P.C. Connection, Inc. v. Synygy Ltd. ( 2022 )

EFiled: Jan 10 2022 10:30AM EST
Transaction ID 67220716
Case No. 2020-0869-JTL
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
P.C. CONNECTION, INC. d/b/a )
CONNECTION, )
)
Plaintiff, )
)
v. ) C.A. No. 2020-0869-JTL
)
SYNYGY LTD., SYNYGY LLC, SYNYGY )
PTE LTD., OPTYMYZE PTE LTD., )
OPTYMYZE LLC, and MARK A. )
STIFFLER, )
)
Defendants. )
OPINION
Date Submitted: December 22, 2021
Date Decided: January 10, 2022
Daniel A. Griffith, WHITEFORD TAYLOR & PRESTON LLC, Wilmington, DE;
Attorney for Plaintiff P.C Connection, Inc. d/b/a Connection.
Synygy Ltd., Synygy LLC., Synygy PTE Ltd., Optymyze Pte Ltd., Optymyze LLC, and
Mark A. Stiffler, Defendants.
LASTER, V.C.
The court previously entered default judgments against the defendants. Those
judgments established liability, but they did not award relief. Accordingly, they qualified
as judgments in the colloquial sense, but they were not yet final judgments.
The plaintiff has moved to amend its complaint to add a new claim against two new
entity defendants. Because the default judgments were not yet final judgments, the plaintiff
properly invoked Court of Chancery Rule 15(a).
Under Rule 15(a), leave to amend is freely given. But that does not mean leave to
amend always will be given. When a court has entered a default judgment that has not yet
become final, a court must consider carefully any amendment that would include new or
different factual allegations against the defaulted defendant or change the claims against
that defendant. The entry of the default judgment means that the well-pled allegations in
the complaint are established as true as to the defaulted defendant and that the defaulted
defendant is liable on the claims against it. Permitting an amendment that would change
the factual allegations or the claims likely would require vacating the default judgment,
because a defendant might not have defaulted if the defendant knew that a particular factual
allegation would be deemed true or a different claim had been asserted. Leaving the default
judgment in place would deny due process to the defaulted defendant by permitting the
simultaneous filing of a claim and the entry of judgment on that claim without the
defendant having an opportunity to respond.
In this case, the plaintiff does not seek to assert new claims or change the nature of
the complaint’s factual allegations against the already defaulted defendants. The plaintiff
seeks to assert related claims against two new entity defendants. Those entities will have
an opportunity to respond. This decision therefore grants the plaintiff’s motion.
I. FACTUAL BACKGROUND
Plaintiff P.C. Connection (“Connection”) is a publicly traded Delaware corporation
with its principal place of business in Merrimack, New Hampshire. Connection sells
custom computer systems and services to businesses and government agencies in the
United States. Connection has a sales force of approximately 1,100 employees that it
compensates using incentive-based compensation plans.
Defendant Mark A. Stiffler controls a business that provides a software platform for
managing compensation plans (the “Compensation Platform”). Stiffler conducts his
business through a complex, opaque, and frequently changing mélange of entities that this
court has referred to collectively as the “Stiffler Organization.” The entity defendants are
part of the Stiffler Organization.
In 2013, Connection contracted with the Stiffler Organization to use the
Compensation Platform. In 2018, however, Stiffler began demanding that Connection pay
fees far greater than those specified in the governing contracts. In 2019, Stiffler tried to
coerce Connection to pay the higher fees. Knowing that the Compensation Platform was
mission critical software for Connection, Stiffler threatened to cut off access if Connection
did not capitulate to his demands.
Connection filed this action to obtain an expedited determination of its rights. At
the outset of the case, Connection sought a temporary restraining order to ensure that the
Compensation Platform would remain available during the pendency of the litigation. The
2
court entered a temporary restraining order to maintain the status quo. Dkt. 9 (the “Status
Quo Order”). The court also scheduled an expedited hearing to determine whether the order
should be converted into a preliminary injunction.
The Status Quo Order required that the Stiffler Organization “not discontinue or
materially reduce services provided to [Connection] as those services were in use on
September 30, 2020, until December 1, 2020, or the Court’s ruling on [Connection’s]
Motion for Preliminary Injunction, whichever comes first.” Id. The Stiffler Organization
thus had to preserve Connection’s access to the Compensation Platform.
On November 20, 2020, the court held a hearing on Connection’s application for a
preliminary injunction. Dkt. 67. The court took the matter under advisement. The court
noted that it had several matters to attend to and informed the parties that the Status Quo
Order would remain in effect until the court issued its ruling. Id. at 53; see Dkt. 63. The
court thus modified the Status Quo Order to eliminate the December 1 expiration date,
causing the Status Quo Order to remain in effect until the court’s ruling.
On Christmas Eve, the Stiffler Organization terminated Connection’s access to the
Compensation Platform. That act facially violated the Status Quo Order, and the court
subsequently found the defendants to be in contempt. To induce the defendants to restore
access, the court imposed a coercive sanction on the defendants of $50,000 per day until
access to the Compensation Platform was restored. Dkt. 76.
On January 7, 2021, the court issued a decision granting Connection’s motion for a
preliminary injunction. P.C. Connection, Inc. v. Synygy Ltd. (Injunction Decision), 2021
WL 57016 (Del. Ch. Jan. 7, 2021). The decision converted the Status Quo Order into a
3
preliminary injunction that would remain in effect until the earlier of either the final
disposition of this action or March 31, 2021. The court determined that by that date,
Connection would have had a reasonable period to transition to a new provider of
compensation services and minimize potential losses. After that point, an order requiring
access to the Compensation Platform would no longer be necessary.
The defendants still did not restore Connection’s access to the Compensation
Platform. Connection therefore moved for additional sanctions. Dkt. 80. By order dated
January 15, 2021, the court directed the defendants to restore Connection’s access to the
Compensation Platform by 12:00 p.m. on January 22, 2021. Dkt. 86. The court held that if
the defendants did not restore Connection’s access by the deadline, then the accrued
coercive sanction of $850,000 would convert into a judgment in favor of Connection, with
payment due in full by January 29, 2021. The court also put the defendants on notice that
if they did not restore access, then the court would entertain a motion by Connection for
default judgment.
The defendants failed to restore Connection’s access by the court-ordered deadline.
On January 27, 2021, Connection moved for the entry of judgment by default. Dkt. 90.
By order dated May 11, 2021, the court entered judgment by default against the
original five entity defendants as to Counts I–VIII of the complaint. Dkt. 101 (the “Entity
Default Judgment”). The Entity Default Judgment only addressed the issue of liability. It
expressly did not address the issue of damages or whether other remedies were appropriate.
See id. ¶ 25. Among other things, the court found that “the record supports a meritorious
claim for piercing the veils of the entity defendants.” Id. ¶ 19(d). The court noted that
4
“Stiffler has shuffled his entities to avoid his legal obligations,” “has done so in a manner
bearing hallmarks of fraud, which has worked injustice on third parties,” and “has treated
his entities as his alter egos and instrumentalities.” Id.
The Entity Default Judgment did not grant Connection’s request for a default
judgment against Stiffler. The court noted that there was no record of Connection having
served Stiffler with process, and Connection had not presented any authority as to whether
service of process was a prerequisite to a default judgment entered as a sanction for the
contumacious violation of a court order.
In response to the court’s observation, Connection filed a supplemental
memorandum of law providing authority for the proposition that service on Stiffler was not
a prerequisite to the entry of default judgment under the circumstances in this case. Dkt.
104 at 2. By order dated June 25, 2021, the court entered default judgment against Stiffler
on Counts I–VIII of the complaint. Dkt. 113 (the “Stiffler Default Judgment”). The Stiffler
Default Judgment also only addressed the issue of liability. It did not address the issue of
damages or other remedies.
On October 6, 2021, Connection moved for leave to file an amended complaint
under Court of Chancery Rule 15(a). Dkt. 114. The proposed pleading would “add one
additional count seeking declaratory relief in the form of [reverse] veil-piercing against
two new defendants, Old Gulph Farm Developers LLC and Elverta Washington Square
LLC.” Id. ¶ 2. Connection averred that it had not known about these entities before the
litigation and that both were believed to be a part of the shifting admixture of entities that
Stiffler used to evade his legal obligations. Id. ¶ 4. Connection also noted that this court
5
had only recently recognized reverse veil piercing as a cognizable remedy. Id. ¶ 6 (citing
Manichaean Cap., LLC v. Exela Techs., Inc., 251 A.3d 694, 700 (Del. Ch. 2021)).
The court denied the motion without prejudice, noting that Connection had not made
any effort to address how the entry of a default judgment affected the ability of a party to
file an amended complaint under Rule 15(a). Dkt. 115. Observing that it could be
problematic to amend a complaint after judgment had been entered, the court stated that
more authority and explanation would be needed before the court could grant the motion.
On December 22, 2021, Connection renewed its motion. Dkt. 119.
II. LEGAL ANALYSIS
Connection’s application raises two questions. First, can Connection rely on Rule
15(a) to amend its complaint even after obtaining the Entity Default Judgment and the
Stiffler Default Judgment (jointly, the “Default Judgments”)? Second, does Connection’s
proposed amendment meet the standard for filing an amendment under Rule 15(a), taking
into account the existence of the Default Judgments?
A. Whether Connection Can Rely On Rule 15(a)
Court of Chancery Rule 15(a) provides that “[a] party may amend the party’s
pleading once as a matter of course at any time before a responsive pleading is served or,
if the pleading is one to which no responsive pleading is permitted and the action has not
been set for trial, the party may so amend it any time within 20 days after it is served.” Ct.
Ch. R. 15(a). In all other circumstances, “a party may amend the party’s pleading only by
leave of Court or by written consent of the adverse party.” Id.6
Leave to amend should be “freely given when justice so requires.”1 The liberal
granting of motions to amend recognizes that pleadings are not an end in themselves, but
rather “designed to assist the adjudication of a dispute on the merits of the claim.” Donald
J. Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial Practice in the Delaware
Court of Chancery § 4.07[a][1], at 4-29 (2d ed. & Dec. 2019 Supp.).
Once judgment has been entered, however, the proceedings before the trial court
have come to an end.2 At that point “the filing of an amendment cannot be allowed until
1
Id. Court of Chancery Rule 15(aaa) creates an exception to the general rule. Under
Rule 15(aaa), if a party confronts a motion to dismiss under Court of Chancery Rules
12(b)(6) or 23.1 and chooses not to amend its complaint before the time its answer is due,
then any order granting the motion to dismiss “shall be with prejudice (and in the case of
complaints brought pursuant to Rules 23 or 23.1 with prejudice to the named plaintiffs
only) unless the Court, for good cause shown, shall find that dismissal with prejudice would
not be just under all the circumstances.” Ct. Ch. R. 15(aaa). By necessary inference, “Rule
15(aaa) requires a plaintiff that wishes to amend its complaint in response to a motion to
dismiss to file its amended complaint before responding to the motion to dismiss.” E.
Sussex Assocs., LLC v. W. Sussex Assocs., LLC, 2013 WL 2389868, at *1 (Del. Ch. June
3, 2013). A plaintiff that chooses to stand on its pleading and respond to the motion must
survive pleading-stage analysis on the basis of that complaint; he is not entitled to move
for leave to amend under the liberal standard of Rule 15(a). Doubtless in a world of infinite
possibilities there is some set of circumstances where leave would be granted, but the test
closely would track the standard that Rule 15(aaa) imposes for a dismissal without
prejudice.
2
“Judgment” in this context is a technical term referring to an order giving rise to a
right of appeal, generally meaning a final judgment disposing of a case. Ct. Ch. R. 54(a)
(“‘Judgment’ as used in these Rules includes any order from which an appeal lies.”). It
does not refer to a decision or ruling, nor does it refer to an interlocutory order. See 10
Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2651, Westlaw
(4th ed. database updated Apr. 2021) (“The terms ‘decision’ and ‘judgment’ are not
synonymous under the federal rules. The decision consists of the court’s findings of fact
and conclusions of law; the rendition of judgment is the pronouncement of that decision
and the act that gives it legal effect.”). Compare, e.g., Ct. Ch. R. 59(f) (contemplating a
motion for reargument after the issuance of an “opinion” or “decision”), with Ct. Ch. R.
7
the judgment is set aside or vacated under Rule 59 or Rule 60.” 6 Charles Alan Wright &
Arthur R. Miller, Federal Practice and Procedure § 1489, Westlaw (3d ed. database
updated Apr. 2021). Another leading treatise describes the same practice:
After a court dismisses an action and enters a final judgment, a plaintiff’s
ability to amend, whether “as a matter of course” or even by leave of court,
is subject to limitations on the remedies available after judgment. Once a
final judgment has been entered, the district court lacks power to rule on a
motion to amend unless the party seeking leave first obtains relief under Rule
59(e) or 60.
3 James Wm. Moore et al., Moore’s Federal Practice § 15.13[2], at 15-22 (3d ed. 2021).3
59(e) (contemplating a motion to alter or amend “the judgment”), and Ct. Ch. R. 60(a)
(contemplating relief from a “judgment” or “order”). Under the Federal Rules of Civil
Procedure, Rule 58 governs the entry of judgments and provides detailed instructions
regarding when and how judgment is entered. The Court of Chancery rules do not contain
anything similar to Federal Rule of Civil Procedure 58. In its entirety, Court of Chancery
Rule 58 states that “[t]he order of the Court shall constitute the judgment of the Court.” Ct.
Ch. R. 58. That laconic and vague statement can engender confusion about when an order
constitutes a judgment.
3
Federal Rule of Civil Procedure 59(e) states that “[a] motion to alter or amend a
judgment must be filed no later than 28 days after the entry of judgment.” Fed. R. Civ. P.
59(e). Except for the time period for filing the motion, Court of Chancery Rule 59(e) is
substantively identical: “A motion to alter or amend the judgment shall be served not later
than 10 days after the entry of the judgment.” Ct. Ch. R. 59(e). Federal Rule of Civil
Procedure 60(a) provides that “[t]he court may correct a clerical mistake or a mistake
arising from oversight or omission whenever one is found in a judgment, order, or other
part of the record.” Fed. R. Civ. P. 60(a). Court of Chancery Rule 60(a) likewise provides
that “[c]lerical mistakes in judgments, order or other parts of the record and errors therein
arising from oversight or omission may be corrected by the Court.” Ct. Ch. R. 60(a).
Federal rule of Civil Procedure 60(b) provides that “the court may relieve a party or its
legal representative from a final judgment, order, or proceeding for” six reasons:
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence that, with reasonable diligence, could not
have been discovered in time to move for a new trial under Rule 59(b);
8
In a recent decision, the Delaware Supreme Court discussed and endorsed this
general framework. See generally Lenois v. Sommers as Tr. for Erin Energy Corp., 2021
WL 5860672, at *11–13 (Del. Dec. 9, 2021). Giving priority to Rules 59(e) and 60 after
judgment has been entered promotes the finality of judgments and encourages the efficient
processing of litigation. See Sherman v. State Dep’t of Pub. Safety, 2017 WL 1900268, at
*5 n.37 (Del. Super. May 8, 2017); Wolfe & Pittenger, supra, § 4.09[d][1], at 4-47. By
(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation,
or misconduct by an opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or discharged; it is based on an
earlier judgment that has been reversed or vacated; or applying it
prospectively is no longer equitable; or
(6) any other reason that justifies relief.
Fed. R. Civ. P. 60(b). Court of Chancery Rule 60(b) is substantively and linguistically
similar, and it also provides for relief “from a final judgment, order, or proceeding” for six
reasons:
(1) Mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence;
(3) fraud (whether heretofore denominated intrinsic or extrinsic),
misrepresentation or other misconduct of an adverse party;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or discharged, or a prior
judgment upon which it is based has been reversed or otherwise vacated, or
it is no longer equitable that the judgment should have prospective
application; or
(6) any other reason justifying relief from the operation of the judgment.
Ct. Ch. R. 60(b). The Federal Rules of Civil Procedure require that a Rule 60(b) motion
“be made within a reasonable time—and for reasons (1), (2), and (3) no more than a year
after the entry of the judgment or order or the date of the proceeding.” Fed. R. Civ. P. 60(c).
Court of Chancery Rule 60(b) does not impose any timing restrictions.
9
imposing a heavy burden on the movant, these rules also reflect a judicial effort to
“prevent[] litigants from resurrecting claims on which they have lost.” Bldg. Indus. Ass’n
of Superior Cal. v. Norton, 247 F.3d 1241, 1245 (D.C. Cir. 2001).
Under this framework, once a final judgment has been entered, the more restrictive
rubrics of Rules 59(e) and 60 take precedence over the more liberal standard in Rule 15(a).
See 6 Wright & Miller, supra, § 1489. As a result, “[o]rdinarily post[-]judgment
amendment of a complaint under Rule 15(a) requires reopening of the judgment pursuant
to Rule 59(e) or 60(b).” Norton, 247 F.3d at 1245. Put differently, “once a final judgment
has been entered, a court cannot permit an amendment unless the plaintiff ‘first satisf[ies]
Rule 59(e)’s more stringent standard’ for setting aside that judgment.”4 Procedurally, the
4
Ciralsky v. C.I.A., 355 F.3d 661, 673 (D.C. Cir. 2004) (quoting Firestone v.
Firestone, 76 F.3d 1205, 1208 (D.C. Cir. 1996)); see Atkinson v. Middlesex Cnty., 610 F.
App’x 109, 112 n.6 (3d Cir. 2015) (applying Federal Rule of Civil Procedure 60 and not
Federal Rule of Procedure 15 because “a final order dismissing [the plaintiff’s] case had
been entered”); Walsh v. Quinn, 327 F. App’x 353, 356 (3d Cir. 2009) (per curiam)
(“‘[A]lthough Rule 15 vests the District Court with considerable discretion to permit
amendment “freely . . . when justice so requires,” the liberality of the rule is no longer
applicable once judgment has been entered. At that stage, Rules 59 and 60 govern the
opening of final judgments,’ and amendment is not allowed unless the judgment is set aside
or vacated under one of those rules.” (quoting Ahmed v. Dragovich, 297 F.3d 201, 207–08
(3d Cir. 2002) (citations omitted))); Palmer v. Champion Mortg., 465 F.3d 24, 30 (1st Cir.
2006) (“If made subsequent to the entry of judgment, such requests [for leave to amend],
whatever their merit, cannot be allowed unless and until the judgment is vacated under,
say, Fed. R. Civ. P. 60.” (citing 6 Wright & Miller, supra, § 1489)); Ahmed, 297 F.3d at
207 (“But if the [district court’s] order was a final judgment, [the plaintiff] could not use
Rule 15 to amend the complaint.”).
There is some tension between the majority rule and Foman v. Davis, 371 U.S. 178(1962). In Foman, the Supreme Court of the United States held that a district court abused
its discretion by prioritizing Rule 59(e) over Rule 15(a) after it had granted a motion to
dismiss the plaintiff’s complaint. The Supreme Court held that the district court should
10
plaintiff must invoke Rule 59(e) or 60 before moving for leave under Rule 15(a). Precedent
in this court supports that approach, although there are rulings where the court proceeded
differently.5
have considered and approved the amendment under Rule 15(a). The Supreme Court did
not discuss the more restrictive requirements of Rule 59(e). In the ensuing sixty years,
however, the majority rule has prioritized Rules 59(e) and 60 under comparable
circumstances. Under the current majority consensus, giving priority to Rule 15(a) in these
settings would render meaningless the higher standards in Rules 59(e) and 60. See, e.g.,
Metzler Inv. Gmbh v. Chipotle Mexican Grill, Inc., 970 F.3d 133, 142 (2d Cir. 2020) (“It
is well established that ‘[a] party seeking to file an amended complaint post[-]judgment
must first have the judgment vacated or set aside pursuant to Fed. R. Civ. P. 59(e) or 60(b)
. . . .’, ‘[o]therwise . . . [the] liberal amendment policy of Rule 15(a) [would] be employed
in a way that is contrary to the philosophy favoring finality of judgments and the
expeditious termination of litigation’” (first quoting Ruotolo v. City of New York, 514 F.3d
184, 191 (2d Cir. 2008); then quoting Williams v. Citigroup Inc., 659 F.3d 208. 213 (2d
Cir. 2011))).
5
See Grobow v. Perot, 1988 WL 127094, at *1 (Del. Ch. Nov. 25, 1988) (deciding
a plaintiffs’ motions under Rule 60(b)(2) and Rule 15(a) following “a judgment dismissing
th[e] consolidated actions,” and noting that the plaintiffs “submit[ted] that in the interests
of justice they should be allowed to file the second amended complaint and, as a necessary
predicate, to have the judgment of dismissal vacated”); see also Okla. Firefighters Pension
& Ret. Sys. v. Corbat, 2018 WL 1254958, at *2–3 (Del. Ch. Mar. 12, 2018) (declining to
address a request to amend a complaint under Court of Chancery Rule 15(aaa) where the
plaintiffs “failed to carry their burden under Rule 60(b)(2)” and could not “obtain relief
under Rule 60(b)(6)”). But see Those Certain Underwriters at Lloyd’s, London v. Nat’l
Installment Ins. Servs., Inc., 2008 WL 2133417 (Del. Ch. May 21, 2008) (deeming post-
trial decision to be a final judgment for purposes of evaluating post-judgment amendment
to complaint, but analyzing motion to amend under Rule 15(a) rather than Rules 59(e) or
60; denying motion under more lenient standard of Rule 15(a)); Litman v. Prudential-
Bache Props., Inc., 1992 WL 94369 (Del. Ch. Apr. 29, 1992) (granting motion to amend
under Rule 15(a) and rejecting defendants’ argument to apply Rule 59(e), despite prior
decision in Litman v. Prudential-Bache Properties, Inc., 611 A.2d 12, 17 (Del. Ch. 1992),
which granted motion to dismiss under Rule 23.1 and directed that it was “ORDERED that
plaintiffs’ complaint in this action is DISMISSED for failure to state a claim for which
relief can be granted.”); Some variation is to be expected as courts approach individual
cases, guided by the overarching mandate that the rules of civil procedure are to “be
11
These authorities make a persuasive case that Rule 15(a) remains available until
after the entry of a final judgment. The next question is whether the Default Judgments in
this case constituted a final judgment.
Under Delaware law, “[a] final judgment is generally defined as one which
determines the merits of the controversy or the rights of the parties and leaves nothing for
future determination or consideration.” Showell Poultry, Inc. v. Delmarva Poultry Corp.,
146 A.2d 794, 796 (Del. 1958). “An order is deemed final and appealable if the trial court
has clearly declared its intention that the order be the court’s ‘final act’ in disposing of all
justiciable matters within its jurisdiction.” Bush v. Reyes, 2001 WL 760827, at *1 (Del.
May 25, 2001) (TABLE). When a party has sought money damages, “settlement of the
amount due is a condition precedent to the finality of a judgment.” J.I. Kislak Mortg. Corp.
of Del. v. William Matthews, Builder, Inc., 303 A.2d 648, 650 (Del. 1973)). “In short, a
final judgment is one that determines all the claims as to all the parties.” Tyson Foods, Inc.
v. Aetos Corp., 809 A.2d 575, 579 (Del. 2002).
These standards apply equally to default judgments: “To be final, entry of a default
judgment must not only determine liability but determine relief as well.” 15A Charles Alan
Wright & Arthur R. Miller, Federal Practice and Procedure § 3914.5, Westlaw (2d ed.
database updated Apr. 2021). Applying this rule, the Delaware Supreme Court has held
that a default judgment was not a final judgment where it “determine[d] liability but d[id]
construed and administered to secure the just, speedy and inexpensive determination of
every proceeding.” Ct. Ch. R. 1.
12
not fix the amount of damages.” Am. Reliance Ins. Co. v. Meyer, 1991 WL 165561, at *1
(Del. 1995) (TABLE).
Under these principles, the Default Judgments were not final judgments. Those
orders established liability, but they did not determine the appropriate relief. In particular,
the orders did not award an amount of monetary damages. Instead, the court directed the
parties to schedule an evidentiary hearing so that the court could quantify the components
of the damages award. See Dkt. 101 ¶ 25; Dkt. 113. Connection therefore properly invoked
Rule 15(a), notwithstanding the entry of the Default Judgments.
B. Whether Connection Has Satisfied The Requirements of Rule 15(a)
Having determined that Connection properly relied on Rule 15(a), the next question
is whether Connection has made the showing necessary to amend its complaint under that
rule. “In the absence of undue prejudice, undue delay, bad faith, dilatory motive or futility
of amendment, leave to amend should be granted.” Cantor Fitzgerald, L.P. v. Cantor, 1999
WL 413394, at *2 (Del. Ch. June 15, 1999). The principal consideration is undue prejudice,
and a court “should freely grant leave to amend unless amendment would cause serious
prejudice to the opposing party.” Wolfe & Pittenger, supra, § 4.07[a][1], at 4-29; accord
Kirby v. Kirby, 1989 WL 111213, at *4 (Del. Ch. Sept. 26, 1989) (“Amendments to the
pleadings are liberally allowed unless serious prejudice to the opposing party will result.”).
“Serious prejudice requires a showing of more than mere inconvenience or delay,
particularly if a plaintiff alleges that a defendant withheld necessary information.” Wolfe
& Pittenger, supra, § 4.07[a][2], at 4-30.
13
The amendment in this case will not inflict any prejudice on either the existing
defendants or the proposed defendants, much less the type of serious prejudice that would
be necessary to deny the motion. As to the existing defendants, Connection does not seek
to add new claims. Connection also does not seek to introduce any factual allegations that
would be deemed true as a result of the defaults. See Deutsch v. ZST Digit. Networks, Inc.,
2018 WL 3005822, at *1 (Del. Ch. June 14, 2018) (noting that upon entry of default, “the
court ‘accepts as true all the averments in the complaint, as a matter of law’” (quoting
Whitwell v. Archmere Acad., Inc., 2008 WL 1735370, at *5 (Del. Super. Apr. 16, 2008)).
The only new allegations relating to the existing defendants that appear in Connection’s
proposed pleading relate to events that happened in the litigation, such as the issuance of
various court orders. Those are matters of public record, and Connection has described
them in neutral terms.
Connection’s care in not changing the legal or factual landscape as to the defaulted
defendants is critical, because a party might elect to follow a path that would not lead to
default if different claims were asserted or different facts alleged. Indeed, granting leave to
amend to add claims or facts, while at the same preserving a default judgment, could well
violate the due process rights of the defendant. “Due process, as reflected in Rule 15 . . . ,
require[s] that [the defendant] be given an opportunity to respond and contest his personal
liability for the award after he was made a party and before the entry of judgment against
him.” Nelson v. Adams USA, Inc., 529 U.S. 460, 463 (2000). If a court granted an
amendment that introduced additional claims or facts and simultaneously subjected the
defendant to a default judgment on those claims, then the defendant would be denied an
14
opportunity to respond. That approach would “not comply with Rule 15,” and it also would
not “comport with due process.” Id. at 466. In this case, however, Connection does not
seek to add any claims or assert any new facts against any existing defendant.
The new defendants also will not suffer serious prejudice. The court is not granting
a default as to them. Connection will have to serve those defendants, and they will have an
opportunity to respond. The additional entity defendants are likely already on notice of this
litigation, because Stiffler controls them. See Sciabacucchi v. Malone, 2021 WL 3662394,
at *8 (Del. Ch. Aug. 18, 2021) (rejecting claim of serious prejudice where the to-be-added
party was “controlled by [a party],” was “previously on notice that it was involved in th[e]
case, even as a non-party, and . . . ought to have been on notice that it could be open to
other claims stemming from the same set of facts”).
The other factors that might contribute to a finding of prejudice, such as undue
delay, bad faith, a dilatory motive, or the assertion of a futile claim, do not exist. There is
no evidence of undue delay or a dilatory motive. Connection has explained credibly that it
only recently learned of the existence of the additional entities and only recently perceived
the possibility of reverse veil piercing as a means of reaching their assets. There is also no
reason to think that Connection is proceeding in bad faith. Connection is simply trying to
overcome Stiffler’s bad faith use of a maze of entities to evade his legal obligations.
At this stage of the case, the court will not evaluate whether the amendment is futile.
When considering a motion to amend, the court generally does not consider the merits of
the claim. Wolfe & Pittenger, supra, § 4.07[a][1], at 4-29. Nevertheless, “[a] motion to
amend may be denied . . . if the amendment would be futile, in the sense that the legal
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insufficiency of the amendment is obvious on its face.” NACCO Indus., Inc. v. Applica
Inc., 2008 WL 2082145, at *1 (Del. Ch. May 7, 2008). The proposed amendment is not
obviously insufficient. To the contrary, the claim for reverse veil perceiving seems
reasonably conceivable. Once the new entities have been served, they will have procedural
vehicles available to raise any defenses they may have under Rule 12 or otherwise.
The filing of the amended complaint thus serves the interests of justice and would
not cause serious prejudice. Under these circumstances, leave to amend will be granted.
III. CONCLUSION
Connection properly moved to amend its complaint under Rule 15(a),
notwithstanding the entry of the Default Judgments. Under the circumstances presented,
the interests of justice warrant granting leave to amend.
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