Opinion
Civil Action No. 7975-VCP
08-16-2013
RE: Anvil Holding Corporation, et al. v. Iron Acquisition Company, Inc., et al.,
William M. Lafferty, Esquire Kevin M. Coen, Esquire D. McKinley Measley, Esquire Morris Nichols Arsht & Tunnell LLP Kevin G. Abrams, Esquire Steven C. Hough, Esquire Abrams & Bayliss LLP
DONALD F. PARSONS, JR.
VICE CHANCELLOR
New Castle County Courthouse
500 N. King Street, Suite 11400
Wilmington, Delaware 19801-3734
William M. Lafferty, Esquire
Kevin M. Coen, Esquire
D. McKinley Measley, Esquire
Morris Nichols Arsht & Tunnell LLP
Kevin G. Abrams, Esquire
Steven C. Hough, Esquire
Abrams & Bayliss LLP
Dear Counsel:
On May 17, 2013, the Court issued a Memorandum Opinion (the "Opinion") rendering its decision on the Superior Court defendants' motion to dismiss the Superior Court Complaint (the "Motion to Dismiss"). In the Opinion, I granted the Motion to Dismiss with prejudice as to Count II to the extent that it purported to state a claim for bad faith breach of contract against the individual defendants in the Superior Court action (here, the "Management Defendants"). Currently before the Court is a motion brought by the Superior Court plaintiffs, Iron Acquisition Company, Inc. and Indigo Holding Company, Inc. ("Plaintiffs"), to amend or alter the judgment, or alternatively, for reargument as to the Court's dismissal of the bad faith breach of contract claim in Count II. For the reasons that follow, I deny Plaintiffs' motion.
Anvil Hldg. Corp. v. Iron Acquisition Co., 2013 WL 2249655 (Del. Ch. May 17, 2013). By Order of the Chief Justice, pursuant to Del. Const. Art. IV, §13(2), I have been designated to sit on the Superior Court to hear and determine all issues in Iron Acquisition Co., Inc. et al. v. Anvil Hldg. Corp. et al., C.A. No. N12C-11-053 (the "Superior Court Action"). Thereafter, I granted a Stipulated Order of Coordination, which coordinated the Superior Court Action and the Court of Chancery action for all purposes. See Stipulated and (Proposed) Order of Coordination, C.A. No. 7975-VCP (Del. Ch.), Jan. 17, 2013 (the "Coordination Order"). In this Letter Opinion, the Court presumes familiarity with the procedural history and background facts recited in the Opinion and generally employs the same nomenclature as used therein.
Count II is for "Breach of Contract and Bad Faith Breach of Contract Against Management and Anvil and Thompson Street in Their Capacities as Sellers' Representatives." The Buyers, the Superior Court plaintiffs, asserted the bad faith breach of contract claim against the Management Defendants only. See Superior Ct. Pls.' Answering Br. in Opp'n to Superior Ct. Defs.' Mot. to Dismiss the Superior Ct. Compl. ¶ 37. In addition to granting the motion to dismiss the bad faith breach of contract claim with prejudice, I granted the motion to dismiss the breach of contract claim in Count II of the Superior Court Complaint without prejudice to Plaintiffs' ability to amend its Complaint to name all Sellers as defendants within twenty days of the date of the Opinion. I later extended the time for Plaintiffs to amend the Superior Court Complaint to fourteen days following the Court's resolution of the motion currently before me. See Order Granting Stipulation and [Proposed] Order Extending the Time to Amend the Superior Court Complaint, C.A. No. 7975-VCP (Del. Ch.), June 5, 2013. In all other respects, I denied the Motion to Dismiss.
I. ANALYSIS
A. Standard
The standard applicable to a motion for reargument under 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 so the outcome of the decision would be different. 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." Similarly, a motion to alter or amend a judgment under Rule 59(e) must be denied unless the movant demonstrates "(1) an intervening change in controlling law; (2) the availability of new evidence not previously available; or (3) the need to correct a clear error of law or to prevent manifest injustice." The Court will not grant a motion for reargument or alteration if the plaintiff "merely restates arguments already made in slightly different form and rejected by the Court."
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).
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).
Chrin v. Ibrix, Inc., 2005 WL 3334270, at *1 (Del. Ch. Nov. 30, 2005).
Shell Oil Co. v. Shell Petroleum, Inc., 1992 WL 172675, at *1 (Del. Ch. July 20, 1992); see also Guzzetta, 2008 WL 5459249, at *1.
B. Plaintiffs' Motion for Reargument or Alteration
In the Opinion, the Court held that "the [Superior Court] Complaint does not state a claim for 'bad faith breach of contract.'" That holding was premised on the fact that Plaintiffs also had asserted a fraud claim, which arguably provides a basis for avoiding the limitations on remedies specified in Section 9.5 of the Purchase Agreement. Plaintiffs' bad faith breach of contract claim relied on the very same factual allegations as Plaintiffs' fraud claim. That is, Plaintiffs alleged one set of facts and labeled it as both fraud and bad faith without distinction. Furthermore, to the extent that the bad faith claim could be used to avoid the limitations in Section 9.5, the arguments would be the same as for the fraud claim. In Count I of the Superior Court Complaint, Plaintiffs allege facts that, taken as true, state a claim for common law fraud. In Count II, Plaintiffs allege similar facts that, taken as true, assert a breach of contract claim. In Count II, Plaintiffs mention "bad faith" only once, in the final paragraph:
Anvil Hldg. Corp. v. Iron Acquisition Co., Inc., 2013 WL 2249655, at *9 (Del. Ch. May 17, 2013).
The Opinion held that the Complaint stated a claim for fraud against the Management Defendants based on the Company's representations in Section 3.25. See Anvil Hldg. Corp., 2013 WL 2249655, at *6.
Superior Ct. Compl. ¶¶ 46-51.
The foregoing breach constitutes a bad faith breach of the representations and warranties in Section 3.25 of the Purchase Agreement. Accordingly as set forth in Section 9.6 of the Purchase Agreement, the damages incurred by Buyer are not subject to the liability limitations or the deductible set forth in Section 9.5. The knowing and intentional breach of contract warrants an award of punitive damages.
Not surprisingly, Count II incorporates the allegations made in the fraud claim, along with all allegations previously asserted in the Complaint, but Plaintiffs do not allege any additional facts to support their assertion of bad faith. Rather, they rely entirely on the factual allegations of wrongdoing contained in their fraud claim to support labeling Count II as being for both breach of contract and "bad faith" breach of contract. For that reason, the Court dismissed the bad faith breach of contract claim as duplicative of Plaintiffs' fraud claim.
Id. ¶ 59 (emphasis added). Similarly, Plaintiffs allege in Count I regarding their fraud claim that "[a]s set forth in Section 9.6 of the Purchase Agreement, the damages incurred by Buyer are not subject to the liability limitations or the deductible set forth in Section 9.5," and that "Management's knowing misrepresentations and material omissions also warrant an award of punitive damages." Id. ¶ 51.
Id. ¶ 59 (emphasis added). Similarly, Plaintiffs allege in Count I regarding their fraud claim that "[a]s set forth in Section 9.6 of the Purchase Agreement, the damages incurred by Buyer are not subject to the liability limitations or the deductible set forth in Section 9.5," and that "Management's knowing misrepresentations and material omissions also warrant an award of punitive damages." Id. ¶ 51.
See id. ¶ 52 ("Buyer incorporates the allegations of paragraphs 1 through 51 as if the same were fully set forth herein.").
Plaintiffs now complain that they did not have fair notice of the argument that their bad faith breach of contract claim is duplicative of their fraud claim. They contend that Defendants did not make this argument in either their opening or reply briefs. According to Plaintiffs, Defendants did not separately challenge the bad faith claim, but rather, grouped it with the fraud claim and argued that both claims must be dismissed because Plaintiffs (i) did not comply with the indemnity regime provided for in the Purchase Agreement, and (ii) sought to hold the Management Defendants liable for the representations in a specific provision of the Purchase Agreement that the Management Defendants did not make. Defendants dispute Plaintiffs' "fair notice" argument, asserting that the grounds on which the Court dismissed the bad faith claim were raised in the parties' briefing and also were identified during the oral argument on the Motion to Dismiss. Further, Defendants contend that they properly challenged the bad faith and fraud claims together because the claims were based on the same factual allegations and constituted a single, indistinguishable effort to avoid the indemnity regime set forth in Article IX of the Purchase Agreement.
See Defs.' Opp'n Br. 3.
In the motion currently before the Court, Plaintiffs contend that to prevent "manifest injustice" under Rule 59(e), this Court must revise the Opinion to dismiss the bad faith breach of contract claim without prejudice so that Plaintiffs may amend the Superior Court Complaint to add allegations distinguishing the bad faith breach of contract claim in Count II from the fraud claim in Count I. The time for such an amendment has passed.
Court of Chancery Rule 15(aaa) provides, in relevant part:
[A] party that wishes to respond to a motion to dismiss under Rules 12(b)(6) or 23.1 by amending its pleading must file an amended complaint, or a motion to amend in conformity with this Rule, no later than the time such party's answering brief in response to either of the foregoing motions is due to be filed. In the event a party fails to timely file an amended complaint or motion to amend under this subsection (aaa) and the Court thereafter concludes that the complaint should be dismissed under Rule 12(b)(6) or 23.1, such dismissal shall be with prejudice . . . unless the Court, for good cause shown, shall find that dismissal with prejudice would not be just under all the circumstances.
"Rule 15(aaa) was written to . . . require[e] plaintiffs, when confronted with a motion to dismiss . . . to elect to either: stand on the complaint and answer the motion; or, to amend or seek leave to amend the complaint before the response to the motion was due." When Plaintiffs here were faced with the Motion to Dismiss, which treated the fraud claim and bad faith claim as indistinguishable and sought dismissal of both on the same grounds, they chose to stand on the Superior Court Complaint and file an answering brief in response to Defendants' motion rather than amend their Complaint. By that time, Plaintiffs had sufficient information to make that decision, and they do not argue that new information recently has become available that provides separate grounds for their bad faith claim.
The Coordination Order provides that the "Court of Chancery Rules shall apply to all future proceedings in the Coordinated Action; provided, however, that the parties reserve the right to file a motion seeking to modify the application of the Court of Chancery Rules to the Coordinated Action." Coordination Order ¶ 4. Plaintiffs did not move to modify the application of Rule 15(aaa) before filing their answering brief in response to Defendants' Motion to Dismiss. As such, Rule 15(aaa) applies to Plaintiffs' motion for amendment or reargument.
The Coordination Order provides that the "Court of Chancery Rules shall apply to all future proceedings in the Coordinated Action; provided, however, that the parties reserve the right to file a motion seeking to modify the application of the Court of Chancery Rules to the Coordinated Action." Coordination Order ¶ 4. Plaintiffs did not move to modify the application of Rule 15(aaa) before filing their answering brief in response to Defendants' Motion to Dismiss. As such, Rule 15(aaa) applies to Plaintiffs' motion for amendment or reargument.
Braddock v. Zimmerman, 906 A.2d 776, 783 (Del. 2006).
Motions for reargument or alteration of judgment are not the appropriate method for a party to raise new arguments that it failed to present in a timely way. As explained above, Plaintiffs' fraud and bad faith claims are based on the same factual allegations and seek to achieve the same form of relief outside of the scope of Section 9.5. Thus, in the context of this case, Plaintiffs fraud and bad faith breach of contract claims are duplicative.
Sunrise Ventures, LLC v. Rehoboth Canal Ventures, LLC, 2010 WL 975581 (Del. Ch. Mar. 4, 2010), aff'd, 7 A.3d 485 (Del. 2010).
Plaintiffs argue that they seek to amend their Superior Court Complaint to allege specific facts to support the different elements of proof required for a bad faith breach of contract claim. Specifically, Plaintiffs assert that they would "make clear that the allegations that Management acted in bad faith throughout the course of negotiating the Purchase Agreement . . . gave rise to a separate claim for 'bad faith.'" To the extent that this means Plaintiffs would make more explicit their reliance on the same facts alleged in their fraud claim to support their bad faith breach of contract claim, it would not address the duplication issue dealt with in the Opinion. If Plaintiffs intend to allege new facts, they have failed to explain why they omitted any of the facts that would have supported a separate "bad faith" claim from their initial Superior Court Complaint. Indeed, if Plaintiffs intended to assert a bad faith claim in their Complaint that was distinct from their claim for fraud, they were required to allege specific facts to support that separate cause of action before now. A motion under Rule 59(e) or Rule 59(f) is not intended to provide Plaintiffs with the opportunity to re-plead a claim that they failed to plead adequately in the first instance and suffered a dismissal of as a result. As noted above, Court of Chancery Rule 15(aaa) was drafted to address this exact situation.
Mot. to Amend or Alter the J. or, alternatively, for Rearg. 4.
Furthermore, I am unconvinced that Plaintiffs did not have notice that Defendants, or this Court, considered Plaintiffs' bad faith claim duplicative of their fraud claim. Defendants' opening brief challenged these counts together, mentioning "bad faith" on seventeen separate occasions. Plaintiffs, in their answering brief, grouped the defense of their fraud and bad faith claims together, asserting that they were both untethered from the indemnification regime provided for in the Purchase Agreement. For these reasons, I adhere to my decision to dismiss the bad faith breach of contract claim in Count II with prejudice and deny Plaintiffs' request for an opportunity to amend their Superior Court Complaint to spell out a distinct claim of bad faith.
I also deny Plaintiffs' motion for reargument under Rule 59(f). Upon review of the record available at the time of the Opinion, I am convinced that I did not misapprehend the facts regarding Plaintiffs' position as to their fraud and bad faith claims. As noted above, both Defendants and Plaintiffs combined their discussions of the fraud and bad faith claims when addressing whether these claims fell outside of the indemnification provisions of the Purchase Agreement. Plaintiffs did not single out their bad faith breach of contract claim or attempt to differentiate it from their tort claim for fraud. The Complaint contains allegations of fraud in Count I, and incorporates those allegations in Count II. Plaintiffs, however, did not aver any additional facts in their bad faith breach of contract claim. Paragraphs 53 to 56 set forth allegations that state a claim for breach of contract. Paragraph 59 adds in conclusory fashion an assertion that "[t]he foregoing breach constitutes a bad faith breach of the representations and warranties in Section 3.25."
Section 9.5 of the Purchase Agreement specifies the remedies available under the Agreement's indemnification regime and the limitations on those remedies. Section 9.6 of the Agreement, however, contains a carve-out from the liability limitations in Section 9.5 for "any Claims based on fraud or the bad faith of any Party," and states that "each Party hereto reserves all rights with respect to such Claims." The fact that Plaintiffs might wish to describe the same conduct that they allege in their fraud claim as amounting to "bad faith" does not give rise, without more, to additional or different rights. Plaintiffs had a fair opportunity to allege a claim for bad faith breach of contract that differed from their fraud claim. They failed to do so. Instead, Plaintiffs chose to stand on their Complaint and answer the Motion to Dismiss. During the course of the briefing and argument on the Motion to Dismiss, Plaintiffs had an adequate opportunity to articulate how their bad faith breach of contract claim differed from their fraud claim, if at all.
Purchase Agreement § 9.6.
"Reargument under Court of Chancery Rule 59(f) is only available to re-examine the existing record; therefore, new evidence generally will not be considered on a Rule 59(f) motion." As such, motions for reargument must be denied when, as here, a party merely restates its prior arguments or, alternatively, seeks an opportunity to plead new facts.
Adams v. Calvarese Farms Maint. Corp., 2011 WL 383862, at *1 (Del. Ch. Jan. 13, 2011).
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II. CONCLUSION
For all of the above reasons, I deny Plaintiffs' motion to amend or alter the judgment, or alternatively, for reargument of the Court's May 17, 2013 Opinion.
IT IS SO ORDERED.
Sincerely,
Donald F. Parsons, Jr.
Vice Chancellor