Ritchie CT OPPS, LLC v. Huizenga Managers Fund, LLC ( 2019 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
RITCHIE CT OPPS, LLC, a Delaware )
Limited Liability Company, as successor
)
in interest to RITCHIE ENERGY, LLC, )
a Delaware Limited Liability Company, )
by and through its Managing Member, )
RITCHIE PARTNERS, LLC, )
)
Plaintiff, )
)
v. ) C.A. No. 2018-0196-SG
)
HUIZENGA MANAGERS FUND, LLC, )
a Delaware Limited Liability Company, )
)
Defendant. )
MEMORANDUM OPINION
Date Submitted: February 6, 2019
Date Decided: May 30, 2019
John A. Sensing and Ryan C. Cicoski, of POTTER ANDERSON & CORROON
LLP, Wilmington, Delaware, Attorneys for Plaintiff.
Steven L. Caponi, of K&L GATES LLP, Wilmington, Delaware; OF COUNSEL:
Gary W. Garner and Jonathan Miller, of WILLIAMS MONTGOMERY & JOHN
LTD., Chicago, Illinois, Attorneys for Defendant.
GLASSCOCK, Vice Chancellor
Before me is a Motion to Dismiss the Plaintiff’s Amended Complaint, which
alleges that the Defendant has breached contractual confidentiality and non-
disparagement clauses of its contract with the Plaintiff’s predecessor in interest. The
questions presented are straightforward: Does the Plaintiff have standing to enforce
the interests represented in its claims? Are the necessary parties before the Court?
Does the absolute litigation privilege trump a contractual non-disparagement
provision?
As the reader with fortitude to carry on will quickly discover, however, the
procedural and factual background necessary to the decision are not so
straightforward. The Defendant is an investor in one of a blizzard of entities created
by A.R. Thane Ritchie to promote and service investments. The number of
interrelated entities has frustrated my well-intentioned attempt to represent their
relationship graphically, so that what follows is my attempt to explain that
relationship in prose. Also challenging is the thicket of interrelated lawsuits
involving the Defendant and Mr. Ritchie’s entities, including at least four filed in
this jurisdiction, as well as numerous others. After an attempt to navigate this factual
and procedural sargassum, I address the substantive questions, and determine that
the Motion to Dismiss must be granted, for the reasons explained below.
I. BACKGROUND
The following facts, drawn from the Plaintiff’s Amended Complaint, are
presumed true for purposes of evaluating the Defendant’s Motion to Dismiss.
A. The Parties
The Plaintiff, Ritchie CT Opps, LLC (“Opps”), is a Delaware limited liability
company, with a registered office in Wilmington, Delaware. 1 Its managing member
is Ritchie Partners LLC (“Partners”), which is also a Delaware limited liability
company. 2 Ritchie Energy, LLC (“Energy”) was a Delaware limited liability
company with its principal place of business in the Cayman Islands.3 Energy was
formed in 2004.4 On November 27, 2017, Energy assigned all of its rights, title, and
interest to Ritchie Multi-Strategy Global, LLC (“Global”).5 Energy then filed a
Certificate of Cancellation with the Delaware Secretary of State.6 Thereafter, on
February 6, 2018, Global transferred the rights, title, and interest it received from
Energy to Opps. 7
The Defendant, Huizenga Managers Fund, LLC (“Huizenga”), is a Delaware
limited liability company, with a principal place of business in Oak Brook, Illinois.8
1
Am. Compl. ¶ 11.
2
Id. ¶ 12.
3
Id. ¶ 10.
4
Id. ¶ 17.
5
Id. ¶ 10.
6
Id.
7
Id. ¶ 11.
8
Id. ¶ 13.
2
It is managed by Huizenga Capital Management, LLC, an Illinois limited liability
company. 9 Huizenga is a private investment fund,10 and was an investor in Energy.11
B. Huizenga Invests in Ritchie Energy
1. “Ritchie”
The name “Ritchie” is used as a brand name for a family of private investment
funds. 12 It is derived from an individual, A.R. Thane Ritchie (Mr. Ritchie). 13 Mr.
Ritchie formed, oversaw, and developed the “Ritchie” family of investment funds.14
Under the structure devised by Mr. Ritchie, Global pools investments from qualified
purchasers, and then invests the majority of that pooled capital into an offshore
pooled investment vehicle, known as the “MSG Master Fund.”15 The MSG Master
Fund, in turn, invests in a number of other pooled investment vehicles (“Strategy
Funds”), which are committed to certain classes of assets or certain investment
strategies.16 The Strategy Funds are located globally but are often restricted to the
investments they receive from the MSG Master Fund.17 In addition to Global, the
MSG Master Fund, and the Strategy Funds, there are a variety of “Ritchie” entities
9
Id.
10
Id. ¶ 27.
11
Id. ¶¶ 1, 29, 30.
12
Id. ¶ 16.
13
Id. ¶ 25. I refer to A.R. Thane Ritchie as “Mr. Ritchie,” in order to differentiate Mr. Ritchie, an
individual, from the various affiliated entities which also bear the name “Ritchie.”
14
Id.
15
Id. ¶ 19.
16
Id. ¶ 20.
17
Id. ¶ 21.
3
that provide services to the various Funds; services such as day-to-day management,
advisement on new and existing investments, and raising capital.18 Pertinent here is
Ritchie Capital Management, Ltd. (“Capital Ltd.”), a Cayman Islands company with
its principal place of business in the Cayman Islands.19 Capital Ltd. is an investment
manager; it managed Global, the MSG Master Fund, and the Strategy Funds. 20
While not explicitly pled in the Amended Complaint, it appears that Energy
was a Strategy Fund.21 According to Energy’s Operating Agreement, Partners was
the “Managing Member” of Energy. 22 Capital Ltd. was Energy’s “Investment
Manager.”23 Ritchie Capital Management, LLC (“Capital LLC”) was Energy’s
“Sub-Advisor.”24
2. Huizenga Invests in Ritchie Energy
In October 2002, Huizenga executed a subscription agreement with Global.25
Through the subscription agreement, Huizenga was allowed to purchase
membership interests in limited liability companies within Global. 26 On September
1, 2004, Huizenga entered into the Ritchie Energy Subscription Agreement (the
18
Id. ¶ 23.
19
Id. ¶ 24.
20
Id. ¶¶ 24–26.
21
Answering Br. in Opp’n to Mot. to Dismiss Am. & Suppl. Verified Compl. [hereinafter
Answering Br.], at 3.
22
Am. Compl. ¶ 36.
23
Id.
24
Id.
25
Id. ¶ 28.
26
Id.
4
“Subscription Agreement”).27 In return for signing the Subscription Agreement and
investing $1.5 million, Huizenga received a $1.5 million limited liability company
interest in Energy. 28 On September 29, 2004, Huizenga entered into the Additional
Investment Subscription Form (the “Additional Investment Subscription Form”) and
purchased an additional $3.5 million interest in Energy. 29 Huizenga’s additional
investment was subject to all the terms and conditions of the Subscription
Agreement. 30
3. The Terms of Huizenga’s Investment in Ritchie Energy
a. Ritchie Energy’s Operating Agreement
Energy’s Operating Agreement (the “Operating Agreement”) is dated July 1,
2004. 31 The Operating Agreement references not only “Member[s]” of Energy, but
also “RCM Part[ies].” 32 A “Member” is “a Member of the Company, including the
Managing Member.” 33 The “Managing Member,” as mentioned, was Partners,
however, the term was also defined in the Operating Agreement to include the Sub-
Advisor (Capital LLC) and the Investment Manager (Capital Ltd.).34 “RCM” is a
27
Id. ¶ 29.
28
Id.
29
Id. ¶ 30.
30
Id.
31
See id., Ex. C.
32
See generally id.
33
Id., Ex. C, § 1.6, Definitions, “Member.”
34
Id., Ex. C, § 1.6, Definitions, “Managing Member,” “Investment Manager,” “Sub-Advisor;” see
also id. ¶ 36.
5
defined term in the Operating Agreement; it includes “the Managing Member, the
Investment Manager, the Sub-Adviser, and any of their respective Affiliates, which
will, collectively, manage the trading and investing of the Company and the Master
Fund, and any of their successors or assigns.”35 A “RCM Party” is “(a) RCM, (b)
any Affiliate of RCM, and (c) any owner, principal, director, officer or employee of
any of the foregoing.” 36 An “Affiliate” of a person 37 is “a Person controlling,
controlled by or under common control with, that Person, either directly or indirectly
through one or more intermediaries.”38
According to the Operating Agreement, “[e]ach Member agrees not to
disparage [Energy] 39 or any RCM Party regarding any of the transactions
contemplated hereby, providing that nothing in this Section 8.22 shall prevent or
limit any disclosure a Member reasonable believes such Member is required to make
pursuant to Law.”40 Furthermore, as part of the Operating Agreement:
Each Member covenants that, except with the prior written consent of
the Managing Member, it has and it shall at all times keep confidential
and not, directly or indirectly, disclose, divulge, furnish or make
accessible to anyone, or use in any manner that would be adverse to the
35
Id. ¶ 36; see also id., Ex. C, § 1.6, Definitions, “RCM.”
36
Id. ¶ 35; see also id., Ex. C, § 1.6, Definitions, “RCM Party.” References to a “RCM Party” or
to “RCM Parties” in this Opinion use this definition.
37
A “Person” is defined as “any individual, partnership, limited liability company, joint venture,
corporation, trust, unincorporated organization, government . . . or other entity, whether or not
having legal personality.” Id. ¶ 35 n.1; see also id., Ex. C, § 1.6, Definitions, “Person.”
38
Id. ¶ 35 n.1; see also id., Ex. C, § 1.6, Definitions, “Affiliate.”
39
The “Company” was defined as “Ritchie Energy, L.L.C., the Delaware limited liability company
governed by this Agreement.” Id., Ex. C, § 1.6, Definitions, “Company.”
40
Id. ¶ 43; id., Ex. C, § 8.22.
6
interests of [Energy] or any RCM Party, any confidential or proprietary
information to which such Member has been or shall become privy
relating to the business or assets of the Company or of any of the RCM
Parties . . . . 41
The Operating Agreement, “[w]ithout limiting the generality of the foregoing,”
specifically defines confidential and proprietary information to include:
(i) the identities of the personnel of [Energy] and the RCM Parties, (ii)
the specific investment techniques utilized by [Energy], (iii) any
information regarding a Member, (iv) the performance record of
[Energy], and any other financial results or data of [Energy], (v) any
communication from any RCM Party or any of its representatives or
Affiliates and (vi) the RCM Intellectual Property . . . . 42
Confidential information could be disclosed when the information was “otherwise
publicly available (other than information made publicly available by a Member
relying on this exemption in disclosing such information) or required to be disclosed
by Law . . . .” 43 However, even under the exceptions, members of Energy were
required to first inform the Managing Member before disclosing confidential
information and to give the Managing Member an opportunity to contest whether
the information had been made public or whether disclosure was required by Law. 44
Confidential information could be shared by members with certain “Permitted
41
Id. ¶ 46; id., Ex. C, § 8.21(b).
42
Id. ¶ 44; id., Ex. C, § 8.21(c).
43
Id. ¶ 47; id., Ex. C, § 8.21(b).
44
Id. ¶ 47; id., Ex. C, § 8.21(b).
7
Confidants,” such as attorneys and accountants, as long as the confidants held the
information in strict confidence and did not use it for personal gain.45
Members of Energy agreed, in the Operating Agreement, that breaches of the
covenants associated with confidentiality could lead to irreparable harm, for which
monetary damages would not be sufficient. 46 “Accordingly, each Member agrees
that [Energy] and Managing Member, separately or together, shall be entitled to
equitable and injunctive relief, on an emergency, temporary, preliminary and/or
permanent basis, to prevent any such breach or the continuation thereof.” 47 Finally,
the Operating Agreement prohibited Members from doing “indirectly — by the use
of Affiliates, agents, agreements, contracts, reciprocal business dealings or any other
means — that which such Member has agreed not to do directly.” 48
b. Huizenga’s Subscription Agreement and Additional
Investment Subscription Form
Huizenga’s Subscription Agreement was signed on September 1, 2004.
Terms used but not defined by the Subscription Agreement were given the
definitions and meaning set forth in the Operating Agreement. 49 The Subscription
Agreement also incorporates the Operating Agreement by reference; Huizenga
45
Id. ¶ 50; id., Ex. C, § 8.21(b).
46
Id. ¶ 51; id., Ex. C, § 8.21(f).
47
Id., Ex. C, § 8.21(f); see also id. ¶ 51.
48
Id., Ex. C, § 8.19; see also id. ¶ 52.
49
Id. ¶ 32; id., Ex. A, § 1.
8
“agrees to be bound by the provisions of the Fund’s Operating Agreement.” 50 In the
Subscription Agreement, Huizenga specifically agreed to the Operating Agreement,
“including without limitation the confidentiality . . . covenants set forth in Section
8.2 of the Operating Agreement.” 51 Furthermore, according to the Subscription
Agreement, “[n]either [Huizenga] nor any representative of [Huizenga] shall
publicly disparage [Energy] or any RCM Party.” 52 As mentioned, Huizenga’s
additional investment on September 29, 2004 was also made according to the terms
and conditions of the Subscription Agreement.53
C. Huizenga and “Ritchie” Fall Out
1. Litigation in Illinois
In 2007, Huizenga filed suit against Mr. Ritchie, Capital LLC, and an entity
named Ritchie Risk-Linked Strategies, LLC (“Risk-Linked Strategies”), and several
other parties, in Illinois (the “Illinois DSA Action”).54 Huizenga alleged that the
defendants in the Illinois DSA Action violated the Delaware Securities Act (the
“DSA”) by failing to disclose certain information related to Risk-Linked
Strategies. 55 Huizenga had made two investments in Risk-Linked Strategies, which
were governed by a separate subscription agreement from the Subscription
50
Id. ¶ 32; id., Ex. A, § 2(f).
51
Id., Ex. A, § 17.
52
Id., Ex. A, § 16; see also id. ¶ 43.
53
Id. ¶ 30; id., Ex. B.
54
Id. ¶ 55.
55
Id.
9
Agreement at issue here. 56 In 2015, the Illinois trial court in the Illinois DSA Action
found that the Ritchie defendants violated the DSA with regard to the second Risk-
Linked Strategies investment and entered a final judgment against them. 57 On
appeal, the Illinois appellate court affirmed the violation with regard to the second
investment, and found that the first investment in Risk-Linked Strategies also
violated the DSA. 58
According to the Amended Complaint, Huizenga has, through subsequent
litigation in Illinois and through related legal actions in other states, made public
RCM Party confidential information.59 The Amended Complaint alleges that
through the litigation in Illinois, as well as the related disclosure of RCM Party
confidential information, Huizenga has disparaged RCM Parties.60 Additionally, per
the Amended Complaint, attorneys representing Huizenga are not holding RCM
Party information confidential, and furthermore, because Huizenga’s attorneys are
purportedly working on a contingency fee basis they are using confidential
information for “personal gain.”61
For example, Huizenga made public RCM Party confidential information in
January 2018 when it publicly filed an amended complaint against several RCM
56
Id.
57
Id. ¶ 56.
58
Id. ¶ 57.
59
See, e.g., id. ¶¶ 58, 60, 63, 65.
60
Id. ¶¶ 58–59.
61
Id. ¶ 60.
10
Parties in an Illinois action related to a dispute over the appeal bond issued in
connection with the appeal of the Illinois trial court’s judgment in the Illinois DSA
Action.62 In the same Illinois action regarding the appeal bond, in February 2018,
Huizenga then publicly filed a memorandum and exhibits, which also contained
RCM Party confidential information. 63 The publicly filed exhibits included
information “detailing the identity, assets, property ownership, and potential
whereabouts of Thane Ritchie and other affiliated parties.” 64 The public exhibits
also included a non-public organizational chart that discloses the relationship
between certain RCM Parties.65 In addition, Huizenga disclosed “allegations
regarding the income and assets of [Capital LLC] and other RCM Parties,” and the
identity of “Ritchie personnel responsible for controlling and directing payments
made by and from RCM Parties.” 66
Furthermore, in March 2018, Huizenga served a New York Information
Subpoena upon Millennium Technology Value Partners L.P. (“Millennium”) in an
effort to recover a management fee owed to one of the judgment debtors in the
Illinois DSA Action. 67 The Plaintiff alleges that Huizenga learned the identity of
Millennium and its relationship to the RCM Parties from confidential information
62
Id. ¶ 62.
63
Id.
64
Id. ¶ 63.
65
Id.
66
Id.
67
Id. ¶ 64.
11
provided to Huizenga as an investor in certain of the RCM Parties. 68 In April 2018,
Huizenga served an Illinois “Citation to Discover Assets” upon Interactive Brokers,
LLC, an electronic brokerage firm, including for an entity named Alpha Carta Ltd.,
which Huizenga alleged was an Illinois DSA Action judgment debtor.69 Interactive
Brokers, LLC thereafter froze the assets of Alpha Carta Ltd. and prevented it from
making trades through Interactive Brokers, LLC. 70 The Plaintiff alleges that
Huizenga learned the identity of Alpha Carta Ltd. and its relationship to the RCM
Parties from confidential information provided to Huizenga as an investor in certain
of the RCM Parties. 71 According to the Plaintiff, Huizenga provided the identity of
Millennium and Alpha Carta Ltd. to its attorneys in violation of contractual
obligations to keep such information confidential. 72
In May 2018, Huizenga filed a second amended complaint in the Illinois
action related to the appeal bond. 73 The second amended complaint included
confidential information (for example, regarding the assignment of rights between
the RCM Parties) and is disparaging of RCM Parties (for example, alleging that Mr.
68
Id. ¶ 65.
69
Id. ¶ 66.
70
Id.
71
Id. ¶ 67.
72
Id. ¶¶ 65, 67 (alleging that, under a contingent-fee representation agreement, Huizenga’s
attorneys used RCM Party confidential information for financial gain, contravening the
confidentiality provisions).
73
Id. ¶ 68.
12
Ritchie has used RCM Parties as a “piggybank”).74 Per the Amended Complaint,
Huizenga has made, either orally or in writing, other disparaging remarks regarding
Mr. Ritchie or an RCM Party such as: “international fraudster,” “fraudulently
avoiding creditors,” “using foreign citizenship for the purposes of engaging in illicit
financial activities or financial crimes,” among others. 75 The Plaintiff cites only to
court documents filed by Huizenga in various actions in Illinois as specific support
for disparaging statements made by Huizenga about a RCM Party. 76
D. Relevant Events after the Filing of this Action
It is relevant to the motion to dismiss analysis 77 to detail certain related
litigation filed in other courts, and certain events that have occurred since the original
Complaint was filed. 78 Opps filed its original Complaint on March 19, 2018, before
some of the events referenced above occurred, and then its Amended Complaint on
June 18, 2018.
74
Id. ¶ 69.
75
Id. ¶ 73; see also id. ¶ 74.
76
See id. ¶ 74.
77
The Defendant has moved to dismiss the Plaintiff’s claims, in part, in light of these other
litigations. See Opening Br. in Support of Its Mot. to Dismiss Am. And Suppl. Verified Compl.
[hereinafter Opening Br.], at 16–30.
78
The parties, at my request, jointly submitted a helpful timeline detailing all other relevant
litigations to this action, I draw the facts below from that stipulated timeline. See D.I. 77
[hereinafter, “Litigation Timeline”].
13
1. The Actions in Illinois
For reference, the Illinois DSA Action was filed on April 6, 2007. 79 As
mentioned above, it resulted in two judgments against the defendants for violating
the DSA; the defendants included Mr. Ritchie, Capital LLC, and Risk-Linked
Strategies. 80 The first judgment was paid via appeal bond in 2017, and the second
judgment was paid in 2018.81 On June 18, 2018, Risk-Linked Strategies filed a
Petition to Vacate in the Illinois DSA Action, which was dismissed.82 The parties
are currently briefing Huizenga’s motions for sanctions (brought in response to the
Petition to Vacate) and entitlement to attorneys’ fees and costs.83 However,
Huizenga and the RCM Parties have also brought other litigation against each other
in Illinois and in Delaware.
a. The Cook County Fraud Action
On September 13, 2017, Huizenga filed an action (the “Cook County Fraud
Action”) against Mr. Ritchie, Capital Ltd., Partners, Risk-Linked Strategies and
another RCM Party, and their insurers, in Cook County, Illinois.84 Huizenga alleges
fraud, civil conspiracy, and fraudulent transfer. 85 This appears to be the litigation
79
Litigation Timeline, at 1.
80
Id.
81
Id.
82
Id.
83
Id.
84
Id. at 2.
85
Id.
14
concerning the appeal bond, referenced above. 86 Huizenga has since settled with the
insurers. 87 Huizenga, with the agreement of the remaining defendants, was granted
leave to file a third amended complaint by January 8, 2019. 88
b. The DuPage County Action
On January 31, 2018, two “John Doe” entities filed an action in Illinois (the
“DuPage County Action”) against Huizenga. 89 The John Doe plaintiffs sought
injunctive relief for breach of contractual non-disparagement and confidentiality
provisions. 90 The plaintiffs voluntarily dismissed their claims without prejudice;
however, Huizenga moved for sanctions. 91 The Illinois Court deemed sanctions
appropriate, and the parties are currently in discovery on sanctions, in advance of an
evidentiary hearing.92
c. The Cook County Injunction Action
On March 8, 2018, Global, through its Managing Member, Capital Ltd.,
brought an action against Huizenga in Illinois (the “Cook County Injunction
Action”). 93 The plaintiff seeks injunctive relief for breach of contractual non-
86
Am. Compl., Exs. D, F (noting case number 17-L-9244); Litigation Timeline at 2 (noting case
number 17-L-9244).
87
Litigation Timeline, at 2.
88
Id.
89
Id. at 2–3.
90
Id. at 2–3.
91
Id.
92
Id.
93
Id. at 3.
15
disparagement and confidentiality provisions.94 Huizenga has moved to dismiss the
complaint.95 Its motion to dismiss is currently pending. 96 The Illinois Court has
already granted a Huizenga motion for sanctions in the action.97
2. The Delaware Superior Court Action
On May 3, 2018, Global filed an action in Delaware Superior Court against
Huizenga (the “Delaware Superior Court Action”). 98 Global’s claims relate to
contractual confidentiality and damages related to the Illinois DSA Action.99
Huizenga filed a motion to dismiss, which was argued on December 17, 2018.100
The Delaware Superior Court Action was stayed on January 19, 2019.101
Risk-Linked Strategies has since filed a petition for Chapter 11 bankruptcy in
United States Bankruptcy Court of the District of Delaware.102
E. Procedural History
94
Id.
95
Id.
96
Id.
97
Id.
98
Id. at 4. This is the second of three related cases filed in Delaware Superior Court. The first
was filed on May 24, 2017 by Mr. Ritchie, Capital LLC, Partners, and Risk-Linked Strategies,
who sought contractual indemnification for judgment and fees in relation to the Illinois DSA
Action. Id. at 2. The Delaware Superior Court stayed the case pursuant to McWane. Id. at 2. A
third action was filed on August 24, 2018 in which Risk-Linked Strategies, Capital Ltd., and an
entity named Ritchie Multi-Strategy Global Trading, Ltd. brought a contractual claim for fees
incurred, as alleged subrogees of non-liable parties, in the Illinois DSA Action. Id. at 4.
99
Id. at 4.
100
Id.
101
See D.I. 81; D.I. 83; Ritchie Multi-Strategy Global, LLC v. Huizenga Managers Fund, LLC,
2019 WL 194353 (Del. Super. Jan. 15, 2019).
102
Litigation Timeline, at 4.
16
Opps filed its original Complaint against Huizenga on March 19, 2018. Opps
also sought a Temporary Restraining Order (a “TRO”) to enjoin Huizenga from
disclosing confidential information and disparaging Opps and other RCM Parties.
At a TRO Hearing on March 27, 2018, the parties reached a verbal agreement
governing their litigious behavior in existing litigations elsewhere and I agreed to
stay the Motion for a TRO. However, within a month, Opps asked to lift the stay
and renewed its Motion for a TRO. I held another TRO hearing on April 26, 2018,
where I agreed to lift the stay and denied the Motion for a TRO, but I entered a
Bench Order to govern certain litigious behavior in any new action brought by
Huizenga against a RCM Party. Opps then filed an Amended Complaint on June
18, 2018.
Huizenga filed a Motion to Dismiss the Amended Complaint on June 29,
2018. On August 22, 2018, Opps submitted a letter alleging that Huizenga had, in
connection with the action in the United States Bankruptcy Court of the District of
Delaware, violated the March 27, 2018 verbal agreement. Huizenga responded by
letter on August 27. I held Oral Argument on the Motion to Dismiss on November
9, 2018.103
103
In addition to briefing, I also received a supplemental letter from Huizenga on October 16,
2018. See D.I. 69.
17
At Oral Argument I asked the parties for supplemental submissions, which
they have provided. 104 On December 31, 2018, the parties submitted letter briefs on
the applicability of this Court’s decision in CapStack Nashville 3 LLC v. MACC
Venture Partners to the Motion to Dismiss. 105 On December 31, 2018, the parties
also jointly submitted a timeline detailing the various other litigations in which
Huizenga is engaged with parties related to Opps.
The parties submitted further supplemental letters on January 17, January 24,
and February 6, 2019 related to the Motion to Dismiss; these letters detailed further
developments in the other related litigation. After receiving the February 6 letter
(and as I confirmed during a Teleconference on February 8), 106 I considered the
Motion to Dismiss submitted for decision.
II. ANALYSIS
On March 19, 2018, Plaintiff Opps filed a Complaint against Defendant
Huizenga alleging two counts of breach of contract. According to Opps, Huizenga
104
Unrelated to the Motion to Dismiss, I asked the parties to jointly submit a summary of the
events in the Delaware Bankruptcy Action that have occurred since the parties’ August 22 and 27,
2018 letters. The parties filed their joint summary on February 1, 2019. See D.I. 86.
105
2018 WL 3949274 (Del. Ch. Aug. 16, 2018).
106
The February 8, 2019 teleconference dealt primarily with the parties’ August 22 and 27, 2018
letters. On February 18, 2019 (as discussed in the February 8, 2019 teleconference), Ritchie CT
Opps formally filed a Motion for Sanctions related to the Delaware Bankruptcy Action. The
Motion for Sanctions was fully briefed on March 4, 2019. In the interim, on February 26, 2019,
Huizenga filed a Motion for Relief from the March 2018 verbal agreement. However, on March
4, 2018, Ritchie CT Opps also filed a Motion to Strike both Huizenga’s answering brief in the
Motion for Sanctions and Huizenga’s opening brief in the Motion for Relief. The parties have
since briefed the Motion to Strike. I do not address these motions in this Opinion.
18
had breached the confidentiality provisions of Energy’s Operating Agreement and
Huizenga’s Subscription Agreement with Energy. Additionally, per Opps,
Huizenga had breached the non-disparagement provision of Huizenga’s
Subscription Agreement with Energy (Opps does not allege that Huizenga breached
the non-disparagement clause in Energy’s Operating Agreement). Opps seeks only
injunctive relief. On June 18, 2018, Opps filed an Amended Complaint, which
expanded, in part, but did not substantively change the breach of contract claims.
Huizenga moved to dismiss the Amended Complaint on several grounds. I turn first
to Huizenga’s argument that Opps lacks standing, which, I find, supports dismissal
of Opps’ contractual confidentiality claim. Thereafter, I consider Huizenga’s
argument that the remaining claim for contractual non-disparagement should be
dismissed, pursuant to Rule 12(b)(6), because it is barred by Delaware’s absolute
litigation privilege. I find that the claim is so barred, and that the contractual non-
disparagement claim should be dismissed. As a result, I do not address Huizenga’s
other arguments for dismissal.107
107
Huizenga also argues that dismissal (or, alternatively, a stay) is appropriate pursuant to McWane
Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co., 263 A.2d 281 (Del. 1970) and that
its Motion to Dismiss should be granted according to Rule 12(b)(6). Because I find dismissal is
appropriate on other grounds, I make no determination as to McWane, Rule 12(b)(6) (except as it
pertains to the absolute litigation privilege), and Huizenga’s other arguments for dismissal.
19
A. Standing
While I address certain of Huizenga’s other arguments for dismissal related
to standing below, I primarily focus on Huizenga’s argument that Opps is, in large
part, seeking to assert the interests of others not present in this action. I agree with
Huizenga in this regard, as it relates to Opps’ confidentiality claim.
1. Standing
According to Huizenga, Opps lacks standing to bring this action. Standing is
a threshold issue,108 predicate to substantive consideration of a claim. The
requirements for establishing standing in the courts of Delaware are generally the
same as the standard established by the United States Supreme Court to govern
standing in federal courts.109 In general terms, the requirements for standing are: (1)
an injury in fact, (2) causally connected to the conduct complained of, and (3) a
likelihood that the injury will be redressed by a favorable decision. 110 “At the
108
Dover Hist. Soc. v. City of Dover Plan. Comm’n, 838 A.2d 1103, 1110 (Del. 2003) (“Standing
is a threshold question that must be answered by a court affirmatively to ensure that the litigation
before the tribunal is a ‘case or controversy’ that is appropriate for the exercise of the court’s
judicial powers.”).
109
Id. at 1111 (citing Oceanport Indus., Inc. v. Wilm. Stevedores, Inc., 636 A.2d 892, 904 (Del.
1994)).
110
Id. at 1110 (“(1) the plaintiff must have suffered an injury in fact—an invasion of a legally
protected interest which is (a) concrete and particularized and (b) actual or imminent, not
conjectural or hypothetical; (2) there must be a causal connection between the injury and the
conduct complained of—the injury has to be fairly traceable to the challenged action of the
defendant and not the result of the independent action of some third party not before the court; and
(3) it must be likely, as opposed to merely speculative, that the injury will be redressed by a
favorable decision.”) (quoting Society Hill Towers Owners’ Ass’n v. Rendell, 210 F.3d 168, 175–
76 (3d Cir. 2000)).
20
pleading stage, general allegations of injury are sufficient to withstand a motion to
dismiss because it is ‘presume[d] that general allegations embrace those specific
facts that are necessary to support the claim.’” 111
a. Huizenga’s Argument that Opps Lacks Subject Matter
Jurisdiction, and Thus Lacks Standing
Opps seeks solely equitable relief, which invokes the jurisdiction of this Court
of equity. Huizenga nonetheless challenges Opps’ equitable standing because,
according to Huizenga, an adequate remedy at law exists, money damages.
Huizenga points out that other Ritchie parties in similar litigation have sought money
damages. Per Huizenga, in light of available legal relief, equitable relief is
unavailable and Opps, accordingly, lacks standing. Huizenga is, effectively, simply
advancing an argument for dismissal for lack of subject matter jurisdiction, although
it has not moved to dismiss according to Rule 12(b)(1). 112 Opps, for its part, points
to the Operating Agreement, to which Huizenga agreed, which states that monetary
damages would be insufficient to remedy a breach, and under which Huizenga
agreed to not oppose equitable relief.
Given the fact that Opps seeks equitable relief exclusively, its request for
injunctive remedies can hardly be pretextual. Upon review of the Amended
111
Id. (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992)).
112
The Defendant has made no reference to Rule 12(b)(1) in its Motion to Dismiss or in subsequent
briefing.
21
Complaint, I am convinced that Opps has properly invoked equity, and that subject
matter jurisdiction exists. Therefore, Huizenga’s standing argument in this regard
fails.
b. Injury in Fact
The quintessence of standing is that a plaintiff must have suffered an injury in
fact.113 The injury in fact requirement, like ripeness, ensures that a triable dispute,
with proper litigation incentives on both sides, is presented to a court.114 An injury
in fact is “an invasion of a legally protected interest which is (a) concrete and
particularized and (b) actual or imminent, not conjectural or hypothetical.” 115 “A
‘concrete’ injury must be ‘de facto’; that is, it must actually exist.” 116 Concrete,
however, does necessarily mean tangible; intangible injuries may also be concrete.117
i. Opps Attempts to Vindicate Ritchie Energy’s Rights
Huizenga avers that Energy dissolved “in fact, as early as 2006,” 118 and that
at that time Energy’s “name and goodwill” were lost as assets.119 Additionally, per
113
See, e.g., Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016) (“[I]njury in fact, the ‘[f]irst and
foremost’ of standing’s three elements.”) (quoting Steel Co. v. Citizens for Better Env’t, 523 U.S.
83, 103 (1998)).
114
Dover Hist. Soc., 838 A.2d at 1111 (“Unlike the federal courts, where standing may be subject
to stated constitutional limits, state courts apply the concept of standing as a matter of self-restraint
to avoid the rendering of advisory opinions at the behest of parties who are ‘mere intermeddlers.’”)
(citations omitted).
115
Id. at 1110 (quoting Society Hill Towers Owners’ Ass’n v. Rendell, 210 F.3d 168, 175–76 (3d
Cir. 2000)).
116
Spokeo, 136 S. Ct. at 1548.
117
Id. at 1548–49.
118
Opening Br., at 32.
119
Id. at 31.
22
Huizenga, to be effective, any assignment of claims must have occurred before
dissolution. The assignment from Energy to Global occurred on November 27, 2017
(and from Global to Opps on February 6, 2018). Therefore, according to Huizenga,
Opps lacks standing to bring this suit. That is, Huizenga argues that Energy had no
name or goodwill to pass onto Opps for others to disparage after it dissolved in 2006,
and no rights could have been assigned by Energy to Global, and ultimately to Opps,
shortly before Energy’s cancellation on November 27, 2017. This argument, put
simply, is that Opps has failed to state a claim; as it relates to standing, I understand
Huizenga’s argument to be that Opps has not suffered any injury in fact because the
rights it purports to enforce do not in fact exist. The Amended Complaint says
nothing regarding dissolution, and Huizenga relies on “public reports” to support its
claim that de facto dissolution occurred in 2006.120 Opps has alleged in its Amended
Complaint that Energy had certain rights, that Energy assigned those rights to
subassignor Global before Energy’s cancellation, and that those rights were further
assigned to Opps.121 This pleading is sufficient to sustain standing to enforce any
rights so received.
120
Id. at 32.
121
Opps also argues that an explicit survival clause in Energy’s Operating Agreement means that
non-disparagement and confidentiality provisions survive dissolution. Answering Br., at 38–39.
23
Huizenga also contends, as an issue of standing, that the Delaware LLC Act
prohibits Opps from raising the claims of a canceled LLC. 122 Opps argues that it is
asserting claims it received via assignment before Energy’s cancellation, and
therefore, Opps is asserting its own claims, not those of a canceled LLC.123
Huizenga has raised, at most, issues of fact regarding the vitality of the rights Opps
asserts here, and at this stage of the proceedings, I assume Opps is asserting rights
with legal puissance. I now turn to the Plaintiff’s standing to assert its individual
claims in light of the injury in fact requirement.
ii. The Confidentiality Claim
Huizenga argues that Opps fails the injury in fact requirement of standing
because Opps does not have a cognizable interest in the breach of the confidentiality
provisions. Huizenga 124 and Opps 125 appear to agree that the Amended Complaint
does not allege that Huizenga has breached—or threatens—the confidentiality rights
of Opps, or of its transferor, Energy. Opps states forthrightly that it seeks to
vindicate Huizenga’s contractual obligation to Energy to protect other RCM Parties’
confidential information, which, per Opps, Huizenga has failed to do in the course
122
Opening Br., at 34–37.
123
Answering Br., at 40–41.
124
Opening Br., at 33 (“[Opps] never asserts that it was injured, i.e. that Huizenga misused or
disclosed Ritchie Energy’s confidential information.”).
125
Answering Br., at 39 (“The assignments, not the misuse of Ritchie Opps’ own information,
support Ritchie Opps’ claims.”).
24
of various litigations.126 Huizenga contends that it would be inappropriate for Opps
to allege injury of an affiliate, without also joining the injured party, 127 and points to
Court of Chancery Rule 17(a), whereby “[e]very action shall be prosecuted in the
name of the real party in interest.” 128 It is clear from the Amended Complaint that
Opps seeks to enforce Energy’s contractual rights (if any) to prevent harm to RCM
Parties other than Opps or Energy, incurred via Huizenga’s breach of its
confidentiality obligation. In other words, Opps seeks injunctive relief for a harm
imposed on others.
Opps does not allege that Huizenga breached its contractual confidentiality
obligations in regard to Energy’s confidential information. 129 Opps also does not
allege that Huizenga has disclosed Opps’ confidential information. Instead, Opps
alleges that Huizenga has disclosed the confidential information of other RCM
Parties. However, Opps must plead that Opps itself suffered an injury in fact from
Huizenga’s breach of contract to have standing to litigate.130 Opps instead pleads
126
Id. at 37 (“But Huizenga’s contractual obligation not to disparage any RCM Party is not limited
to Ritchie Energy’s name and goodwill.”).
127
Reply Br. in Support of Its Mot. to Dismiss Am. and Suppl. Verified Compl. [hereinafter Reply
Br.], at 22.
128
Del. Ct. Ch. R. 17(a).
129
Opps has alleged only that confidential information related to Energy has been disclosed. See
Am. Compl. ¶ 82. The confidential information appears to be “related” to Energy by the fact that
Energy is a RCM Party. See e.g., id. ¶¶ 63, 82. It is not reasonable to infer, especially given the
specificity of the allegations as to the confidential information that was disclosed, that Energy’s
confidential information has also been disclosed, and neither has Opps made even this conclusory
allegation.
130
Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016) (“To establish injury in fact, a plaintiff
must show that he or she suffered ‘an invasion of a legally protected interest’ . . . . For an injury to
25
that certain RCM Parties, which have not been joined here, including unidentified
RCM Parties,131 have been harmed. I assume at this stage of the pleadings that Opps
has standing to assert the rights of Energy, which it has obtained by transfer, as its
own rights. The Subscription Agreement between Energy and Huizenga—creating
Energy’s rights that were transferred to Opps—includes (through incorporation of
Energy’s Operating Agreement) rights protecting third party beneficiaries, and those
parties may pursue their rights against Huizenga; in fact, certain RCM Parties, as
previously detailed, have brought similar litigation in their own names to prevent
disclosure of their confidential information by Huizenga.132 But, absent an injury in
fact, Opps is without standing to vindicate those third-party rights, and its claim for
breach of the confidentiality clauses is dismissed.
Huizenga also moves to dismiss for failure to join necessary parties under
Court of Chancery Rule 12(b)(7). Given my decision here that Opps’ confidentiality
claims must be dismissed for lack of standing, I need not analyze whether the injured
RCM parties are necessary, and their absence fatal, to this litigation. I note, however,
be ‘particularized,’ it ‘must affect the plaintiff in a personal and individual way.’”) (emphasis
added) (citations omitted); see also Sierra Club v. Morton, 405 U.S. 727, 735 (1972) (“But the
‘injury in fact’ test requires more than an injury to a cognizable interest. It requires that the party
seeking review be himself among the injured.”).
131
See, e.g., Am. Compl. ¶ 82 (“Huizenga materially breached the Subscription Agreement and
the Operating Agreement by knowingly and willfully disclosing confidential information related
to Ritchie Energy, Ritchie Partners, Ritchie Capital, and/or other RCM Parties.”) (emphasis
added).
132
These cases form the basis for Huizenga’s arguments to dismiss under McWane and issue
preclusion principles, which, due to my decision here, I need not reach.
26
in light of many of the same interests protected by the requirement of standing, that
failure to join the parties injured in fact would form a formidable barrier to this
litigation. The real parties in interest have the incentive to fully protect their own
interests in a way Opps presumably does not. Opps seeks, and can only seek,
injunctive relief here, because Opps has not suffered an injury from Huizenga’s
alleged breach of the confidentiality provisions. Presumably, the RCM Parties (if
Opps is correct that Huizenga has breached their confidentiality interests) have
actual injuries supporting damages or other remedies, not simply injunctive relief.
This matter, if it proceeded to litigation, could have various outcomes: it could 1)
vindicate Huizenga, 2) result in injunctive relief, or 3) settle; none of those results
may make any truly-injured RCM Parties whole, yet it might bind them—or lead to
inconsistent results—in any future litigation. If the matter were not dismissed for
Opps’ lack of standing, therefore, serious issues of failure to join necessary parties
would be presented.
iii. The Non-Disparagement Claim
I have found above that Opps failed to plead an injury in fact with respect to
its confidentiality claim. Opps has, however, successfully pled facts from which I
can infer that it has suffered—or is imminently threatened by—an injury in fact
related to breach of the non-disparagement provisions of the Subscription
Agreement between Huizenga and Energy. According to the allegations in the
27
Amended Complaint, disparagement of the “Ritchie” name and individual RCM
Parties is detrimental to all RCM parties, including Opps, given the alleged
importance of reputation in the private investment industry. Therefore, I can
reasonably infer at this pleading stage that Opps has been or is imminently likely to
be injured by Huizenga’s disparagement of RCM Parties (because Opps’ reputation
has been damaged by association), even if Huizenga has not made disparaging
statements specifically about Opps. Accordingly, I find that Opps has standing to
assert this claim. 133
B. The Absolute Litigation Privilege
Huizenga argues that the absolute litigation privilege bars Opps’ claims for
breach of both confidentiality and non-disparagement provisions. I have found that
Opps’ claim for contractual confidentiality must be dismissed for lack of standing,
and I therefore address the absolute litigation privilege only with respect to Opps’
remaining claim, contractual non-disparagement. Huizenga moved to dismiss the
non-disparagement claim, citing the absolute litigation privilege, under Court of
133
Again, because I find below that Opps has failed to state a claim for contractual disparagement,
I need not address Huizenga’s argument that the Amended Complaint must be dismissed for failure
to join necessary parties. For the reasons already stated, however, that argument would be
substantial.
28
Chancery Rule 12(b)(6), failure to state a claim. 134 I first discuss the absolute
litigation privilege in Delaware, before applying it as a basis for dismissal here.
1. Delaware’s Absolute Litigation Privilege
The parties disagree over which state’s law on the absolute litigation privilege
applies to this action. The alleged breaches of the non-disparagement provision of
the contract have occurred, per the Amended Complaint, in pleadings in Illinois
courts. However, the contract at issue contains a choice of law provision selecting
Delaware law as the governing law.135 Because the Plaintiff is seeking to enjoin a
breach of a contract (between Delaware LLCs) that contains a facially valid
Delaware choice of law provision, I apply Delaware law. 136
The absolute litigation privilege, or simply the absolute privilege, was applied
as early as 1497 in England.137 As the Delaware Supreme Court recognized in
Barker v. Huang, “[t]he absolute privilege is a common law rule, long recognized in
Delaware, that protects from actions for defamation statements of judges, parties,
witnesses and attorneys offered in the course of judicial proceedings so long as the
party claiming the privilege shows that the statements issued as part of a judicial
134
Huizenga alternatively argued that the absolute litigation privilege provides common law
immunity, and, therefore, creates a question of subject matter jurisdiction. See Opening Br., at 7–
8.
135
Am. Compl., Ex. A., at 12.
136
Huizenga argues that Illinois or New York law should apply. Because the result I reach would
be the same in any event, I am content to apply Delaware law.
137
Paige Cap. Mgmt., LLC v. Lerner Master Fund, LLC, 22 A.3d 710, 716 n.12 (Del. Ch. 2011).
29
proceeding and were relevant to a matter at issue in the case.” 138 It is conceived as
one of several affirmative defenses to a prima facie case of defamation “for
statements made in certain contexts where there is a particular public interest in
unchilled freedom of expression.”139 The context within which the absolute
litigation privilege exists, as described, is the course of judicial proceedings,
although the exact parameters of a “proceeding” can be difficult to define.140 The
public interest “purpose served by the absolute privilege is to facilitate the flow of
communication between persons involved in judicial proceedings and, thus, to aid
in the complete and full disclosure of facts necessary to a fair adjudication.”141 The
absolute litigation privilege may also serve other purposes, such as “encouraging the
peaceable resolution of disputes in the courts, fostering the willingness of witnesses
138
Barker v. Huang, 610 A.2d 1341, 1345 (Del. 1992) (citations omitted). See, e.g., Klein v.
Sunbeam Corp., 94 A.2d 385, 392 (Del. 1952) (“In the law of libel, privileged communications
are divided into two classes, those absolutely privileged and those conditionally privileged. The
class of absolutely privileged communications is limited to legislative and judicial proceedings.”).
139
Barker, 610 A.2d at 1344–45.
140
See, e.g., Hoover v. Van Stone, 540 F. Supp. 1118, 1122 (D. Del. 1982) (“The courts
traditionally have applied the absolute privilege without differentiation to statements made during
the course of formal pre-trial discovery procedures and other extra-judicial proceedings necessary
to resolve pending litigation. For example, statements made during depositions, conferences
between witnesses and counsel, and settlement negotiations, when pertinent to the underlying suit,
have been deemed protected by the absolute privilege.”) (citations omitted); Paige Cap. Mgmt.,
22 A.3d at 722–23 (assuming, without deciding, that the absolute litigation privilege may extend
to pre-litigation communications); BRP Hold Ox. LLC v. Chilian, 2018 WL 5734648, at *5 (Del.
Super. Oct. 31, 2018) (applying the absolute litigation privilege to statements made prior to judicial
proceedings “so long as the statements were made in an effort to address the alleged grievance
between the parties”).
141
Barker, 610 A.2d at 1345 (quoting Hoover, 540 F.Supp. at 1122).
30
to testify freely and counsel to argue zealously, and limiting the proliferation of
follow-on lawsuits.”142
The absolute litigation privilege “affords a complete defense [to the tort of
defamation] irrespective of accuracy or malice.” 143 That is because “the interest in
encouraging a litigant’s unqualified candor as it facilitates the search for truth is
deemed so compelling that the privilege attaches even where the statements are
offered maliciously or with knowledge of their falsity.” 144 Delaware courts have
held steadfast to the purpose of the absolute litigation privilege in other respects as
well. For example, the Supreme Court held in Barker v. Huang that there is not a
“sham litigation” exception to the absolution litigation privilege defense. 145 Neither
is the absolute litigation privilege limited only to a defamation claim, as the
“absolute privilege would be meaningless if a simple recasting of the cause of action
from ‘defamation’ to ‘intentional infliction of emotional distress’ or ‘invasion of
privacy’ could void its effect.” 146 Instead, derogatory statements made in the course
of judicial proceedings are privileged, “regardless of the tort theory by which the
plaintiff seeks to impose liability.” 147
142
Paige Cap. Mgmt., 22 A.3d at 711–712.
143
Short v. News-Journal Co., 212 A.2d 718, 720 (Del. 1965). By contrast, a conditional privilege
“affords protection only in the absence of malice.” Id.144
Barker, 610 A.2d at 1345 (quoting Nix v. Sawyer, 466 A.2d 407, 411 (Del. Super. 1983)).
145
Id.146
Id. at 1349.
147
Id.; see also Bove v. Goldenberg, 2007 WL 446014, at *4 (Del. Super. Feb. 7, 2007).
31
This case presents a twist on the absolute litigation privilege: can the parties
to a contract bind themselves to eschew derogatory statements, even in the context
of legal pleadings or testimony? Then-Vice Chancellor Strine made it clear in Paige
Capital Management, LLC v. Lerner Master Fund, LLC that policy interests—at
least regarding admissibility of defamatory evidence—could limit the application of
the absolute litigation privilege: “[The] policy reasons for maintaining the absolute
litigation privilege, however, must be balanced against another important policy
interest, namely, a person’s right to be free from defamatory statements.” 148 Here,
there is, potentially, another balancing factor, freedom of contract, as the parties
contracted prior to any litigation for a non-disparagement provision. 149
I now turn to application of the doctrine to the facts.
2. Contractual Non-Disparagement and the Absolute Litigation
Privilege
It is important to understand what, precisely, Opps seeks in this claim. Opps
alleges that Huizenga has breached the Subscription Agreement by disparaging “Mr.
Ritchie, [Energy], [Partners], [Capital Ltd.], and/or other RCM Parties,” and cites,
“without limitation,” various statements made in litigations in Illinois. Opps does
not allege it has been disparaged, but does allege that Huizenga’s breaches of the
148
22 A.3d 710, 716 (Del. Ch. May 5, 2011)
149
Neither Barker nor Paige Capital Management dealt with contractual non-defamation or non-
disparagement provisions but dealt, respectively, with whether certain statements were defamatory
and whether certain evidence was admissible. Barker, 610 A.2d at 1344–1348; Paige Cap. Mgmt.,
22 A.3d at 716 n.12.
32
non-disparagement clause have caused harm to Opps “by damaging its reputation”
and have caused harm to “the brand and intellectual property of all RCM Parties.”
Opps does not seek money damages in its Amended Complaint; in fact, Opps argues
that money damages are both too difficult to calculate and are inappropriate, given
the purported irreparable harm to itself and the various RCM Parties.150 Instead,
Opps seeks, as sole relief, an Order “[t]emporarily, preliminary, and permanently
enjoining Huizenga from disparaging [Opps] and/or its affiliated entities,” that is, it
seeks only prospective injunctive relief.151
Huizenga asks that I dismiss Opps’ claim for breach of the non-disparagement
provisions; according to Huizenga, Opps “does nothing more than couch a
disparagement claim in terms of breach of contract,” which (per Huizenga) is barred
by Delaware’s absolute litigation privilege.152
The Amended Complaint lists a number of disparaging remarks that Huizenga
has made against RCM Parties, all of which occurred during the course of
litigation. 153 Opps also avers that statements disclosing confidential information in
litigation were false “and therefore are also disparaging.”154 While Opps conditions
its list of disparaging remarks in its Amended Complaint as “without limitation,”155
150
Answering Br., at 43–44.
151
Am. Compl., at 28.
152
Opening Br., at 11.
153
See Am. Compl. ¶¶ 61, 73, 74, 91.
154
See id. ¶ 70.
155
Id. ¶ 91
33
it does not allege in the Amended Complaint, or in any subsequent briefing, that any
disparaging remarks have been made outside of litigation. In addition, the Amended
Complaint is devoid of facts from which I can infer an imminent threat of
disparagement, outside of Huizenga’s litigation efforts. Opps argues that it is
attempting to enforce only its contractual rights and submits that “whether an
independent contractual promise can be nullified by the litigation privilege – appears
to be a question of first impression in Delaware.” 156
However, I find Opps’ statement of the question presented (as also advanced
by Huizenga) to be too broad. If I were to answer Opps’ question as stated, I would
risk an improper advisory opinion. Can a party disparaged in litigation seek its
damages under a contractual non-disparagement clause, even though a tort action on
the same facts is barred for public policy reasons? 157 Fortunately for me, this
156
Answering Br., at 16.
157
Other states have considered the question of whether a claim for breach of contract can be
barred by the absolute litigation privilege, and “[c]ourts in a number of jurisdictions have
concluded that the absolute litigation privilege is applicable to breach of contract actions, at least
where immunity from liability is consistent with the purpose of the privilege.” Rain v. Rolls-Royce
Corp., 626 F.3d 372, 377 (7th Cir. 2010) (listing cases from several jurisdictions). For example,
in Missouri the absolute litigation privilege is “based on the policy favoring freedom of expression
and the desire not to inhibit parties from detailing and advocating their claims in court and is
absolute, regardless of motive.” Kelly v. Golden, 352 F.3d 344, 350 (8th Cir. 2003). Therefore,
while “[an appellant’s] actions in criticizing and disparaging [the appellee] and in threatening to
destroy [the appellee’s] reputation may serve as the basis for court-initiated sanctions, [ ] they do
not constitute a breach of contract within the confines of the lawsuit” because “[t]he pleadings and
other written communications were all related to the litigation, and [the appellee] has not presented
evidence of any statements that were made outside the scope of the litigation.” Kelly, 352 F.3d at
350. In California, the courts have clearly stated that “whether the litigation privilege applies to
an action for breach of contract turns on whether its application furthers the policies underlying
the privilege.” Wentland v. Wass, 25 Cal. Rptr. 3d 109, 114 (Cal. Ct. App. 2005).
34
interesting issue is not before the Court, given the posture of this litigation. I need
only to decide whether the absolute litigation privilege, and the public interests
behind it, prevent equity from specifically enforcing, prospectively, the contractual
non-disparagement clause in the context of litigation, via injunction. The answer to
that question is yes.
Here, Opps seeks injunctive relief in order to forestall litigation that is
disparaging of the RCM Parties or Ritchie entities, whether or not the alleged
disparaging statements are true. This, to my mind, raises the same interests as using
tort law to chill litigation—as proscribed by the absolute litigation privilege—but in
the even more problematic realm of prior restraint. Far from vindicating contractual
rights, such a use of equity would, in fact, render contract rights effectively
unenforceable. That is, if a breaching party can prevent its counterparty, via
injunction, from making “disparaging” statements in litigation alleging the breach,
then the counterparty would be unable to enforce the contract because it could not
effectively prosecute, or even prosecute at all. In effect, that is precisely the result
Opps seeks here. Equity will not lend itself to a prior restraint of speech,158 and it
158
This Court recognizes the “traditional maxim that equity will not enjoin a libel.” Organovo
Hldgs., Inc. v. Dimitrov, 162 A.3d 102, 115 (Del. Ch. 2017) (internal quotation marks omitted);
see also Capstack Nashville 3 LLC v. MACC Venture Partners, 2018 WL 3949274, at *4 (Del. Ch.
Aug. 16, 2018). While the rationale for the rule has changed over time, “[t]he upshot is the same:
a court of equity generally cannot issue an injunction in a defamation case.” Organovo, 162 A.3d
at 119; see also Capstack, 2018 WL 3949274, at *4. Readers interested in the origin and
development of this rule should consult Vice Chancellor Laster’s thoughtful examination in
Organovo Holdings, Inc. v. Dimitrov. 162 A.3d 102. This equitable principle does not stand alone,
35
will not support specific performance of a contractual non-disparagement provision
as a prior restraint to prevent enforcement of the same contract.159 By extension, the
absolute litigation privilege prohibits (at least) the equitable prohibition of litigation-
related utterances, under the rubric of a contractual non-disparagement clause. Such
an injunction would impermissibly chill the pursuit of justice via litigation, no less
so than permitting analog tort claims in the litigation context. Such an impermissible
exercise of equity is the only relief Opps seeks here.
Therefore, I find that the Plaintiff has failed to state a claim on which relief
can be granted, and the claim for contractual non-disparagement is dismissed.
III. CONCLUSION
Opps brought this action for breaches of confidentiality and non-
disparagement contract provisions. For the reasons stated above, those claims are
dismissed. I note, however, that outstanding motions on ancillary issues persist. The
parties should consult and inform me of what matters remain to be decided, in light
of my decision here. A final order shall then issue.
the Delaware Constitution also “appears to explicitly prohibit prior restraints.” Capstack, 2018
WL 3949274, at *4 (citing Del. Const. art. I, § 5, which states that “any citizen may freely speak,
write and print on any subject, being responsible for the abuse of that liberty”).
159
This is not to say that this Plaintiff or the other beneficiary parties to the contracts may not seek
confidentiality with respect to any filing, nor does it prevent applications for sanctions for bad faith
litigation, where appropriate. See, e.g., Kelly, 352 F.3d at 350 (stating that disparaging actions
“may serve as the basis for court-initiated sanctions”).
36