219 (Del. 1999). Because grounds for personal
jurisdiction are not required to be pleaded in a complaint, failure to raise a
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v. Moonmouth Company, S.A., et al.
Civil Action No. 7841
August 21, 2014
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In the District Court, Defendants made similar motions to dismiss to the
motions pending here. I emphasize, however, that this ruling is limited solely to
my determination that Defendants have failed to demonstrate that they are entitled
defense in opposition to a motion for summary judgment is more likely to
give rise to a waiver than in opposition to a motion to dismiss under Rule
12(b)(2). Although each of the remaining cases were decided in the context
of a motion to dismiss, they also are distinguishable from this case.
Defendants relied on both Lisa, S.A. v. Mayorga and Ruggerio v.
FuturaGene, plc. as examples of cases in which the court rejected an
argument that certain asserted grounds for personal jurisdiction had been
waived because they were not raised until the briefing or at oral argument.
Lisa, S.A. v Moyorga, C.A. No. 2571-VCL, 2009 WL 1846308, at *6 n.26
(Del. Ch. 2009); Ruggiero v. FuturaGene, plc., 948 A.2d 1124, 1134 n.21
(Del. Ch. 2007). The court’s commentary on this argument is dicta,
however, because, in both cases, the court ultimately considered the belated
jurisdictional arguments and found them unpersuasive. Lisa, S.A., WL
1846308, at *6 & n.26; Ruggerio, 948 A.2d 1124, 1134 & n.21. Neither of
these cases, therefore, is controlling here. Lastly, Defendant relies on In re
American International Group, Inc., 965 A.2d 763, 815 n.194 (Del. Ch.
2009). There, the court refused to consider the plaintiff’s argument for
personal jurisdiction based on 10 Del. C. § 3104(c), because it was brought
up for the first time in the plaintiff’s sur-reply brief. In re Am. Int’l Gp.,
Inc., 965 A.2d 763, 815 n.194 (Del. Ch. 2009). The Court did not consider
that argument because the plaintiffs, in their answering brief, affirmatively
represented that they were not relying upon § 3104(c)(4) as a basis for
personal jurisdiction. Id. In contrast, Plaintiffs in this case did not explicitly
disclaim any intent to rely on general personal jurisdiction. For all of these
reasons, I find Defendants’ reliance on the four cases it cited to be
misplaced.
Carlyle Investment Management, LLC, et al.
v. Moonmouth Company, S.A., et al.
Civil Action No. 7841
August 21, 2014
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to reargument or a protective order. That is, Defendants have not shown that this
Court overlooked a controlling decision or principle of law that would have had a
controlling effect, or misapprehended the facts or the law such that the outcome of
my decision to authorize Plaintiffs to proceed with limited discovery related to the
issue of personal jurisdiction would have been different. The scope of my May 6
ruling in that regard is narrow and merely procedural in nature. I have not
attempted to assess at this point the strength or weakness of Plaintiffs’ alternative
jurisdictional arguments. Similarly, it is not my intention to prejudge or preclude
the issue of waiver of any argument regarding general personal jurisdiction to the
extent such an issue later might be presented in some form to the federal court.
I turn next to Defendants’ second point, i.e., that Plaintiffs should be barred
from pursuing discovery related to jurisdiction because they have failed to make a
plausible showing that such jurisdiction might exist in the circumstances of this
case. In terms of the pending Motion to Reconsider, this argument is premature.
The ruling being challenged was made during argument on both a motion to
dismiss and a motion to stay. The thrust of the motion to stay was that everything
in this Court should come to a halt as the parties and the Court await the outcome
of the appeal currently pending before the Third Circuit. Both the District Court
Carlyle Investment Management, LLC, et al.
v. Moonmouth Company, S.A., et al.
Civil Action No. 7841
August 21, 2014
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and the Third Circuit, however, denied efforts by Defendants to enjoin any further
proceedings in this Court during the pendency of the appeal. In that context, I
decided to stay this action generally, but to allow Plaintiffs to pursue discovery
relating to jurisdiction generally, as opposed to jurisdiction based on consent.
When I made that decision, no specific discovery requests were before me for
review. Instead, I recommended that Plaintiffs consider propounding new requests
consistent with my ruling.11 Accordingly, I did not address the objection
Defendants now assert regarding the groundless nature of Plaintiffs’ proffered
jurisdictional theories.
In addition, I note that, since the argument on May 6, 2014, Plaintiffs
evidently have propounded jurisdictional discovery and Defendants have
responded to some or all of it, albeit in many cases through objections. Moreover,
Plaintiffs recently filed a motion to compel pertaining to this discovery. Oral
argument on that motion is scheduled for August 28, 2014. In these circumstances,
I find that there is no basis for reconsideration of my previous ruling and that it
would be premature to contemplate issuing a protective order based on
11
Tr. 55.
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v. Moonmouth Company, S.A., et al.
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August 21, 2014
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Defendants’ argument that Plaintiffs’ jurisdictional positions are not even
colorable. The record available on May 6 was not sufficient to address that issue
and the limited nature of my ruling left open Defendants’ ability to challenge the
authorized discovery on any grounds it considered appropriate. Therefore, I also
deny this aspect of Defendants’ Motion for Reconsideration.
III. CONCLUSION
For the reasons stated in this Letter Opinion, I deny Defendants’ Motion for
Reconsideration.
IT IS SO ORDERED.
Sincerely,
/s/ Donald F. Parsons, Jr.
Donald F. Parsons, Jr.
Vice Chancellor
DFP/ptp