CSP N3 Sponsor LLC v. Grossman ( 2023 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
CSP N3 SPONSOR LLC AND )
CAPSTACK REAL ESTATE FUND )
L.P., )
)
Plaintiffs, )
)
v. ) C.A. No. N22C-07-157 PAW
)
MATTHEW GROSSMAN AND )
JMG CAPITAL PROPERTIES LLC, )
)
Defendants. )
)
Submitted: January 25, 2023
Decided: March 9, 2023
Upon Defendants’ Motion to Dismiss, or, in the alternative, Stay:
GRANTED IN PART AND DENIED IN PART.
MEMORANDUM OPINION AND ORDER
Charles J. Brown, Esq., of GELLERT SCALI BUSENKELL & BROWN, LLC,
Attorney for Plaintiffs.
Adam L. Balick, Esq., and Melony Anderson, Esq., of BALICK & BALICK, LLC,
Attorneys for Defendants.
Winston, J.
I. INTRODUCTION
Plaintiffs CSP N3 Sponsor LLC (“CSP”) and Capstack Real Estate Fund L.P.
(“Capstack”) filed a declaratory judgment action and misappropriation of trade
secrets claim against Defendants Matthew Grossman and JMG Capital Properties,
LLC (“JMG Capital”). Plaintiffs’ declaratory judgment action seeks a declaration
that Capstack owes no obligations to Mr. Grossman and JMG Capital. Plaintiffs’
misappropriation of trade secrets claim seeks damages arising out of Mr. Grossman’s
alleged misappropriation of CSP’s trade secrets which he obtained access to through
a consulting agreement executed with CSP (the “Fee Agreement”). Defendants have
moved to dismiss this action for lack of subject matter jurisdiction and on the
grounds of forum non conveniens (the “Motion”). For the reasons set forth below,
Defendants’ Motion is granted in part and denied in part.
II. FACTUAL AND PROCEDURAL BACKGROUND
On or about November 3, 2020, Mr. Grossman and CSP entered into the Fee
Agreement, whereby Mr. Grossman, through his affiliated entity JMG SFR LLC
(“JMG SFR”), would work as a consultant for CSP.1 Pursuant to the Fee Agreement,
Mr. Grossman was to provide CSP his expertise in real estate analysis, asset
management, and investment management.2 In exchange, Mr. Grossman would
1
Compl. ¶ 6. The parties dispute whether Mr. Grossman executed the Fee Agreement in his
individual capacity or on behalf of JMG SFR.
2
Defs.’ Opening Br. Ex. A ¶¶ 2-3 (hereinafter “Fee Agreement”).
2
receive a percentage of the net fees collected by CSP on the capital contributions
made into CSP’s investment vehicle (the “Investment”) by members which were
referred by or affiliated with Mr. Grossman.3 Mr. Grossman was also to receive
100% of the net fees collected from the $125,000 capital contribution made by JMG
SFR into the Investment.4 As a CSP consultant, Mr. Grossman had access to CSP’s
confidential information and trade secrets.5 And under the Fee Agreement, Mr.
Grossman agreed to maintain the confidentiality of this information during the term
of the Fee Agreement and after its expiration.6 The Fee Agreement’s arbitration
provision states:
Except to the extent required by the Act, any dispute, claim or
controversy arising out of or relating to this Agreement or the breach,
termination, enforcement, interpretation, or validity thereof, including
the determination of the scope or applicability of this Agreement to
arbitrate, shall be determined by arbitration in Miami, Florida before
one arbitrator. The arbitration shall be administered by JAMS pursuant
to its Comprehensive Arbitration Rules and Procedures and in
accordance with the Expedited Procedures in those Rules. Judgment on
the award may be entered in any court having jurisdiction. This clause
shall not preclude parties from seeking provisional remedies in aid of
arbitration from a court of appropriate jurisdiction.7
3
Id.
4
Id. ¶ 3(a)(i).
5
Compl. ¶ 7.
6
Id.
7
Fee Agreement ¶ 4.
3
Following the formation of Capstack8 in March 2021, Mr. Grossman began
negotiating the terms of his involvement in Capstack with David Blatt.9 However,
Mr. Blatt and Mr. Grossman could not agree on the role Mr. Grossman would have
at Capstack.10 Subsequently, Mr. Grossman decided to end his relationship with
Capstack.11 Capstack then returned to Mr. Grossman the funds he had advanced to
CSP in anticipation of his involvement with Capstack.12 At some point after
Capstack and Mr. Grossman ended their relationship, CSP learned Mr. Grossman
violated the Fee Agreement by, inter alia, using CSP’s confidential customer and
investor lists to solicit investments for JMG Capital.13
On or about June 14, 2022, Mr. Grossman, through legal counsel, sent a
settlement demand letter (the “Demand Letter”) to Capstack asserting he was owed
an additional sum of $275,000. Mr. Grossman based his demand on the parties’
express oral agreement, clear course of performance, and prior course of dealing.14
Specifically, $275,000 represented the profit Capstack received from certain
8
Capstack is an affiliate of CSP. Compl. ¶¶ 1-2.
9
Compl. ¶ 8. Mr. Blatt formed Capstack and is the manager of CSP.
10
Id. ¶¶ 9-10.
11
Id.
12
Id. ¶ 11.
13
Id. ¶ 14.
14
Id. ¶ 12.
4
Grossman-generated investments.15 The Demand Letter stated “[t]his settlement
demand will remain open for thirty days.”16
Following the expiration of the thirty-day window, Plaintiffs filed the instant
action. Count I seeks a declaratory judgment that Capstack owes no obligations to
Defendants.17 Count II alleges Mr. Grossman misappropriated CSP’s trade secrets
and confidential information in violation of state and federal law.18 Five days after
Plaintiffs filed the instant action, Defendants filed a notice with summons in the
Supreme Court of the State of New York against Plaintiffs and additional defendants
Mr. Blatt and Capstack Partners LLC (the “New York Litigation”).19 Defendants
then filed the instant Motion pursuant to Superior Court Civil Rules 12(b)(1) and
12(b)(3).20 The Court heard argument on the Motion, and, at the end of the hearing,
the Court took the Motion under advisement.
III. PARTIES’ CONTENTIONS
Defendants make two arguments in support of their Motion. First, they claim
that both Counts are subject to the arbitration provision contained in the Fee
Agreement.21 Second, in the event the Court concludes one or both Counts are not
15
Id.
16
Defs’ Opening Br. Ex. B at 6 (hereinafter “Demand Letter”).
17
Id. ¶¶ 16-20.
18
Id. ¶¶ 22-26.
19
Defs.’ Opening Br. at 7.
20
Defs.’ Motion to Dismiss, or, in the Alternative, Stay at 1.
21
Defs.’ Opening Br. at 14-16.
5
subject to arbitration, Defendants argue that this Court should dismiss or stay the
action on the grounds of forum non conveniens in favor of the New York Litigation.22
Defendants further contend that the typical forum non conveniens hardship analysis
does not apply because Plaintiffs filed their declaratory judgment action in
anticipation of imminent litigation.23 Instead, Defendants assert this Court should
look to the factors discussed in Burris v. Cross to determine whether Plaintiffs’
declaratory judgment action should be dismissed or stayed pending the outcome of
the New York Litigation.24
Plaintiffs respond by asserting that neither Defendant is a party to the Fee
Agreement and thus their claims against Defendants are not subject to the arbitration
provision, and that, in any event, their claims do not rely upon the Fee Agreement.25
In the alternative, Plaintiffs contend that Defendants waived their right to arbitration
by initiating the New York Litigation.26 Plaintiffs also assert the factors in Burris v.
Cross should not apply because their declaratory judgment action was not filed in
anticipation of imminent litigation, and that this Court is the proper forum to resolve
all disputes between the parties.27
22
Id. at 17.
23
Id. at 17-18.
24
Id.
25
Pls.’ Answering Br. at 5-8.
26
Id. at 9-10.
27
Id. at 10-16.
6
IV. STANDARD OF REVIEW
A. MOTION TO DISMISS BASED ON LACK OF SUBJECT MATTER
JURISDICTION
Pursuant to Superior Court Civil Rule 12(b)(1), a party may move to dismiss
a claim for “[l]ack of jurisdiction over the subject matter.”28 “The burden of
establishing the Court’s subject matter jurisdiction rests with the party seeking the
Court’s intervention.”29 When reviewing a motion to dismiss based on lack of
subject matter jurisdiction, the court may consider documents outside the pleadings
and “need not accept Plaintiff’s factual allegations as true.”30 “The law is clear that
courts lack subject matter jurisdiction over a claim that is ‘properly committed to
arbitration.’”31
28
Super. Ct. Civ. R. 12(b)(1).
29
Donofrio v. Peninsula Healthcare Servs., LLC, 2022 WL 1054969, at *2 (Del. Super. Ct. Apr.
8, 2022) (citation omitted).
30
Appriva S’holder Litig. Co., LLC v. EV3, Inc., 937 A.2d 1275, 1284 n.14 (Del. 2007) (quoting
Philips v. County of Bucks, 1999 WL 600541, at *1 (E.D. Pa. Aug. 9, 1999) (“Unlike the standards
employed in Rule 12(b)(6) analysis, the guidelines for the Court's review of a Rule 12(b)(1) motion
are far more demanding of the non-movant. The burden is on the Plaintiffs to prove jurisdiction
exists. Further, the Court need not accept Plaintiffs factual allegations as true and is free to consider
facts not alleged in the complaint.”)).
31
West IP Commc’n., Inc. v. Xactly Corp., 2014 WL 3032270, at *5 (Del. Super. Ct. June 25,
2014) (quoting Aquila of Del., Inc. v. Wilm. Trust Co., 2011 WL 4908406, at *1 (Del. Super. Ct.
Oct. 10, 2011)).
7
B. MOTION TO DISMISS BASED ON THE GROUNDS OF FORUM NON
CONVENIENS
Even when a court has subject matter jurisdiction over a claim, it can still be
dismissed on the grounds of forum non conveniens.32 “A motion raising forum non
conveniens is a request that a court possessing both personal and subject matter
jurisdiction over an action nevertheless decline to hear it.”33 A plaintiff’s choice of
forum is typically respected and overwhelming hardship, not mere inconvenience
must be shown to warrant relief.34
V. DISCUSSION
A. THE ARBITRABILITY DETERMINATION
Arbitrability questions arise when parties disagree about whether an
arbitration agreement extends to a particular issue. Disputes concerning whether an
arbitration agreement encompasses certain claims is a question of substantive
arbitrability. It is undisputed that the issue here is one of substantive arbitrability.
Arbitration is a matter of contract, and as such, parties cannot be required to
submit to arbitration any dispute which they have not agreed to submit.35 As a result,
32
Civil Rule 12(b)(3).
33
GXP Cap., LLC v. Argonaut Mfg. Servs., Inc., 234 A.3d 1186, 1193 (Del. Super. Ct. 2020)
(citing Chrysler First Bus. Credit Corp. v. 1500 Locust Ltd. P'ship., 669 A.2d 104, 106 (Del.
1995)).
34
Taylor v. LSI Logic Corp., 689 A.2d 1196, 1198-1199 (Del. 1997).
35
James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 78 (Del. 2006) (citing Housam v.
Dean Witter Reynolds, Inc., 537 U.S. 79, 123 S.Ct, 154, L.Ed.2d 191 (2002)(“a party cannot be
required to submit to arbitration any dispute which he has not agreed so to submit”)).
8
before addressing questions of substantive arbitrability, the Court must determine
whether a valid arbitration agreement exists.36 Therefore, to determine whether a
claim is properly subject to arbitration, the Court engages in a two-part analysis.37
The Court must determine:
1) Whether a valid arbitration agreement exists;38 and
2) Whether the court or arbitrator decides issues of substantive
arbitrability.39
First, “where the putative contract is in the form of a signed writing, that document
generally offers the most powerful and persuasive evidence of the parties’ intent to
be bound.”40 The principles of contract interpretation are well-established in
Delaware. When interpreting a contract, “courts read the agreement as a whole and
enforce the plain meaning of clear and unambiguous language.”41 Contracts are
interpreted to ‘give each provision and term effect’ and not render any terms
36
Henry Schein, Inc. v. Archer and White Sales, Inc., 139 S. Ct. 524, 530 (2019); Fairstead Cap.
Mgmt. LLC v. Blodgett, 2023 WL 11540, at *18 (Del. Ch. Jan. 6, 2023) (“a court must address
issues of contract formation before deferring to an arbitrator to resolve the who-decides question
under a delegation provision”)(citations omitted).
37
Fairstead Cap. Mgmt. LLC v. Blodgett, 2023 WL 115540, at *14-15 (Del. Ch. Jan. 6, 2023).
38
Id. at *18 (quoting Henry Schein, Inc. v. Archer and White Sales, Inc., 139 S. Ct. 524, 530 (2019)
(“To be sure, before referring a dispute to an arbitrator, the court determines whether a valid
arbitration agreement exists.”).
39
Id. at *17.
40
Eagle Force Holdings., LLC v. Campbell, 187 A.3d 1209, 1230 (Del. 2018) (citing Seiler v.
Levitz Furniture Co. E. Region, 367 A.2d 999, 1005 (Del. 1976)).
41
Manti Holdings, LLC v. Authentix Acquisition Co., Inc., 261 A.3d 1199, 1208 (Del. 2021)
(citations omitted).
9
‘meaningless or illusory.”42 When contract language is clear and unambiguous, the
court will give effect to the plain meaning of its terms and provisions.43
If, a court determines that the parties have contracted to arbitrate, the next
issue the Court decides is whether the Court or arbitrator will decide issues of
substantive arbitrability. It is presumed that substantive arbitrability is an issue for
judicial determination, unless there is clear and unmistakable evidence to the
contrary.44 A clear and unmistakable intent among the parties to submit substantive
arbitrability issues to the arbitrator is found when the arbitration clause contains an
express provision that substantive arbitrability issues will be determined by an
arbitrator.45
B. PLAINTIFFS’ MISAPPROPRIATION OF TRADE SECRETS CLAIM IS
SUBJECT TO ARBITRATION
Count II, Plaintiffs’ misappropriation of trade secrets claim, alleges CSP
discovered that Mr. Grossman violated the Fee Agreement and misappropriated
CSP’s trade secrets by, inter alia, utilizing CSP’s customer and investor lists to
solicit CSP’s customers and investors to invest in Mr. Grossman’s affiliated
42
Id. (quoting Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (citation
omitted)).
43
Id.44
James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 79 (Del. 2006).
45
Donofrio v. Peninsula Healthcare Servs., LLC, 2022 WL 1054969, at *3 (Del. Super. Ct. Apr.
8, 2022) (citing GTSI Corp. v. Eyak Tech., LLC, 10 A.3d 1116, 1119 (Del. Ch. 2010)).
10
company, JMG Capital.46 Defendants contend this claim is subject to arbitration,
since the only basis for Mr. Grossman’s access to CSP’s trade secrets was by virtue
of the Fee Agreement.47 Yet, Plaintiffs argue that their misappropriation claim is
not subject to arbitration because (1) Mr. Grossman is not a party to the Fee
Agreement, and (2) regardless of whether Mr. Grossman is party to the Fee
Agreement, their misappropriation claim does not rely upon the Fee Agreement.48
The Court disagrees.
1. A valid arbitration agreement exists between Mr. Grossman
and CSP
Plaintiffs’ first argument, that Mr. Grossman is not a signatory to the Fee
Agreement, is easily disposed by reviewing the Fee Agreement. A plain reading of
the Fee Agreement evidences that CSP entered into the Fee Agreement with Mr.
Grossman in his individual capacity. First, the Fee Agreement states: “This FEE
AGREEMENT (“Agreement”) is entered into by and between CSP N3 Sponsor LLC
(“Company”) and Matthew Grossman identified below (“Consultant”) (collectively,
the “Parties”).”49 Second, Plaintiffs’ argument that the signature block signifies Mr.
Grossman was signing on behalf of his entity JMG SFR is belied by the express
terms of the agreement. The sentence before the signature block states, “IN
46
Compl. ¶ 14.
47
Defs.’ Opening Br. at 14.
48
Pls.’ Answering Br. at 5-8.
49
Fee Agreement at 1.
11
WITNESS WHEREOF, intending to be legally bound hereby, the undersigned has
executed this Agreement as of the date set forth below as a Member of the Company
or individually.”50 As noted above, the Fee Agreement defines CSP as “Company”.
Thus, it is clear to the Court that CSP contracted with Mr. Grossman in his individual
capacity.51 Therefore, the Court concludes Mr. Grossman is a party to the Fee
Agreement.
2. The Arbitration Provision delegates issues of substantive
arbitrability to the arbitrator
Having determined Mr. Grossman is a party to the Fee Agreement, the next
issue is whether CSP and Mr. Grossman agreed to submit substantive arbitrability
issues to the arbitrator. This issue can similarly be disposed of with a plain reading
of the Fee Agreement’s arbitration provision. The arbitration clause provides that
“any dispute, claim or controversy arising out of or relating to this Agreement or the
breach, termination, enforcement, interpretation, or validity thereof, including the
determination of the scope or applicability of this Agreement to arbitrate[,]” shall
be determined by the arbitrator.52 An arbitration provision requiring the parties to
50
Id. at 2 (emphasis added).
51
Not only is Plaintiffs’ argument contrary to the plain reading of the Fee Agreement, but it is also
directly contrary to their allegations in this action and the New York Litigation. In their Complaint,
Plaintiffs allege: “Defendant Grossman, through his affiliated entity … entered into a Fee
Agreement … whereby Grossman … would work as a consultant on behalf of CSP.” Compl. ¶6.
In the New York Litigation, Mr. Blatt, via affidavit, alleges Mr. Grossman violated the Fee
Agreement. See Defs’ Reply Br., Exhibit A at 3.
52
Id. ¶ 4 (emphasis added).
12
arbitrate “the validity, scope and enforceability of these arbitration provisions”
clearly and unmistakably assigns to the arbitrator the task of determining substantive
arbitrability.53 Thus, the parties clearly and unmistakably intended to submit the
issues of substantive arbitrability to the arbitrator. Therefore, the arbitrator must
decide whether Count II, the trade secrets claim, is subject to arbitration.54
Defendants’ motion to stay the misappropriation of trade secrets claim pending a
determination of arbitrability by the arbitrator is granted.
C. PLAINTIFFS’ DECLARATORY JUDGMENT ACTION IS NOT SUBJECT TO
ARBITRATION
Count I seeks a declaratory judgment that Capstack owes no obligations to
Mr. Grossman or JMG Capital. Neither party contends that Capstack is a signatory
to the Fee Agreement. Defendants, however, contend that the fact that Capstack is
not a party to the Fee Agreement “need not prevent this Court from finding that there
is a colorable argument that Count I is a dispute ‘arising out of or relating to’ the Fee
53
GTSI Corp. v. Eyak Tech., LLC, 10 A.3d 1116, 1119 (Del. Ch. 2010) (“[b]y stating that the
members ‘shall’ arbitrate ‘any dispute ... including the validity, scope and enforceability of these
arbitration provisions,’ the Arbitration Provision clearly and unmistakably assigns to the arbitrator
the task of determining substantive arbitrability.”).
54
Defendants cite to various cases that interpret McLaughlin v. McCann to add a third prong to
the Willie Gary test: that the Court will not refer a frivolous issue of arbitrability to an arbitrator.
See West IP Commc’ns, Inc. v. Xactly Corp., 2014 WL 3032270, at *9 (Del Super. Ct. June 25,
2014) and Legend Nat’l Gas II Holdings, LP v. Hargis, 2012 WL 4481303, at *6 (Del. Ch. Sept.
28, 2012). However, given the United States Supreme Court’s holding in Henry Schein, Inc. v.
Archer & White Sales, Inc. and the Delaware Supreme Court’s adherence to the majority federal
rule in Willie Gary, the third prong is inconsistent with precedent. See also, Fairstead Cap. Mgmt.
LLC v. Blodgett, 2023 WL 115540, at *22 (“Even if the court were to view arguments for
arbitrability as wholly frivolous, they would still be for the arbitrator to decide.”).
13
Agreement.”55 In support of their contention, Defendants argue that the relationship
between CSP and Mr. Grossman led to the relationship between Mr. Grossman and
Capstack, and that Capstack and CSP are inextricably intertwined.56 Thus,
Defendants contend “there is a colorable argument that Count I is a dispute ‘arising
out of or relating to’ the Fee Agreement sufficient for this Court to dismiss it.”57
Defendants’ argument, however, presupposes that Capstack is bound by the
arbitration provision in the Fee Agreement without considering the threshold issue
of contract formation. As previously explained, the first step in an arbitrability
determination is deciding whether a valid arbitration agreement exists between the
parties.58 The issue of whether Capstack has contracted to arbitrate its claims against
Mr. Grossman and JMG Capital or is otherwise bound to the terms of the Fee
Agreement is an issue of contract formation and decided by the Court. 59
A non-signatory to a contract can be bound by an arbitration clause within that
contract when “‘traditional principles of contract and agency law’ equitably confer
55
Defs.’ Opening Br. at 15-16.
56
Id. at 16.
57
Id.
58
See supra V.A.
59
See Fairstead Cap. Mgmt LLC v. Blodgett, 2023 WL 115540, at *19-20 (Jan 6, 2023) (The issue
of whether a non-signatory can be bound to an arbitration agreement is an issue for the court and
is distinct from the issue of substantive arbitrability).
14
upon that party signatory status with regard to the underlying agreement.”60 Courts
have “recognized five theories for binding non-signatories to arbitration agreements:
1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter ego;
and 5) estoppel.”61 None of these theories apply here.
Defendants appear to advance the theory that Capstack is an alter ego of
CSP.62 Defendants rely on Legend Natural Gas II Holdings, LP v. Hargis, in which
non-signatory successor-in-interest entities were determined to be bound to an
arbitration agreement signed by their predecessor entities. 63 The Legend Natural
Gas Court noted that in Delaware, “a successor corporation which is merely the
‘alter ego’ of the predecessor is bound by the arbitration clause of an agreement
made by the predecessor.”64
In the instant case, however, Capstack is an affiliate of CSP, not its successor-
in-interest. In general, Delaware courts typically do not disregard the separateness
of corporate entities.65 “To succeed, the challenging party must prove that the
corporate structure ‘must be a sham and exist for no other purpose than as a vehicle
60
NAMA Holdings, LLC v. Related World Mkt. Ctr., LLC, 922 A.2d 417, 430 (Del. Ch. 2007)
(citing E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269
F.3d 187, 194 (3d Cir.2001)).
61
Buzzfeed, Inc. v. Anderson, 2022 WL 15627216, at *8 (Del. Ch. Oct. 28, 2022).
62
Defs.’ Opening Br. at 16 (“CSP and Capstack are owned and managed by the same person,
David Blatt, and are inextricably intertwined”).
63
Legend Natural Gas II Holdings, LP v. Hargis, 2012 WL 4481303, at *6 (Sept. 28, 2012).
64
Id.65
Buzzfeed, Inc. v. Anderson, 2022 WL 15627216, at *12 (Del. Ch. Oct. 28, 2022).
15
for fraud.’”66 Defendants do not allege the affiliate relationship between CSP and
Capstack was merely a vehicle for fraud, and the Court does not find any indication
from the pleadings that such was the case.
The Court finds that Capstack has not agreed to submit any claims it has
against Mr. Grossman or JMG Capital to arbitration and principles of equity do not
support binding Capstack to the terms of the Fee Agreement. Accordingly,
Defendants’ Motion to dismiss or stay Count I, declaratory judgment action, pending
a determination of arbitrability by the arbitrator is denied.67
D. DEFENDANTS’ MOTION TO DISMISS THE DECLARATORY JUDGMENT
ACTION ON THE GROUNDS OF FORUM NON CONVENIENS IS DENIED
1. The Burris v. Cross Factors Do Not Weigh In Favor of
Dismissal
Defendants argue that if the Court finds Plaintiffs’ declaratory judgment
action is not subject to arbitration, then the Court should find the action is ‘overripe’
under Burris v. Cross and dismiss the action.68 Burris v. Cross identified seven
factors which inform the appropriateness of a declaratory judgment action seeking
declarations on the merits of claims pending in another court. These factors are:
66
Id. (citing Wallace ex rel. Cencom Cable Income P'rs II, Inc. v. Wood, 752 A.2d 1175, 1183
(Del. Ch. 1999)).
67
Because the NY Litigation does not relate to Count II and the Court has determined that the
declaratory judgment action is not subject to arbitration, it need not address Plaintiffs’ argument
that Defendants waived their right to arbitrate by initiating the New York Litigation.
68
Defs.’ Opening Br. at 19.
16
(1) Whether the defendant is truly an unwilling litigant, thus
necessitating declaratory action. (2) What form of relief is truly
being sought by the plaintiff and whether that relief, if not solely a
declaration of rights, would require resort to another court for
supplemental relief. If so, whether both the rights and relief could
be attained in a single non-declaratory action already available. (3)
Whether another remedy exists and whether it would be more
effective or efficient and, thus, whether declaratory judgment
would serve a useful purpose. (4) Whether another action is
pending, instituted either before or after the instant action, at the
time of consideration of the Motion to Dismiss, and whether
plaintiff would be able to raise all claims and defenses available in
the instant action, as part of the pending action. (5) Whether the
instant action has truly been instituted to seek a declaration of
rights or merely for tactical or other procedural advantage. (6)
Whether the instant action was filed in apparent anticipation of
other pending proceedings. (7) Whether plaintiff will suffer any
prejudice if the instant action is dismissed.69
Several facts, however, distinguish the instant case from Burris and make
dismissal of Plaintiffs’ declaratory judgment action inappropriate under the Burris
factors. First, the Court disagrees with Defendants’ assertion that Plaintiffs knew
Defendants intended to initiate litigation in New York in the event their settlement
demand was not met.70 While it is true the Demand Letter was drafted by counsel
in New York and stated Defendants were prepared to “pursue claims, if necessary,”
the Demand Letter did not indicate the forum Defendants intended to litigate in.
Further, Defendants’ assertion that Plaintiffs should have known Defendants
69
Id. at 1372-73.
70
Defs.’ Opening Br. at 21.
17
intended to litigate in New York is undercut by the fact that Defendants are now
claiming that the declaratory judgment action is subject to arbitration. Thus, unlike
in Burris, Defendants did not clearly express their intent to file in a particular
jurisdiction if Plaintiffs did not meet the terms of the Demand Letter.
Second, despite Defendants’ assertions that their Demand Letter demonstrated
a clear intent to litigate, their complaint in the New York Litigation was not filed
until February 7, 2023, more than six months after initiation of the suit.71 While the
rules of civil procedure in New York may allow this length of delay between
initiation of a suit and the filing of a complaint, it hardly presents the picture of a
willing litigant who, like the defendant in Burris, was ready to file in the event
negotiations were unsuccessful and was preempted from his choice of forum at the
eleventh hour.
Third, the relief requested by Plaintiffs here is truly a declaration of rights. In
contrast, in Burris, the plaintiff’s claims for declaratory relief were claims for
injunctive relief more properly brought in the Court of Chancery.72 Here, Plaintiffs’
request for declaratory relief asks this Court to interpret the terms of contract, if any,
71
See Compl., Matthew Grossman and JMG Cap. Properties, LLC v. David Blatt et al, No.:
652619/2022 (N.Y. Sup. Ct. filed February 7, 2023).
72
Burris, 583 A.2d at 1373.
18
between Mr. Grossman and Capstack. This type of issue “strike[s] at the very heart
of declaratory judgment relief, contract interpretation.”73
Fourth, finally, and fundamentally, the fact pattern in this case mirrors a
typical declaratory judgment scenario, wherein, “an unwilling litigant will have cast
a cloud upon a property right (or other legal interest) but will not have moved
forward to litigate the claim.”74 By asserting Capstack was in breach of contract,
Defendants effectively “cast a cloud” upon Capstack’s obligations to Mr. Grossman
and gave rise to reasonable grounds for insecurity. Under these circumstances, it
was appropriate for Capstack to seek declaratory relief. The Burris factors do not
weigh in favor of dismissal.
2. The Cyro-Maid Factors Do Not Weigh in Favor of Dismissal
Defendants argue that in the event the Court does not dismiss the declaratory
judgment action under Burris, the Court should nonetheless dismiss the action on
the grounds of forum non conveniens.75 “Where the actions are considered
contemporaneously filed, ‘the movant must demonstrate that litigating in Delaware
73
E.I. DuPont De Nemours & Co., Inc. v. Huttig Bldg. Prods., Inc., 2002 WL 32072447, at *3
(Del. Super. Ct. May 28, 2002).
74
Schick Inc. v. Amalgamated Clothing & Textile Workers Union, 533 A.2d 1235, 1239 (Del. Ch.
1987).
75
Defs.’ Opening Br. at 22.
19
would cause overwhelming hardship,’ to justify a dismissal.”76 “To justify a stay
where the actions are contemporaneously filed, ‘the movant need only demonstrate
that the preponderance of applicable forum factors ‘tips in favor’ of litigating the
dispute in the non-Delaware forum.’”77
When a motion to dismiss or stay based on forum non conveniens is filed, the
Court considers the following five factors: “(1) the relative ease of access to proof;
(2) the availability of compulsory process for witnesses; (3) the possibility of a view
of the premises; (4) whether the controversy is dependent upon the application of
Delaware law which the courts of this State more properly should decide than those
of another jurisdiction; and (5) all other practical problems that would make the trial
of the case easy, expeditious and inexpensive.”78
The Court does not need to conduct a fulsome analysis under these factors to
conclude that Defendants do not meet their burden to dismiss or stay this action in
favor of the New York Litigation. The first two factors do not counsel for dismissal
or staying of this action. “Delaware courts have found that to demonstrate
overwhelming hardship, a party must identify the witnesses not subject to
76
Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Turner Construction Co., 2014 WL 703808, at *2
(Del. Super. Feb. 17, 2015) (citing BP Oil Supply Co. v. ConocoPhillips Co., 2010 WL 702382, at
*2 (Del. Super. Ct. Feb. 25, 2010)).
77
Id. (citing BP Oil Supply Co. v. ConocoPhillips Co., 2010 WL 702382, at *2 (Del. Super. Ct.
Feb. 17, 2014).
78
GXP Cap., LLC v. Argonaut Mfg. Servs., Inc., 234 A.3d 1186, 1193-94 (Del. Super. Ct. 2020)
(General Foods Corp. v. Cryo–Maid, Inc., 198 A.2d 681, 684 (Del. 1964)).
20
compulsory process and the specific substance of their testimony.”79 Aside from
Mr. Grossman, Defendants do not identify any witnesses located in New York. The
third factor, the possibility of a view of the premises, is irrelevant on the facts of this
case. The Court does not have enough information on the purported oral agreement
to decide the fourth factor. Finally, Defendants’ argument under the fifth factor
simply points the Court back to the arguments made in support of the earlier
factors.80 For the same reasons, that those factors are unpersuasive, this factor is
similarly unpersuasive.
VI. CONCLUSION
Defendants’ motion to dismiss or stay the declaratory judgment claim is
DENIED. Plaintiffs’ misappropriation of trade secrets claim is STAYED pending a
determination of arbitrability by the arbitrator. Plaintiffs shall elect whether to
submit the misappropriation of trade secrets claim to an arbitrator, per the Fee
Agreement, within thirty (30) days of this ruling. If Plaintiffs initiate arbitration for
this purpose, the stay will continue pending the arbitrator’s decision. If Plaintiffs
elect not to initiate arbitration within thirty (30) days, Defendants shall so notify the
79
Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Turner Construction Co., 2014 WL 703808, at *5
(Del. Super. Feb. 17, 2015) (citation omitted).
80
Defs.’ Opening Br. at 24.
21
Court and submit a proposed form of order dismissing this claim with prejudice for
want of subject matter jurisdiction. IT IS SO ORDERED.
/s/Patricia A. Winston
Judge Patricia A. Winston
22