LendUS, LLC v. John Goede ( 2018 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
LENDUS, LLC, )
)
Plaintiff, )
)
v. ) C.A. No. 2018-0233-SG
)
JOHN GOEDE and JOHN )
SCHRENKEL, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: December 4, 2018
Date Decided: December 10, 2018
Stephen L. Caponi and Matthew B. Goeller, of K&L GATES LLP, Wilmington,
Delaware, Attorneys for Plaintiff.
Richard M. Beck and Sean M. Brennecke, of KLEHR HARRISON HARVEY
BRANZBURG LLP, Wilmington, Delaware; OF COUNSEL: Clifford A. Wolff, of
WOLFF LAW, Fort Lauderdale, Florida; David K. Stein, of BRICKER & ECKLER,
of Columbus, Ohio, Attorneys for Defendants.
John G. Harris, of BERGER HARRIS LLP, Wilmington, Delaware, Attorney for
Non-Parties David K. Stein and Bricker & Eckler LLP.
GLASSCOCK, Vice Chancellor
It is a rare case, fortunately, where this Court must become involved in
adjudicating meaningful motions for sanctions based on lawyer misconduct. To
quote the wise words of Vice Chancellor Laster, counsel should “think twice, three
times, four times, perhaps even more” before seeking sanctions.1 That is not to say,
however, that this Court does not take seriously its responsibility to oversee the
conduct of attorneys practicing before it. While most inappropriate conduct by
attorneys is the province of disciplinary counsel, in the rare case where the conduct
of counsel endangers the administration of justice toward those litigating here, this
Court must act. This, I think, is one such case.
It is worth pointing out that Court rules and the Delaware Rules of
Professional Conduct constitute the limits of behavior, and are not practice
guidelines. The norms of civility and candor expected of Delaware lawyers are not
only a part of the heritage of practice cherished by our bar, but are essential to the
administration of justice. In other words, Delaware practitioners, whether
indigenous or pro hac vice, should respect these norms because they are good and
right; when they do not, the courts must enforce them because they are indispensable
to our ability to perform the core functions of a justice system.
1
Katzman v. Comprehensive Care Corp., C.A. No. 5892-VCL, at 13:9–12 (Del. Ch. Dec. 28,
2010) (Laster, V.C.) (TRANSCRIPT).
Judges are lawyers. We understand the pressures and frustrations of practice.
It is no pleasure to criticize the practice of others, none of our own eyes being timber-
free. Nonetheless, when gamesmanship and incivility become a drag on justice, we
must act.
Below, I discuss cross-motions for sanctions. Only the Plaintiff’s motions are
substantial. The Defendants are represented by counsel licensed to practice in the
state of Ohio. Their attorney, David K. Stein, appears here as a courtesy extended
to him to practice pro hac vice at the recommendation of, and with the assistance of,
Delaware counsel. His behavior has fallen short of that expected of counsel
practicing before the Bar of the Supreme Court of the State of Delaware. Two
fundamental principles are thus put in tension: the right of litigants, consistent with
the rules limiting practice in Delaware, to have the attorney of their choosing; and
the principles of justice alluded to above. Here, I find, the latter must control. Some
of the alleged misconduct involves collateral litigation in other jurisdictions; that, I
address by reference to the disciplinary counsel of the appropriate jurisdiction. With
respect to misconduct in this litigation, I find it appropriate to grant Mr. Stein’s
motion to withdraw his admission pro hac vice, and to refer the matter to disciplinary
counsel for its review.
2
I. BACKGROUND
A. The Parties and Relevant Non-Parties
Plaintiff LendUS, LLC is a mortgage lender, servicer, and seller of residential
mortgages that is licensed to operate in forty states. 2 It is incorporated in Delaware
and has a principal place of business in Alamo, California.3
Defendant John Goede is a former LendUS employee.4 He is also the founder
of American Eagle Mortgage Co., LLC.5 He came to work for LendUS as part of
LendUS’s merger with American Eagle Mortgage’s parent company in 2017.6
Thereafter, he was an officer within LendUS, and was partly responsible for
overseeing all of the American Eagle division’s operations and personnel.7
Defendant John Schrenkel is a former LendUS employee.8 He was a senior
executive at American Eagle, and he joined LendUS as part of LendUS’s merger
with American Eagle’s parent company in 2017.9 Thereafter, he was an officer
within LendUS and, along with Defendant Goede, was responsible for overseeing
all of the American Eagle division’s operations and personnel.10
2
Docket Item [hereinafter, “D.I.”] 1, ¶ 12.
3
Id. ¶ 7.
4
Id. ¶ 18.
5
Id. ¶ 13.
6
Id. ¶¶ 14–18.
7
Id. ¶ 21.
8
Id. ¶ 12.
9
Id. ¶¶ 13–18.
10
Id. ¶ 21.
3
Non-party David K. Stein is an attorney who is licensed to practice in Ohio,
Florida, the United States District Court for the Northern and Southern Districts of
Ohio and the Eastern District of Michigan, and the United States Court of Appeals
for the Sixth Circuit.11 Mr. Stein is admitted to practice pro hac vice in this case.
Mr. Stein does not represent the Defendants solely for purposes of this action; per
the Plaintiff, he was also involved in facilitating the events at issue in this litigation,
the Defendants’ departure from LendUS and their subsequent employment with
Supreme Lending.12 As part of this case, LendUS sought to depose Mr. Stein about
his knowledge of LendUS employees leaving to work for Supreme Lending.
Because Mr. Stein is an attorney in this matter, and his involvement as a witness
would bear on his ability to continue in his role as counsel, I granted the Defendants’
Motion for a Protective Order on November 15, 2018.13 I reasoned that the
Defendants’ ability to choose their counsel outweighed LendUS’s need to depose
Mr. Stein, in light of the fact that the information Mr. Stein possessed could be
obtained elsewhere.
Non-party Bricker & Eckler LLP is a law firm in Ohio, of which Mr. Stein is
a Partner.14
11
Certification of David K. Stein, Esq. in Support of Mot. for his Admission Pro Hac Vice ¶ 8.
12
See D.I. 86; D.I. 114; D.I. 138.
13
See Nov. 15, 2018 Oral Argument Tr.
14
See D.I. 48.
4
B. Relevant Facts
1. The Underlying Litigation
LendUS filed this action on March 30, 2018.15 Its Complaint brought three
counts: breach of contract, breach of fiduciary duty, and tortious interference with
contract.16 Because this is a fledgling suit and there is relatively little record
evidence, and because the underlying litigation is only marginally relevant to the
current sanctions motions, I will merely summarize the relevant facts and allegations
of this action, as laid out in the Complaint.
LendUS alleges that while the Defendants were employed with LendUS, they
were responsible for managing and overseeing approximately three hundred
employees within LendUS’s American Eagle division.17 In 2017, LendUS
investigated financial irregularities within American Eagle and concluded that the
irregularities were likely the result of intentional misconduct.18 LendUS ultimately
confronted the Defendants about the irregularities in early 2018.19 LendUS submits
that at around the time of the confrontation, the Defendants began meeting with
another mortgage lender, Supreme Lending, “to explore the possibility of Supreme
15
See D.I. 1.
16
Id. ¶¶ 35–53.
17
Id. ¶ 21.
18
Id. ¶ 23.
19
Id. ¶ 24.
5
Lending acquiring most if not all of the people and assets of the [American Eagle]
division.”20
The Complaint further alleges that the Defendants decided to join Supreme
Lending, and thereafter, they set out on a campaign to recruit American Eagle
division employees to move to Supreme Lending, in violation of certain contractual
covenants.21 LendUS caught wind of the Defendants’ purported behavior.22 It
terminated Goede and Schrenkel for cause on March 30, 2018, the same day that it
filed the Complaint.23
As the suit progressed, the parties engaged in prolific motion practice. A
significant point of disagreement was whether, under the relevant contractual terms,
Delaware or Florida had jurisdiction over the litigation. On October 30, 2018, a
Federal District Court in Florida decided that the case should proceed in Delaware.24
Significant to the issues here is that the proceedings in this matter are bifurcated;
predicate issues, relating to Count II of Plaintiff’s Complaint, have proceeded on an
expedited track, and that phase of the litigation is scheduled for trial on January 28,
2019 through February 1, 2019.25 The extent to which discovery was also to proceed
20
Id. ¶ 27.
21
Id. ¶ 28.
22
Id. ¶ 32.
23
Id. ¶ 34.
24
See D.I. 130, Ex. A.
25
See May 31, 2018 Oral Argument Tr.
6
on a bifurcated basis is relevant to some of the issues involved in the sanctions
motions, described below.
2. LendUS’s First Motion for Sanctions
LendUS first filed a Motion for Sanctions on October 15, 2018. That Motion
alleges that David K. Stein, while representing the Defendants in this matter,
engaged in improper conduct in regard to David Berry, a LendUS employee.
Specifically, LendUS claims that Mr. Stein, on behalf of the Defendants, filed a
separate indemnification action against Mr. Berry in Ohio.26 LendUS claims that
this Ohio action was “entirely baseless” and was “used only as a vehicle to obtain ex
parte discovery related to this litigation.”27 Per the recitations in LendUS’s Motion,
the Defendants sought to depose Mr. Berry, and told him that if he appeared for the
deposition, the case against him would be dismissed.28 Mr. Berry was deposed,
without an attorney, by the Defendants’ counsel, Mr. Stein.29 The Defendants did
not notify LendUS that Mr. Berry was to be deposed.30 Afterward, the Ohio action
was voluntarily dismissed without prejudice.31
In a second deposition—this time as part of the present litigation and with
LendUS’s counsel present—Mr. Berry stated that in his first deposition, the same
26
D.I. 115, ¶ 14.
27
Id. ¶ 16.
28
Id.
29
Id.
30
Id.
31
Id. ¶ 17.
7
attorney (Mr. Stein) had previously asked him some of the same questions; that is,
in the first deposition, Mr. Stein had asked Mr. Berry questions relating to the
LendUS litigation.32 LendUS contends that this line of questioning sought
disclosure of privileged information in violation of the Delaware Rules of
Professional Conduct.33 Among other things, LendUS requests the Court to sanction
the Defendants and Mr. Stein, to prohibit the use of Mr. Berry’s deposition, to
prohibit Mr. Stein from contacting any current or former LendUS employees, to take
steps to identify all improper conduct by Defense counsel, and to award LendUS
reasonable fees and expenses associated with its Motion.34
In their Opposition to the Motion, the Defendants assert that the allegations in
the Ohio litigation were meritorious.35 They also assert that neither Mr. Stein nor
the Defendants violated the Delaware Rules of Professional Conduct because Mr.
Berry did not have the right to speak for LendUS; thus, his deposition was not an
improper ex parte deposition.36
3. The Defendants’ First Motion to Compel and for Sanctions
Shortly after LendUS filed its first Motion for Sanctions, the Defendants filed
a Motion to Compel and for Sanctions on October 19, 2018. It, too, related to the
32
Id. ¶¶ 19–22.
33
Id. ¶¶ 23–33.
34
Id. ¶ 36.
35
See generally D.I. 125.
36
See generally id.
8
Berry Depositions. The Defendants’ Motion alleges that “anytime [sic] Defendants’
counsel sought to explore Berry’s knowledge of the facts underlying the allegations
in the Complaint, Plaintiff’s counsel inappropriately shut down questioning.”37 The
Defendants argue that the Plaintiff’s counsel attempted to improperly use attorney-
client privilege to prevent discovery of relevant facts.38 The Defendants seek an
order compelling LendUS to produce Mr. Berry for deposition, requiring Mr. Berry
to testify on the topics that he had previously been instructed not to discuss, and
awarding the Defendants their fees associated with the motion.39
4. LendUS’s Second Motion for Sanctions
LendUS filed a second Motion for Sanctions on November 8, 2018. In that
Motion, LendUS alleges that on September 7, 2018, Mr. Stein filed suit in Florida
against another LendUS employee, Rachel Brillhart May, seeking over $150,000 in
damages for her purported failure to repay a loan.40 According to LendUS, an
intermediary told Ms. May that if she immediately quit her position with LendUS,
the suit would be dismissed.41 LendUS also alleges that Mr. Stein has continued to
improperly contact current and former LendUS employees about the present
litigation, without disclosing that contact to LendUS.42
37
D.I. 120, ¶ 14.
38
Id. ¶¶ 17–24.
39
See generally id.
40
D.I. 135, Ex. A; D.I. 135, ¶ 2.
41
D.I. 135, ¶ 2.
42
Id. ¶ 4.
9
In its second Motion for Sanctions, LendUS requests that Mr. Stein be
disqualified from further involvement in this litigation.43
In its Opposition, the Defendants assert that this Court has no authority to
make determinations regarding the May lawsuit, because it is not relevant to, nor
does it interfere with, the present litigation.44 They also argue that LendUS’s
statements regarding Mr. Stein’s communications with LendUS employees are false
and misleading, and that sanctions are inappropriate.45
5. The Perel Deposition
On November 14, 2018, LendUS’s counsel sent a letter to “inform the Court
of recent unacceptable conduct by Defendants’ pro hac vice counsel, David K.
Stein,” concerning a deposition taken the previous day.46 On November 13, 2018,
the Defendants had deposed Michael Perel, a LendUS employee, regarding events
relevant to this lawsuit. LendUS’s letter highlighted several instances of Mr. Stein’s
unprofessional conduct that occurred during the Perel Deposition.47 LendUS
transmitted to the Court a copy of the deposition transcript, as well as a video
recording.
43
Id. ¶ 21.
44
See generally D.I. 165.
45
See id.
46
D.I. 146, at 1.
47
See generally id.
10
It is worth pointing out what apparently led to Mr. Stein’s frustration at the
deposition. As described above, this matter has been bifurcated, with issues arising
from a single count of the Complaint proceeding on an expedited schedule.
Accordingly, Mr. Caponi, representing the Plaintiff, instructed the witness not to
testify regarding issues outside the scope of the portion of the action that had been
expedited. Mr. Stein believed all matters relevant to the litigation, writ large, were
fair game. This was a good faith dispute, which should have been resolved by
counsel or, failing that, through referral to the Court. Unfortunately, Mr. Stein took
another approach.
Upon simultaneously reviewing the deposition transcript and the video, it is
clear to me that Mr. Stein took a hostile tone toward the Plaintiff’s attorney, Steven
L. Caponi, regarding Mr. Caponi’s objections.48 Mr. Stein repeatedly interrupted
Mr. Caponi, and after one such interruption, he said to Mr. Caponi, “I really have
seen enough and heard enough from you.”49 Mr. Stein questioned whether Mr.
Caponi is, in fact, admitted to practice in Delaware50 and whether he understands
Delaware law.51 Mr. Stein also referred to Mr. Caponi as “Egregious Steve”52 and
48
See D.I. 146, Ex. A, Perel, Dep., at 46:14–16 (“Okay. So is that an objection? Because I don’t
recall even hearing the word objection”), 49:10–24 (regarding speaking objections, “I don’t know
how they do it here in Delaware, but that’s certainly not how it’s done in the 49 other states”),
50:11–13 (“Is there an order to that effect? Can you pull out the order and show me?”).
49
Id. at 50:16–17.
50
Id. at 174:1–2.
51
Id. at 62:6–15.
52
Id. at 51:12.
11
the “sovereign of Delaware”53 throughout the deposition. Furthermore, Mr. Stein
remarked, “Mr. Caponi, you don’t get to create the rules. This is my deposition. I’m
paying the court reporter. You don’t create the rules.”54
Mr. Stein badgered and belittled Mr. Caponi in a manner that was neither
relevant nor productive to the present lawsuit. For instance, after a break, Mr. Stein
inquired, on the record, whether Mr. Caponi had washed his hands after using the
restroom.55 He also said to the deponent, Mr. Perel, that he was “talking [with] little
words so that [Mr. Caponi] can understand.”56
This written recitation does not adequately convey the sarcasm and hostility
that Mr. Stein expressed toward opposing counsel and the deponent. Beyond
inappropriate words, Mr. Stein’s unprofessionalism manifested through physical
acts. The record reflects that Mr. Stein raised his hand and made yapping gestures
toward Mr. Caponi while Mr. Caponi was speaking.57 Mr. Caponi also relates that
Mr. Stein “leaned across the table and [bared] his teeth” in an aggressive and
exaggerated grimace while Mr. Caponi was speaking.58
53
Id. at 171:22, 175:22–24.
54
Id. at 254:18–21.
55
Id. at 67:5–16.
56
Id. at175:13–15.
57
Id. at 54:16–22.
58
D.I. 146, at 3.
12
Mr. Stein similarly harassed the deponent, Mr. Perel. Like his treatment of
Mr. Caponi, Mr. Stein often interrupted Mr. Perel during the deposition.59 Mr. Stein
tenaciously inquired about Mr. Perel’s personal life, extending beyond what was
relevant to the lawsuit. This included inquiring about the reasons that Mr. Perel’s
marriage ended in divorce,60 as well as prolonged questioning on Mr. Perel’s use of
alcohol and drugs, despite Mr. Perel’s repeated answers that he does not drink. For
instance, Mr. Stein questioned:
Stein: The question is do you know whether there was litigation prior
to [the Defendants’] termination?
Perel: I don’t know.
Stein: You don’t know?
Perel: Or recall.
Stein: Are you under the influence of any drugs or alcohol sitting here
today?
Perel: No. Why?
Stein: Well, I’m asking the questions. So your answer is no. Is there
anything that would harm or hinder your memory being able to
answer truthfully here today?
Perel: I only speak the truth, so no.
Stein: Do you have a physical condition that prevents you from having
the power of recall as to events that might have happened in 2018?
Perel: I have no issue with my memory if that’s what you’re asking
me.
Stein: And you’re not under the influence of any alcohol sitting here
today?
Perel: No, I don’t drink alcohol. I have [a medical issue].
Stein: When did you stop drinking alcohol?
59
See, e.g., id. at 288:16–17, 289:8–19.
60
D.I. 146, Ex. A, Perel Dep., at 74:22–23, 75:20–22.
13
Perel: I have never—I don’t drink alcohol.
Stein: Never?
Perel: Yes. I have [a medical issue] . . . and I avoid alcohol at all costs.
Stein: Okay. Was that always the case while you were employed by
RPM or LendUS?
Perel: Yes, that’s always the case.
Stein: And you’re not under the influence of any medication that
would prevent your memory from working here today, are you?
Perel: No. . . . 61
Furthermore, on multiple occasions, Mr. Stein questioned Mr. Perel’s
truthfulness. In addition to the aforementioned questions about whether Mr. Perel
was under the influence of any drugs or alcohol during the deposition, and his
sarcastic inquiry into Mr. Perel’s mental and physical capacity, Mr. Stein accused
Mr. Perel of “making things up”62 and lying under oath. In the last several minutes
of the deposition, Mr. Stein’s questioning went as follows:
Stein: Daily conversations about the company folding up, where
were those conversations taking place?
Perel: Daily conversations . . . with other American Eagle employees.
Mr. Stein: Who are those other employees? Let’s get that very clear
right now because you certainly seem to suggest something different
than five minutes ago.
Perel: I’m not.
Caponi: Is there a question?
Stein: Yes. Who are the other employees that you had these
conversations with?
61
Id. at 69:3–70:15. Again, I note that words alone cannot adequately transmit Mr. Stein’s
sarcastic tone.
62
Id. at 289:6–7.
14
Caponi: Before the witness answers, Mr. Stein, I ask you to lower the
tone of your voice. I don’t know if you[] notice it, but you’re yelling
and it’s intimidating to the witness.
Stein: I’m not trying to intimidate any witness. I get upset when
people are dishonest, especially when they’re under oath and giving
testimony in a case.
Perel: No one is being dishonest.
Caponi: Excuse me, Mr. Perel. Don’t answer that question. Don’t
speak. Again, Mr…. Again, Sean [Brennecke] –
Stein: It’s Stein, S-T-E-I-N.
Caponi: Sean, I just had your co-counsel insult a witness by calling
him dishonest under oath when he’s been answering these questions.
That is completely inappropriate and he’s been yelling at this witness
for the last few minutes. And I’ve tried not to inflame Mr. Stein
anymore [sic] by objecting. But I’m not going to tolerate it any
further. He’s either going to curb himself or again I’m going to take
this witness and go. So I don’t know if you need a break, Mr. Stein,
to calm down, but we’re not going to be subjected, this witness is not
going [to be] subjected – I get paid to take abuse from people like
you. This witness does not and I’m not going to tolerate it.
Stein: Well, I don’t get paid to hear testimony that’s made up. I want
to know who the daily conversations were about.
Caponi: We’re done with this deposition.63
At one point in the deposition, according to LendUS’s counsel, after a
contentious back-and-forth regarding Mr. Caponi’s objections, Mr. Stein called Mr.
Caponi and Mr. Perel “idiots.” This comment was made off the stenographic
record;64 however, it is audible on the videotaped deposition recording.65 Later in
63
Id. at 294:11–296:20.
64
See id. at 215:20–21.
65
Mr. Stein uttered “idiots” at approximately 4:15:18 pm. Perel Video Dep., Video C, at 1:23:34.
15
his deposition, Mr. Perel testified that earlier, he had heard Mr. Stein call himself
and Mr. Caponi “idiots.”66
For much of the deposition, the Defendants’ Delaware counsel was not
present. Mr. Caponi first asked Mr. Stein to adjust his behavior, and when Mr. Stein
did not, Mr. Caponi asked the Defendants’ Delaware counsel to attend the rest of the
deposition as a check on Mr. Stein. Mr. Stein’s unprofessional antics continued,
and, as evidenced in the earlier excerpt, Mr. Caponi ultimately ended the deposition.
He notified the Court by letter the next morning.67
In response to Mr. Caponi’s November 14, 2018 letter setting out the facts
recited above, the Defendants’ Delaware counsel submitted a letter on November
15, 2018. Counsel stated that they were still reviewing the Perel Deposition
transcript.68 Counsel for Mr. Stein and his law firm, however, submitted a letter on
November 15, 2018 that asserted, on behalf of Mr. Stein, that at the Perel Deposition,
Mr. Stein had “comported himself in a manner expected of lawyers practicing in this
Court,” and that Mr. Caponi’s “repeated[] fail[ure] to comply with established
deposition rules provoke[ed] unnecessary consternation . . . .”69 Importantly, that
letter claims that “[n]owhere in the Deposition record can Mr. Stein be seen or heard
66
D.I. 146, Ex. A, Perel Dep., at 287:1–17.
67
See generally D.I. 146.
68
D.I. 151, at 2.
69
D.I. 157, at 1–2.
16
to have uttered the word ‘idiot’ in the direction of Plaintiff’s counsel or the
deponent,”70 despite the representation to the contrary in the Plaintiff’s November
14 letter.71 It also claims that “the only record support for this contention was
‘developed’ by Plaintiff’s counsel . . . .”72
6. The Defendants’ Second Motion to Compel and for Sanctions
After the Perel Deposition, on November 21, 2018, the Defendants filed a
second Motion to Compel and for Sanctions. Similar to their first Motion to Compel
and for Sanctions, which sought to compel LendUS to produce Mr. Berry for further
deposition, the second Motion requests that LendUS produce Mr. Perel for further
deposition.73 The Defendants submit that this is necessary because, contrary to
Chancery Rule 26(b)(1), which contemplates broad discovery, Mr. Caponi
improperly instructed Mr. Perel not to answer questions during his first deposition.74
The Defendants also seek attorneys’ fees in connection with the Motion.75
7. Pending Pro Hac Vice Motions
As oral argument on the sanctions motions approached, the Defendants moved
to withdraw Mr. Stein’s pro hac vice admission, “to avoid further distraction from
70
Id. at 5.
71
At Oral Argument on December 4, 2018, Mr. Stein’s counsel orally withdrew this
representation.
72
D.I. 157, at 5.
73
See generally D.I. 166.
74
Id. ¶ 18.
75
See id.
17
the merits of the case.”76 They also moved to admit Anne Marie Sferra, another
Partner at Bricker & Eckler, pro hac vice. LendUS promptly opposed both motions.
It opposed Mr. Stein’s withdrawal until after oral argument on the sanctions motions,
since the motions implicate Mr. Stein’s pro hac vice status.77 It opposed Ms. Sferra’s
admission as premature, given that the pending motions for sanctions against Mr.
Stein also run to Bricker & Eckler, and expressed concern that Ms. Sferra’s
admission would be an opportunity for Mr. Stein to exercise “dead hand control”
over the case.78
C. Procedural Posture
LendUS initiated this action on March 30, 2018, along with a Motion for
Expedited Proceedings. The Defendants filed a Motion to Dismiss on August 8,
2018; thereafter, the parties engaged in prolific motion practice, some of which is
discussed above.79 The Motion to Dismiss was mooted in part by an October 30,
2018 decision from the United States District Court for the Middle District of Florida
that found that Delaware has jurisdiction,80 and I denied what remained of the
Motion to Dismiss in a November 15, 2018 bench decision. Also on November 15,
76
D.I. 183, at 1.
77
D.I. 185, at 1.
78
See D.I. 186.
79
For the purposes of this opinion, I need not engage in a tedious recitation of these motions, many
of which relate to discovery. I instead discuss the case history only to the extent that it is relevant
to the present dispute.
80
See D.I. 130, Ex. A.
18
I granted the Defendants’ Motion for a Protective Order to prevent the deposition of
Mr. Stein, as discussed above.
The outstanding motions currently pending are: (1) LendUS’s October 15,
2018 Motion for Sanctions; (2) LendUS’s November 8, 2018 Motion for Further
Sanctions; (3) the Defendants’ October 19, 2018 Motion to Compel and for
Sanctions; (4) the Defendants’ November 21, 2018 Motion to Compel and for
Sanctions; (5) the Defendants’ November 30, 2018 Motion to Withdraw the
Admission Pro Hac Vice of David K. Stein, Esquire; and (6) the Defendants’
November 30, 2018 Motion for Admission Pro Hac Vice of Anne Marie Sferra,
Esquire. The first phase of trial is scheduled for January 28, 2019 through February
1, 2019. I heard oral argument on the outstanding sanctions and pro hac vice motions
on December 4, 2018.81 This Memorandum Opinion addresses those motions.
II. ANALYSIS
A. Motions for Sanctions Against the Defendants and their Counsel
The Delaware Bench and Bar guards jealously its reputation for civility,
collegiality, and candor. This is not simply a matter of parochial pride, nor fusty
pretentiousness or fulsome self-regard. It rests on a sincere belief that the end toward
which we as judges and lawyers work—a truthful exposure of the facts in pursuit of
81
On December 4, 2018, I also heard oral argument on LendUS’s Motion to Compel, which I
granted from the bench.
19
justice—is best served by our tradition of respect and civility accompanied by
vigorous, not vinegarish, advocacy. The edifice that supports a civil and robust
pursuit of truth is stable but not self-maintaining: as with a three-legged stool,
withdrawal of support by any of the litigants or by the Court can cause it to topple.
Accordingly, here, counsel “should not reflect any ill feelings that clients may have
toward their adversaries in their dealings with the Court and other counsel.”82
Likewise, despite any personal feelings of an attorney himself toward opposing
clients or counsel, we expect professional behavior in pursuit of professional duties.
Delaware case law makes clear that our courts will not condone, “accept or permit
the use of profanity, acrimony, derisive gibes, or sarcasm with respect to any
communication related to any matter, proceeding, writing, meeting, etc. . . .”83
When practicing in Delaware and in this Court, an attorney has obligations to
the Court under both the Delaware Lawyers’ Rules of Professional Conduct and the
Principles of Professionalism for Delaware Lawyers.84 The Delaware Rules of
Professional Conduct provide that a lawyer shall not knowingly “make a false
statement of fact or law to a tribunal . . . .”85 Those rules also prohibit a lawyer from
engaging in ex parte communication.86 More broadly, the Principles of
82
395 Assoc., LLC v. New Castle Cty., 2005 WL 3194566, at *4 (Del. Super. Ct. Nov. 28, 2005)
(quotation omitted).
83
Crowhorn v. Nationwide Mut. Ins. Co., 2012 WL 1274052, at *5 (Del. Super. Ct. May 6, 2002).
84
Ct. Ch. R. 170(c)(ii).
85
Del. R. Prof. Conduct 3.3(a).
86
Del. R. Prof. Conduct 4.3.
20
Professionalism for Delaware Lawyers state that “[a] lawyer should develop and
maintain the qualities of integrity, compassion, learning, civility, diligence, and
public service.”87 They define professional civility as “conduct that shows respect
. . . for all people encountered in practice,” which includes “emotional self-control
[and] the absence of scorn and superiority in words or demeanor.”88
These obligations bind Delaware lawyers, and they apply with equal force to
lawyers who are permitted to practice in this state under a pro hac vice admission.89
That admission, fundamentally, is a privilege, as is its analog to Delaware lawyers
admitted to practice for specific litigation in sister jurisdictions. When an attorney
who is admitted pro hac vice engages in conduct that is repugnant to this Court’s
ideals of civility and candor, revocation of that attorney’s pro hac vice admission is
an appropriate sanction.90
Proceedings resulting in sanctions are, and should be, rare in this Court. When
they do arise, it is most common for an opposing party to move for sanctions;
however, it is worth noting that the Court may raise the issue of sanctions sua
87
Principles of Professionalism for Delaware Lawyers, Principle A (emphasis added).
88
Id., Principle A(4).
89
See Ct. Ch. R. 170(c)(ii).
90
See State of Del. v. Mumford, 731 A.2d 831, 835–36 (Del. Super. Ct. 1999) (revoking pro hac
vice admission due to an attorney’s failure to control his client’s behavior); State of Del. v.
Grossberg, 705 A.2d 608, 613 (Del. Super. Ct. 1997) (revoking pro hac vice admission because
an attorney made inaccurate representations to the court and violated other Rules of Professional
Conduct).
21
sponte.91 The Court may also revoke a pro hac vice admission sua sponte if it
determines that continued admission is “inappropriate or inadvisable.”92
Nevertheless, because of the potential for abuse, a party seeking sanctions in the
form of disqualification faces a heavy burden: the party must show, by clear and
convincing evidence, that the behavior of the attorney in question “is so extreme that
it calls into question the fairness or efficiency of the administration of justice.”93 The
right of a litigant to choose her counsel is fundamental, and must not be abrogated
absent compelling reason. In other words, I must exercise my discretion in
considering LendUS’s request to revoke Mr. Stein’s admission with great care.
Here, the deposition transcript and video recording, discussed at length above,
speak for themselves. Mr. Stein may have labeled his opposing counsel “Egregious
Steve,” but it was Mr. Stein’s actions that were, in fact, egregious. Mr. Stein
harassed opposing counsel and the deponent, using sarcasm and accusations of
perjury, and rude gestures and grimaces, in an unprofessional manner. It is clear to
me that Mr. Stein intended his behavior to intimidate and discomfort the deponent.
In other words, his behavior appears not only to be rude, but tactically so.
91
See, e.g., In the Matter of Ramunno, 625 A.2d 248, 249 (Del. 1993) (court raised sanctions sua
sponte); 395 Assoc., LLC v. New Castle Cty., 2005 WL 3194566, at *1 (Del. Super. Ct. Nov. 28,
2005) (same).
92
Ct. Ch. R. 170(e).
93
Manning v. Vellardita, 2012 WL 1072233, at *2 (Del. Ch. Mar. 28, 2012) (quoting Dunlap v.
State Farm Fire & Cas. Co. Disqualification of Counsel, 2008 WL 2415043, at *1 (Del. May 6,
2008)); see also Crowhorn v. Nationwide Mut. Ins. Co., 2012 WL 1274052, at *4 (Del. Super. Ct.
May 6, 2002).
22
I note that, from time to time, otherwise professional and diligent advocates
may suffer a momentary loss of composure, which is regrettable, but understandable
during a contentious legal proceeding. These temporary lapses are unfortunate, but
do not warrant motion practice—particularly where, as is the norm in Delaware, the
attorney later apologizes to the other parties involved. Mr. Stein’s behavior in this
case, in contrast, occurred repeatedly over an hours-long deposition. Rather than a
momentary lapse of judgment, it indicates a systematic intent to intimidate the
witness and to hector opposing counsel.
Equally disturbing was Mr. Stein’s initial lack of candor to the Court. The
Movant alleged that Mr. Stein, during the deposition, called opposing counsel and
the deponent “idiots,” which is clearly inappropriate conduct. This reference does
not appear in the deposition transcript, presumably because it was delivered sotto
voce, in a stage whisper that escaped the court reporter as the reporter was reading
back a question. In response to this accusation, Mr. Stein’s counsel wrote a letter to
the Court on November 15, in which Mr. Stein not only denied that he had called the
witness and his counsel idiots, but suggested that opposing counsel had
“developed”94 the record, presumably to reflect unprofessional behavior on behalf
of Mr. Stein, and stated that “the video recording . . . will discredit this contention
94
See D.I. 157, at 5.
23
as another out-of-context, embellishment [sic].”95 Obviously, whether Mr. Stein
called counsel and the witness “idiots” is a matter known to Mr. Stein. Just as
obviously, the implication that LendUS’s counsel had invented Mr. Stein’s use of
the term “idiots” in order to obtain a favorable result from this Court is a serious
accusation of misconduct. However, the videotape was to the contrary; Mr. Stein’s
utterance of the word “idiots” is clearly audible to me, and I find that it was meant
to be heard by the participants.96 I find this lack of candor particularly egregious,
because it is an untruth used as both shield and sword: to insulate Mr. Stein from the
fruits of his unprofessional conduct, but also—worse—to traduce opposing counsel.
This, from an officer of the court, cannot stand. I find Mr. Stein’s continued
admission pro hac vice to be both inappropriate and inadvisable.
I say this notwithstanding the fact that Mr. Stein, at argument on these motions
and at the request of his counsel, forthrightly appeared and apologized for his
behavior in the Perel Deposition.97 He did not attempt to deny or diminish the
conduct about which the Movant complained. He explained that he had allowed his
frustration to get the better of him, and acted in a way that, he avers, was not only
inappropriate, but utterly uncharacteristic of his career as a lawyer. I accept this
95
Id. at 4 (emphasis added).
96
Mr. Stein called Mr. Caponi and the deponent “idiots” at approximately 4:15:18 p.m. Perel
Video Dep., Video C, at 1:23:34.
97
See Dec. 4, 2018 Oral Argument Tr.
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assertion, and it is unfortunate that he allowed himself to act in an unprofessional
manner that was not representative of what he acknowledges is his responsibility as
an attorney. A single incident cannot capture the tenor of an entire career. However,
my interests in justice, both specific and systematic, convince me that Mr. Stein’s
admission pro hac vice must end.
I turn, then, to the appropriate sanction. Because of Mr. Stein’s conduct, as
laid out above, I find it appropriate to award LendUS its reasonable attorneys’ fees
incurred in prosecuting its Motion for Sanctions in connection with the Perel
Deposition, as well as its fees incurred in attending the deposition, to be paid by Mr.
Stein and his firm, and not by their clients. The remaining question is whether to
grant Mr. Stein’s Motion to Withdraw, or to revoke his admission, pursuant to Rule
170(e). Counsel for LendUS asks that I revoke, suggesting that pro hac vice
reporting requirements are such that revocation will serve a punitive function on Mr.
Stein going forward. I address the question cognizant of the fact that, in any event,
the pursuit of justice in this matter will not be impeded by granting Mr. Stein’s
Motion, in light of his absence from this case.
I find it appropriate to grant Mr. Stein’s Motion to Withdraw, and to refer the
matter to the Delaware Office of Disciplinary Counsel. Disciplinary Counsel may
then consider the Perel Deposition misconduct, the circumstances of the November
15 letter, and, to the extent it finds appropriate, the additional allegations of
25
misconduct addressed below, together with exculpatory factors (if any). So
informed, it can determine whether further action is required.
In addition to the misconduct related to the Perel Deposition, LendUS makes
other allegations as well. As laid out in the Background section of this Memorandum
Opinion, LendUS’s counsel represents to the Court that Mr. Stein has abused legal
process in Ohio and Florida by bringing actions, not to obtain the relief sought in
those complaints, but to seek an advantage on behalf of his clients in this suit, or for
their business generally. I direct Mr. Stein to disclose to LendUS, within ten days
of this decision, each ex parte contact he has made with LendUS’s employees, either
in the context of the Florida or Ohio litigations or otherwise during the pendency of
this case. As for sanctions, however, I note that the facts regarding these other
matters are not developed in the record before me. At oral argument, Delaware
counsel for the Defendants indicated that they had undertaken an appropriate inquiry
as to whether these foreign actions implied improper behavior regarding this
Delaware action, and concluded in the negative. I find that no sanctions are
warranted, in this jurisdiction and based on the record before me, for Mr. Stein’s
conduct in the Florida and Ohio actions. Nonetheless, the allegations of abuse of
process are serious, if unproven. Accordingly, I refer these matters to the Ohio
Supreme Court’s Office of Disciplinary Counsel and the Florida Supreme Court’s
26
Department of Lawyer Regulation. To be clear, the alleged misconduct relating to
the Ohio and Florida actions does not form any basis for my decision here.
I note that I previously granted the Defendants’ Motion for a Protective Order
to prevent the deposition of Mr. Stein. Mr. Stein represented the Defendants at the
time of the alleged wrongful competition and breach of fiduciary duty. LendUS
insists that he facilitated the Defendants’ malfeasance, and is accordingly an
appropriate fact witness in this matter. As such, LendUS sought to depose him. I
found, however, that Mr. Stein should not be deposed, in order to honor the
Defendants’ choice of counsel and because LendUS had not shown that the
information Mr. Stein possessed could not be acquired elsewhere. Now, however,
because Mr. Stein is no longer trial counsel in this litigation, LendUS may find it
appropriate to revisit the issue of deposing Mr. Stein.
Pending is the Defendants’ Motion for Admission Pro Hac Vice of Anne
Marie Sferra, Esquire. Along with Mr. Stein, Ms. Sferra is a Partner at Bricker &
Eckler LLP. LendUS objects to Ms. Sferra’s admission, citing concern that it will
be a sham admission that will allow Mr. Stein to control the litigation.98 I, however,
have another concern. If Mr. Stein becomes a fact witness in this matter, his firm’s
representation of the Defendants may be problematic. Rather than address this issue
in a potentially advisory fashion, I defer decision on the Motion pending LendUS’s
98
D.I. 186.
27
decision whether it will again seek to depose Mr. Stein—a decision it should make
promptly, at which point I will allow the parties to supplement their arguments. I
note that my decision to defer action on the Motion for Admission Pro Hac Vice
arises solely from the concern addressed above; it is not reflective of Ms. Sferra’s
qualifications or her fitness to practice in Delaware, nor those of her firm.
B. Motions to Compel and for Sanctions Against LendUS and its Counsel
As discussed above, the Defendants have filed two Motions to Compel and
for Sanctions. The Defendants’ Motions seek, respectively, to compel deposition
testimony of Mr. Berry and Mr. Perel, in response to Mr. Caponi’s instructions to
the witnesses not to answer and his decision to truncate deposition testimony. In
light of the facts laid out above, sanctions are not appropriate. I commend to
Delaware counsel the issue of whether further discovery is needed from Mr. Berry
and Mr. Perel, which I expect they will be able to resolve in good faith.
III. CONCLUSION
For the forgoing reasons, the Plaintiff’s Motions for Sanctions are granted in
part, and the Defendants’ Motions for Sanctions are denied. The Defendants’
Motion to Withdraw the Admission Pro Hac Vice of David K. Stein, Esquire is
granted. I defer consideration of the Defendants’ Motion for Admission Pro Hac
Vice of Anne Marie Sferra, Esquire, as well as the Defendants’ Motions to Compel.
The Parties should submit an appropriate Order.
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