LVI Group Investments, LLC v. NCM Group Holdings LLC ( 2017 )

COURT OF CHANCERY
OF THE
SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE
VICE CHANCELLOR 34 THE CIRCLE
GEORGETOWN, DELAWARE 19947
Date Submitted: November 27, 2017
Date Decided: December 4, 2017
John L. Reed, Esquire Richard D. Heins, Esquire
Ethan H. Townsend, Esquire Peter H. Kyle, Esquire
DLA Piper LLP Ashby & Geddes
1201 North Market Street, Suite 2100 500 Delaware Avenue
Wilmington, DE 19801 Wilmington, DE 19801
Rudolf Koch, Esquire John A. Sensing, Esquire
Matthew W. Murphy, Esquire Jaclyn Levy, Esquire
Matthew D. Perri, Esquire Potter Anderson & Corroon LLP
Richards, Layton & Finger, P.A. 1313 North Market Street
One Rodney Square Wilmington, DE 19801
920 North King Street
Wilmington, DE 19801 Peter B. Ladig, Esquire
Meghan A. Adams, Esquire
Bradley R. Aronstam, Esquire Morris James LLP
Nicholas D. Mozal, Esquire 500 Delaware Avenue, Suite 1500
100 S. West Street, Suite 400 Wilmington, DE 19801
Wilmington, DE 19801
Re: LVI Group Investments, LLC v. NCM Group Holdings, LLC et al.,
Civil Action No. 12067-VCG
Dear Counsel:
This case involves dueling fraud claims between LVI Group Investments,
LLC and NCM Group Holdings, LLC. In April 2014, LVI and NCM merged into
NorthStar Group Holdings. The competing fraud claims involve alleged
misrepresentations each party made to the other in connection with the merger.
On August 29, 2016, about six months after this action began, I entered a
protective order, agreed to and provided by the parties, governing the use of
discovery material produced in this litigation. Paragraph nine of the protective order
provided that such discovery material “shall be used solely for purposes of this
litigation and shall not be used for any other purpose, including, . . . any other
litigation or proceedings.”1 Discovery began, and NCM received documents
purportedly showing that four individuals—Brian Simmons, Robert Hogan, John
Leonard, and Gregory DiCarlo—participated in the fraud LVI allegedly perpetrated
against NCM. Simmons and Hogan reside in Illinois; Leonard and DiCarlo work or
reside in New York. NCM wanted to sue these four individuals, but it decided that
bringing suit in Delaware would be too risky, because the supposed wrongdoers
would (perhaps successfully) raise defenses based on personal jurisdiction and the
applicable statute of limitations. NCM could avoid litigating those defenses if it
sued the four individuals in the states they live or work in. But that option was
foreclosed by the protective order, because NCM needed to use the materials it
obtained in discovery in this case in order to adequately plead fraud against the four
individuals2 in courts outside of Delaware.. Such, at least, is what NCM represented
to this Court in urging modification of the protective order. NCM now says that it
1
Protective Order ¶ 9.
2
In its application for certification, NCM states that it also seeks to sue another alleged fraudster,
CHS, in Illinois.
2
has sued Leonard and DiCarlo in New York without relying on any of the
information it obtained during discovery in this case.
Faced with the dilemma described above—which NCM alleges continues
with respect Simmons and Hogan—NCM moved to amend the protective order. On
November 1, 2017, I issued a bench ruling denying NCM’s motion. I also granted
NorthStar’s motion to enter an order governing the production of privileged material,
which order contained a limitation on the use of privileged material that is
substantively identical to that found in the protective order. NCM now seeks
certification of an interlocutory appeal from those rulings. For the reasons that
follow, I deny certification.
Supreme Court Rule 42 establishes that “interlocutory appeal is an
extraordinary remedy, which ‘should be exceptional, not routine, because [such
appeals] disrupt the normal procession of litigation, cause delay, and can threaten to
exhaust scarce party and judicial resources.’”3 This Court will not certify
interlocutory appeal of a decision unless it “decides a substantial issue of material
importance that merits appellate review before a final judgment.”4 In deciding
whether to grant certification, “the trial court should identify whether and why the
likely benefits of interlocutory review outweigh the probable costs, such that
3
Chrome Sys., Inc. v. Autodata Solutions, Inc., 2016 WL 5112061, at *2 (Del. Ch. Sept. 21, 2016)
(alteration in original) (quoting Supr. Ct. R. 42(b)(ii)).
4
Supr. Ct. R. 42(b)(i).
3
interlocutory review is in the interests of justice.”5 Moreover, “[i]f the balance is
uncertain, the trial court should refuse to certify the interlocutory appeal.”6
Supreme Court Rule 42 establishes eight factors to be considered in
conducting this balancing test.7 NCM argues that two of those factors support
certification. Specifically, it suggests that my bench ruling involves an issue of first
impression in this state, and that interlocutory review may serve considerations of
justice. In my view, neither factor supports certification.
First, my bench ruling does not “involve[] a question of law resolved for the
first time in this State.”8 Indeed, our Supreme Court held in Hallett v. Carnet
Holding Corp. that “a trial court retains the jurisdiction and authority to enforce,
modify, or terminate any confidentiality order it has entered.”9 While Hallett did not
provide a standard for evaluating requests to modify confidentiality orders, it cited
5
Supr. Ct. R. 42(b)(iii).
6
Id.
7
See id. (“(A) The interlocutory order involves a question of law resolved for the first time in this
State; (B) The decisions of the trial courts are conflicting upon the question of law; (C) The
question of law relates to the constitutionality, construction, or application of a statute of this State,
which has not been, but should be, settled by this Court in advance of an appeal from a final order;
(D) The interlocutory order has sustained the controverted jurisdiction of the trial court; (E) The
interlocutory order has reversed or set aside a prior decision of the trial court, a jury, or an
administrative agency from which an appeal was taken to the trial court which had decided a
significant issue and a review of the interlocutory order may terminate the litigation, substantially
reduce further litigation, or otherwise serve considerations of justice; (F) The interlocutory order
has vacated or opened a judgment of the trial court; (G) Review of the interlocutory order may
terminate the litigation; or (H) Review of the interlocutory order may serve considerations of
justice.”).
8
Supr. Ct. R. 42(b)(iii)(A).
9
809 A.2d 1159, 1162 (Del. 2002) (emphasis added).
4
with approval Wolhar v. General Motors Corp., which set out a framework for
analyzing such requests.10 In Wolhar, the Court “balance[d] the . . . proposed
modification of the protective order against GM’s reliance upon the order to
determine whether such a modification would prejudice substantial rights of GM.”11
NCM itself urged me to apply the balancing test established in Wolhar. That test is
more favorable to modification (and thus to NCM) than the one advanced by LVI
and NorthStar, which requires a showing of “extraordinary circumstances” or
“compelling need.”12 This more stringent standard is set out in caselaw of the
Second Circuit, and has not been articulated in Delaware. NCM has not pointed to
any Delaware authority supporting a standard that differs from the one adopted by
Wolhar. Thus, my bench ruling does not involve a novel issue of Delaware law.13
NCM also argues that I misapplied the Wolhar test by ignoring its most
important component: the need to show that the party opposing modification would
suffer substantial prejudice from the sought-after modification. This argument lacks
merit. While I did not use the word “prejudice” in my bench ruling, I gave great
weight to LVI and NorthStar’s representations that “they tailored their approach to
10
712 A.2d 464, 469 (Del. Super. Ct. 1997).
11
Id.
12
See id. (“The Court of Appeals for the Second Circuit follows a stringent standard which allows
modification only in extraordinary circumstances or when a compelling need can be shown.”).
13
I recognize that during oral argument, I suggested that NCM’s position raised “an issue of first
impression.” June 23, 2017 Oral Arg. Tr. 37:22. I now believe that assertion to have been
mistaken.
5
discovery in reliance on the protective order’s assurance that they would not have to
face the burden and expense of litigation outside of Delaware.”14 The import of this
language is clear: LVI and NorthStar would suffer significant prejudice if I declined
to enforce an agreed-upon protective order that ensured neither party would have to
bear the cost of litigating related claims outside of Delaware.15
Nor am I convinced that an interlocutory appeal would be in the interests of
justice. NCM argues that if it “is required to wait until final judgment to appeal, that
appeal may not conclude until after the Illinois limitations period runs, thus
depriving NCM of its right to appeal.”16 In other words, even if NCM is successful
in appealing my bench ruling after final judgment is entered, reversal may come too
late to allow NCM to file a timely lawsuit against Simmons and Hogan in Illinois.
This is not a frivolous issue. The underlying concern is that the protective order will
operate as a de facto release for these supposed wrongdoers, a result that NCM says
no party could have intended. But, as I indicated in my bench ruling, “when NCM
agreed to th[e] protective order, it was entirely foreseeable that it may uncover
information through discovery that would implicate certain individuals in the fraud
allegedly perpetrated by LVI.”17 Indeed, while NCM’s original and amended
14
Nov. 1, 2017 Bench Ruling Tr. 12:17–20.
15
Though NCM now claims that the need to show substantial prejudice is the most important part
of the Wolhar test, it did not call attention to that aspect of Wolhar in its briefing or at oral
argument.
16
Application for Certification of Interlocutory Order ¶ 19.
17
Nov. 1, 2017 Bench Ruling Tr. 11:20–24.
6
Counterclaims do not name Simmons and Hogan as Defendants, they do allege that
these individuals helped LVI commit fraud. And, according to NCM, Simmons and
Hogan are now the only persons who would receive a de facto release of liability
from enforcement of the protective order. NCM should have been aware of the
possibility that it would, or might, wish to sue Simmons and Hogan at the time it
agreed to the order. Considerations of justice, therefore, do not support interlocutory
review of my bench ruling.18
For the foregoing reasons, NCM’s application for certification of
interlocutory appeal is denied. An appropriate form of order is attached.
Sincerely,
/s/ Sam Glasscock III
Sam Glasscock III
18
See Rich v. Fuqi Int’l, Inc., 2012 WL 5392162, at *6 (Del. Ch. Nov. 5, 2012) (holding that
interlocutory review would not “serve the interests of justice” “[b]ecause Fuqi has created the very
predicament it now finds itself in”).
7
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
LVI GROUP INVESTMENTS, LLC, :
:
Plaintiff, :
:
v. : C.A. No. 12067-VCG
:
NCM GROUP HOLDINGS, LLC, :
SUBHAS KHARA, EVERGREEN :
PACIFIC PARTNERS, L.P., :
EVERGREEN PACIFIC PARTNERS :
GP, LLC, EVERGREEN PACIFIC :
PARTNERS II, L.P., EVERGREEN :
PACIFIC PARTNERS II GP, L.P., :
EVERGREEN PACIFIC PARTNERS II :
GP, LLC, EVERGREEN PACIFIC :
PARTNERS MANAGEMENT :
COMPANY, INC., TIMOTHY :
BRILLON, MICHAEL NIBARGER, and :
TIMOTHY BERNARDEZ, :
:
Defendants. :
:
:
NCM GROUP HOLDINGS, LLC., :
:
Counter-Plaintiff, :
:
v. :
:
LVI GROUP INVESTMENTS, LLC, :
SCOTT STATE, PAUL CUTRONE, and :
NORTHSTAR GROUP HOLDINGS, :
LLC, :
:
Counter-Defendants. :
ORDER DENYING LEAVE TO APPEAL
FROM INTERLOCUTORY ORDER
8
AND NOW, this 4th day of December, 2017, the Counter-Plaintiff having
made application under Rule 42 of the Supreme Court for an order certifying an
appeal from the interlocutory order of this Court, dated November 1, 2017, and the
Court having found that such order lacks a substantial issue of material importance
that merits appellate review before a final judgment and that the none of the criteria
of Supreme Court Rule 42(b)(iii) apply;
IT IS ORDERED that certification to the Supreme Court of the State of
Delaware for disposition in accordance with Rule 42 of that Court is DENIED.
/s/ Sam Glasscock III
Vice Chancellor
9