Pavel Menn v. Conmed Corp. and Endodynamix, Inc. ( 2019 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
KATHALEEN ST. JUDE MCCORMICK LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
Date Submitted: February 19, 2019
Date Decided: February 25, 2019
A. Thompson Bayliss, Esquire John L. Reed, Esquire
Daniel J. McBride, Esquire Ethan H. Townsend, Esquire
Abrams & Bayliss LLP DLA Piper LLP (US)
20 Montchanin Road, Suite 200 1201 N. Market Street, Suite 2100
Wilmington, DE 19807 Wilmington, DE 19801
Re: Pavel Menn v. Conmed Corp. and Endodynamix, Inc.,
C.A. No. 2017-0137-KSJM
Dear Counsel:
This letter opinion addresses Defendants’ Motion for Leave to Amend Their
Answer.
I. Background
Conmed Corporation acquired Endodynamix, Inc. on July 30, 2014, through
a Stock Purchase Agreement. The Stock Purchase Agreement designated Pavel
Menn the representative of Endodynamix’s selling stockholders.
Under the Stock Purchase Agreement, Endodynamix’s selling stockholders
were entitled to post-closing “milestone” and “earnout” payments in connection
with the development and sale of certain products, including “clip appliers.”
Plaintiff commenced this litigation on February 22, 2017, contending that
Conmed and Endodynamix breached the Stock Purchase Agreement by
Menn v. Conmed Corp.
C.A. No. 2017-0137-KSJM
February 25, 2019
Page 2
discontinuing the development of clip appliers. In their initial answer filed on
March 22, 2017, Defendants denied that they had discontinued developing the clip
appliers.
In 2017, the parties responded to written discovery and document requests.
In early 2018, the parties discussed engaging in mediation. Those discussions
delayed litigation; mediation never happened. In the summer and fall of 2018, the
parties identified deponents and scheduled depositions. The first deposition was
set for October 16, 2018.
In September 2018, Defendants determined to discontinue development of
the clip appliers. In part due to this factual development, Defendants determined to
amend their answer. On October 5, 2018, in advance of depositions, Defendants
sent their proposed amended answer to Plaintiff. Plaintiff opposed Defendants’
filing of the amended answer.
The parties briefed Defendants’ motion to amend and the Court heard oral
arguments on February 19, 2019.
Menn v. Conmed Corp.
C.A. No. 2017-0137-KSJM
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Page 3
II. Analysis
Under Court of Chancery Rule 15(a), the Court freely grants leave to amend
pleadings “when justice so requires.” 1 Justice generally requires resolving matters
on their merits. 2 For this reason, granting leave to amend is “very permissive.”3
The Court will grant leave “unless there is evidence of bad faith, undue delay,
dilatory motive, undue prejudice or futility of amendment.” 4
Defendants’ proposed amendments fall into three categories:
1. Amendments reflecting Defendants’ 2018 decision to discontinue
development of the clip appliers and the rationale behind that
decision.5
2. Amendments converting prior admissions to qualified denials based
on information obtained through discovery. 6
1
Ct. Ch. R. 15(a); U.S. Bank Nat’l Ass’n v. U.S. Timberlands Klamath Falls, LLC, 2005
WL 2093694, at *1 (Del. Ch. Mar. 30, 2005) (“This court freely grants leave to amend
pleadings.”).
2
Lillis v. AT&T Corp., 896 A.2d 871, 877 (Del. Ch. 2005), decision clarified, 2005 WL
311991 (Del. Ch. Nov. 17, 2005).
3
Id. at 877. See also Bokat v. Getty Oil Co., 262 A.2d 246, 251 (Del. 1970) (granting
leave to amend under rule 15(a) is “always addressed to the discretion of the trial court”).
4
Lillis, 896 A.2d at 877 n.11 (quoting Fox v. Christina Square Assoc., L.P., 1995 WL
405744, at *2 (Del. Ch. June 19, 1995)).
5
Mot. to Am. Ex. L ¶¶ 38, 60–75, 81–90.
6
Id. ¶¶ 15–16.
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C.A. No. 2017-0137-KSJM
February 25, 2019
Page 4
3. Amendments adding a new “Eighth Defense” based on a “legal
arbiter” provision in the Stock Purchase Agreement. 7
Defendants have made a sufficient showing as to the first two categories of
amendments, which generally seek to conform the pleadings to Defendants’ view
of the evidence.8 Plaintiff argues that the first two categories are prejudicial
because the amendments are factually inaccurate. Plaintiff’s “arguments do no
more than convince me that the parties genuinely dispute the factual issues, that
those issues should be resolved on their merits, and that I should not deny the
defendant a good faith opportunity to correct its answer to conform with its present
knowledge and belief about the facts relevant to this case.”9 Also, there is no
discovery deadline in this action. Plaintiff’s ability to seek discovery concerning
the amended allegations ameliorates any prejudice resulting from the timing of the
amendments.
7
Id. ¶¶ 76–80.
8
See Save Our Cty., Inc. v. New Castle Cty., 2013 WL 1223600, at *1 (Del. Ch. Mar. 27,
2013) (granting leave to amend where “the beneficial effect of correcting factual
inaccuracies outweighs the risk of unfair prejudice”); see also Gotham P’rs v. Hallwood
Realty, 1999 WL 1022069, at *4 (Del. Ch. Oct. 18, 1999) (granting leave to amend to
allow the defendant to “attempt to conform this pleading with the evidence as it now
understands it”).
9
Gotham P’rs, 1999 WL 1022069, at *3.
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Defendants have not made a sufficient showing as to the proposed Eighth
Defense.
Under Delaware law, a party waives its right to invoke an arbitration
provision by “actively participat[ing] in a lawsuit or tak[ing] other action
inconsistent with the right to arbitration . . . .” 10 This rule is in part due to the
“essential purpose of arbitration, which is to provide an alternate dispute resolution
mechanism that affords a relatively speedy remedy to the litigants while at the
same [time] alleviating congestion in the docket of the court system.” 11 A finding
of waiver is particularly appropriate where a party seeking arbitration first obtains
in litigation the benefits of discovery to which it might not be entitled in
arbitration.12
The doctrine of waiver applies equally to a party asserting an arbitration
provision as a defense. In W.R. Ferguson, Inc. v. William A. Berbusse, Jr., Inc.,
the court found that a party waived an arbitration clause by participating in
litigation. 13 There, the defendant first raised an arbitration clause as a defense nine
10
See SBC Interactive, Inc. v. Corp. Media P’rs, 714 A.2d 758, 762 (Del. 1998) (quoting
Falcon Steel Co. v. Weber Eng’g Co., 517 A.2d 281, 288 (Del. Ch. 1986)); see also
Dorsey v. Nationwide Gen. Ins. Co., 1989 WL 102493, at *1 (Del. Ch. Sept. 8, 1989).
11
Dorsey, 1989 WL 102493, at *2.
12
Id.
13
216 A.2d 876, 878 (Del. Super. 1966).
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and a half months after the litigation commenced and after the parties had engaged
in written discovery. 14 The court had “no hesitation, under such circumstances, in
holding that the defendant . . . waived the contract provision relating to
arbitration.”15
Defendants did not raise the “legal arbiter” defense until approximately
twenty-one months after litigation commenced and after the parties had engaged in
written discovery and document production. As in W.R. Ferguson, Defendants
waived their right to assert defenses arising from the arbitration provision.
For these reasons, as to Defendants’ proposed Eighth Defense, the motion to
amend is DENIED. The motion is otherwise GRANTED.
IT IS SO ORDERED.
Very truly yours,
/s/ Kathaleen St. Jude McCormick
Vice Chancellor
KSJM/lef
14
Id.
15
Id.