Summary
denying motion for entry of partial final judgment and noting: "If this Court were to exercise its discretion under Rule 54(b) every time a derivative claim was dismissed and the direct claims survived, the rule would cease to serve the 'infrequent harsh case' and would become a procedure commonly employed." (internal footnote omitted)
Summary of this case from Sider v. Hertz Glob. Holdings, Inc.Opinion
Civil Action No. 174-N.
Submitted: December 17, 2004.
Decided December 29, 2004.
Alan J. Stone, R. Judson Scaggs, Jr., James G. McMillan, III, Jerry C. Harris, Jr., Morris, Nichols, Arsht Tunnell, Wilmington, DE.
John L. Reed, Daniel V. Folt, Gary W. Lipkin, Matt Neiderman, Duane Morris LLP, Wilmington, DE.
Kevin R. Shannon, Brian C. Ralston, Catherine A. Strickler, Potter Anderson Corroon LLP, Wilmington, DE.
Gregory P. Williams, Peter B. Ladig, Steven L. Brinker, Richards, Layton Finger, P.A., Wilmington, DE.
Dear Counsel:
I have reviewed plaintiffs' Motion for Entry of Partial Final Judgment and each party's responses. For the reasons discussed below, I deny plaintiffs' motion.
I. BACKGROUND
On November 8, 2004, this Court issued a Memorandum Opinion (the "Opinion") dismissing plaintiffs' three-count complaint almost in its entirety. Plaintiffs filed their action against William R. Ponsoldt Sr. ("Ponsoldt"), the former chairman of the board of directors and CEO of the nominal defendant, Regency Affiliates Inc. ("Regency"), and other former directors of Regency and Statesman Group Inc. ("Statesman"). Plaintiffs further asserted claims against Laurence Levy ("Levy"), the current chairman and CEO of Regency, the current Regency directors, and two entities — Royalty Holdings, LLC and Royalty Management Inc. (the "Royalty Entities").
Count I of the complaint asserted derivative claims on behalf of Regency for harm allegedly inflicted when Ponsoldt was paid "excessive compensation." Count II purported to assert direct claims, which according to plaintiffs were based on "a continuing scheme to extract value from the public shareholders." The final count of the complaint, Count III, asserted direct claims against Levy and the Royalty Entities for aiding and abetting the former Regency directors' ostensible breaches of fiduciary duty which occurred in connection with approving the "scheme" challenged in count II.
See compl. ¶¶ 90-97.
Pls.' Mot. for Entry of Partial Final J. ("Pls.' Mot.") at 2. See also compl. ¶¶ 98-108.
See compl. ¶¶ 109-114.
Defendants, in turn, filed their respective motions to dismiss. After considering the parties' briefs and oral argument, the Court entered its November 8 Order. The only claim to survive defendants' motions to dismiss was the allegation concerning the sale of the Aggregate between Regency subsidiaries. The Court found that despite plaintiffs' characterization, the transactions challenged in count II (with the exception of the Aggregate sale) did not allege harms suffered individually by the shareholders and that an award, if made, would necessarily benefit the corporation and not the shareholders. Thus, Count II pled derivative claims and plaintiffs' failure to make a pre-suit demand precluded them from proceeding.
Gatz, et al. v. Ponsoldt, et al, C.A. No. 174-N slip op., Chandler, C. (Del.Ch. Nov. 8, 2004).
See id. (relying on Tooley v. Donaldson, Lufkin Jenrette, Inc., 845 A.2d 1031 (Del. 2004)).
Count I of the complaint was dismissed pursuant to CT. CH. R. 23.1 for failure to make a pre-suit demand. Count III was dismissed because the aiding and abetting claim could not proceed absent the attendant breach of fiduciary duty claims dismissed in Count II. See Gatz, C.A. No. 174-N slip op., at 10-16 id. at 25 (relying on Manzo v. Rite Aid Corp., 2002 Del. Ch. LEXIS 147, at *21 (Del.Ch. Dec. 19, 2002), aff'd, Manzo v. Rite Aid Corp., 825 A.2d 239 (Del. 2003)).
II. ANALYSIS
Plaintiffs now bring this motion pursuant to Chancery Rule 54(b) and seek the entry of a partial final judgment so they may appeal this Court's Order before resolution of the remaining issue in this case — namely, the propriety of the Aggregate sale. Chancery Rule 54(b) provides:
When more than 1 claim for relief is presented in an action, whether as a claim, counterclaim, cross-claim, or third-party claim, the Court may direct the entry of a final judgment upon 1 or more but fewer than all of the claims or parties only upon an express determination that there is not just reason for delay and upon an express direction for the entry of judgment.
CT. CH. R. 54(b). Rule 54(b) is clearly drafted in terms that require the Court to make specific findings before entering a partial final judgment. For example, it is clear that Rule 54(b) only applies in situations where there are multiple claims or parties. Moreover, the judgments, if entered, must indeed be final. And, finally, the Court must consider the parties' application in light of the policy considerations invoked by the no just reason for delay standard. Nevertheless, because the Court finds that the plaintiffs have not met this last burden, I will not discuss the other Rule 54(b) considerations.
When deciding to exercise its discretion in this manner, the Court may consider many factors and will balance those factors against "the long established policy against piecemeal appeals [that] requires . . . this Court exercise that discretion sparingly." Indeed, Rule 54(b) exists to create "a discretionary power to afford a remedy in the infrequent harsh case. . . ."
In re Tri-Star Pictures, Inc., Litigation, 1989 Del. Ch. LEXIS 126, at *3 (Del.Ch.) ("the court may consider any factor relevant to judicial administrative interests or the equities of the case.").
Id.
Id. (citing Panichella v. Penn. R.R. Co., 252 F.2d 452, 455 (3d Cir. 1958)).
Plaintiffs' motion asserts three broad arguments for why an entry of a partial final judgment should be granted. The first is the assertion that without such an order judicial resources will be improvidently consumed. The second is the administration of justice. The third is the assertion that any further delay will prejudice plaintiffs' claims. Under the facts of this case, none of these arguments creates sufficient justification for the Court to find there is not just reason for delay.
A. Judicial Economy
Plaintiffs style this case as "[unusually] harsh" because without an immediate appeal the interrelated nature of the dismissed claims and the surviving claim will (1) "produce disputes about the appropriate scope of discovery;" (2) involve parties who no longer have a claim against them; and (3) create duplicative discovery. Thus, this Court should exercise its discretion while the litigation is in its nascent stages and before any "substantive discovery has been taken."
Pls.' Mot. at 7.
Id.
Id.
Id. at 8.
Despite their attempt, plaintiffs point to nothing that signals anything unusually harsh about this case. Quite often litigants assert both direct and derivative claims. Of course, derivative claims must meet the strictures of Chancery Rule 23.1 and will invariably fail if those strictures are not met. If this Court were to exercise its discretion under Rule 54(b) every time a derivative claim was dismissed and the direct claims survived, the rule would cease to serve the "infrequent harsh case" and would become a procedure commonly employed.
(Emphasis added).
Plaintiffs' position regarding discovery disputes and procedural oddities are equally unavailing. Unfortunately, disagreements between litigants over the appropriate scope of discovery are not unusual. If necessary, the Court is here to resolve any "difficult procedural issues" that may arise. Finally, it remains unclear how resolution of the remaining claim would produce duplicative discovery. Any fact appropriately discovered at this stage of the case would be equally useful if a successful appeal reversed the November 8 Order. Plaintiffs concede as much by arguing the interrelated nature of the Aggregate sale, the option payment, and the restructuring. In short, the factors plaintiffs point to do not distinguish this case from numerous others that come before the Court and such familiar themes diminish plaintiff's contention that this case is the infrequent, harsh one warranting an exercise of the Court's discretion.
See Pls.' Mot. at 7-9. Surely plaintiffs do not mean to suggest they would purposefully waste resources by circling the same ground twice?
B. Administration of Justice
Plaintiffs also contend that the Opinion touched upon "important questions of law that remain . . . subject to uncertainty." Therefore, according to plaintiffs, the "administration of justice" will be served by "[speeding] up the development of the law."
Id. at 10.
Id.
Id. at 11.
The Court does not agree with plaintiffs' characterization that the issues resolved in the Opinion were novel. The law concerning control premiums post Revlon is well established. In addition, plaintiffs fail to explain why the Tooley precedent, as applied in this case, is cause to sidestep the traditional appeal process. Simply stating a conclusion without a rationale does not assist the Court in reaching a reasoned decision. Still, even if the Court were to assume its Opinion raised "important questions of law," equally important to the administration of justice is the policy against piecemeal appeals.
Plaintiffs' arguments mirror what one would expect from a party seeking certification of an interlocutory appeal. Certainly, one could imagine a case where the policy concerns implicated by Supreme Court Rules 42(b)(i)-(v) could justify the entry of a partial final judgment. But unlike an interlocutory appeal, Chancery Rule 54(b) requires an expressed determination that there is not just reason for delay. For the reasons above, plaintiffs fail to satisfy this mandate.
Plaintiffs' attempt to assuage this Court's concern about authorizing piecemeal appeals falls short. Plaintiffs contend that there is no danger of multiple appeals because the only issue for the Supreme Court is "whether the dismissed claims are direct or derivative." This is simply wrong. Ignoring plaintiffs' assertion that the "important questions of law" raised by Revlon are also cause to grant their motion, I will assume that the only question plaintiffs present for appeal is whether the dismissed claims are direct or derivative. This Court's Opinion, which defendants cannot yet appeal, found that the Aggregate transaction presented a direct claim. Thus, the issues plaintiffs seek to appeal equally affect the defendants. Conceivably, at some point, the Supreme Court will be asked to consider the direct/derivative distinction as applied in this case. In light of the fact that this question could pertain to defendants and plaintiffs alike, plaintiffs fail to articulate why granting their motion would not invite piecemeal appeals. Balancing "the long established policy against piecemeal appeals [that] requires . . . this Court exercise [its] discretion sparingly" against plaintiffs' unconvincing concerns for the administration of justice, the Court concludes that the better course of action is to delay appeal until the conclusion of the entire case.
Pls.' Mot. at 9.
For simplicity's sake, I assume the only question is the one raised by the direct/derivative classification. One could easily conceive of multiple claims that the parties could assert on appeal. This of course only weakens plaintiffs' contention that there is no risk of piecemeal appeals.
Clearly the claim concerning the Aggregate sale is not final and the time frame for an interlocutory appeal has lapsed.
In re Tri-Star Pictures, Inc. Litigation, 1989 Del. Ch. LEXIS 126, at *3 (Del.Ch.).
C. Unnecessary Delay
Finally, in the very short paragraph devoted to the issue, plaintiffs maintain that an immediate appeal is necessary because the Levy defendants remain, albeit wrongly, in control of Regency. Again, plaintiffs fail to articulate why an immediate appeal, on balance, helps their cause. If this Court's decision concerning plaintiffs' dismissed claims is ultimately reversed, there is no guarantee that plaintiffs' claims would then in fact succeed, let alone progress quickly. Yet, if those claims did ultimately prevail, the Court is not limited in its ability to fashion an adequate remedy. Certainly, the hardship contemplated by Rule 54(b) should at least rise to a level where the Court's ability to provide an adequate and full remedy is limited. Here, the Court perceives no prejudice to plaintiffs if their appeal is delayed.
See Pls.' Mot. at 9.
The Court notes that plaintiffs waited thirty-five days after the November 8 Order to file their Rule 54(b) motion. This conduct does not bespeak a party particularly concerned about delay.
III. CONCLUSION
For the reasons set forth above, this Court concludes that plaintiffs have not met their burden of demonstrating that there is not just reason for delay, thereby warranting entry of a partial final judgment under Chancery Rule 54(b). Accordingly, I deny plaintiffs' motion.IT IS SO ORDERED.