Roma Landmark Theaters, LLC v. Cohen Exhibition Company LLC

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
PAUL A. FIORAVANTI, JR. LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
Date Submitted: February 9, 2021
Date Decided: May 28, 2021
Garrett B. Moritz, Esquire Kevin M. Gallagher, Esquire
Elizabeth M. Taylor, Esquire Angela Lam, Esquire
Ross Aronstam & Moritz LLP Richards, Layton & Finger, P.A.
100 S. West Street, Suite 400 One Rodney Square
Wilmington, DE 19801 920 N. King Street
Wilmington, DE 19801
RE: Roma Landmark Theaters, LLC et al. v. Cohen Exhibition Company LLC,
C.A. No. 2019-0585-PAF
Dear Counsel:
Plaintiffs Roma Landmark Theaters, LLC and MCC Entertainment LLC
(together “Plaintiffs” or “Sellers”) have filed a Renewed Motion for Summary
Judgment (the “Motion”) against Defendant Cohen Exhibition Company LLC
(“Defendant” or “Buyer”) for confirmation of an arbitration award (the
“Determination Letter”). 1 Through the Motion, Plaintiffs seek an order granting
summary judgment in their favor and directing Defendant to pay the amount
awarded to Plaintiffs pursuant to the Determination Letter, plus interest and their
1
Unless noted otherwise, capitalized terms are as defined in the Court’s September 30,
2020 Memorandum Opinion (the “Opinion” or “Op.”). The Determination Letter is
attached as Exhibit B to the Complaint.
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costs and expenses incurred in pursuing enforcement of the Determination Letter.
Plaintiffs also seek to compel Buyer to execute a Joint Instruction Letter authorizing
the release of funds from an escrow account for the award, and to pay any amount
in excess of the award in the event the escrow is not sufficient to satisfy the award.
This letter opinion resolves the Motion.
I. Factual Background
a. The Acquisition and the Determination Letter
On December 3, 2018, Sellers sold the Company to the Buyer. The terms of
the sale are contained in a Purchase Agreement and related Escrow Agreement.2
Through the Escrow Agreement, $3 million of the purchase price was placed into an
escrow account to cover post-closing purchase price adjustments. The Purchase
Agreement defined a process through which the parties would calculate post-closing
purchase price adjustments. The Purchase Agreement incorporated and attached
Applicable Accounting Principles and a Sample Statement to guide the parties’
calculations. If the parties could not resolve a dispute over post-closing purchase
price adjustments, the Purchase Agreement required the parties to select an
independent accounting firm to decide the dispute. The accounting firm’s review
2
The Purchase Agreement is attached as Exhibit A to the Complaint. The Escrow
Agreement is attached as Exhibit C to the Complaint.
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was limited to determining whether calculations had been correctly performed and
whether the calculations were made pursuant to the Applicable Accounting
Principles and the Sample Statement. The parties agreed that the accounting firm’s
determination would be “conclusive and binding upon the parties” and would not be
“subject to appeal or further review.”3 The parties agreed that they would pay the
costs of “any dispute resolution . . . including the fees and expenses of the
Independent Accounting Firm and of any enforcement of the determination thereof”
proportionally to the degree of their success, as calculated by the accounting firm. 4
The parties disputed the post-closing price adjustments and engaged
PricewaterhouseCoopers LLP (“PwC”) to serve as the independent public
accounting firm. PwC obtained additional information through interrogatories and
document requests to the parties. On June 28, 2019, PwC resolved the price
adjustment disputes and documented its decision in the Determination Letter. By its
terms, the Determination Letter became final five business days later.5 The
Determination Letter resolved the disputes in Sellers’ favor, except that PwC agreed
with Buyer’s calculation of the Company’s cash as of the closing date.
3
Purchase Agreement § 1.3(d).
4
Purchase Agreement § 1.3(e).
5
See Determination Letter 15.
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Based on the Determination Letter, Plaintiffs calculate that they are entitled
to $2,621,623 from the escrow. See Compl. ¶¶ 23–26 & Ex. E. Plaintiffs requested
that Buyer execute a Joint Instruction Letter releasing that amount, and Buyer
refused.
b. This Action and the Memorandum Opinion.
On July 29, 2019, Plaintiffs filed the Complaint seeking (1) a judgment
enforcing the Determination Letter as a binding arbitration award under the Federal
Arbitration Act (Compl. Count I) and (2) an order of specific performance requiring
Buyer to release the escrowed amounts pursuant to the Determination Letter (Compl.
Count II). On September 12, 2019, Buyer filed an Answer and Verified
Counterclaims (the “First Pleading”). As its fourth affirmative defense, the Answer
in the First Pleading cited the Delaware Uniform Arbitration Act (the “DUAA”) and
averred that the “Award must be vacated under 10 Del. C. § 5714(a)(5) as the
agreement to arbitrate had not been complied with.” Dkt. 10 at 21. Count II of the
Verified Counterclaims asserted a claim for vacatur of the Determination Letter
under the same statute. Id. ¶¶ 32–35.
On October 2, 2019, the Plaintiffs filed a motion to dismiss the counterclaims
and for summary judgment, and on December 2, 2019, they filed their opening brief
in support of both motions. Among the grounds for summary judgment, Plaintiffs
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argued that Defendant erroneously sought to vacate the Award under the DUAA
because the Award is governed by the FAA. Plaintiffs also pointed out that the
section of the DUAA cited in the Answer was not one of the four enumerated
grounds to vacate an award under the FAA. On January 13, 2020, Buyer responded
to Plaintiffs’ opening brief in support of the motions by filing (1) an “Answer and
Verified Amended Counterclaims,” (Dkt. 24) (the “Second Pleading”) and (2) an
opening brief in opposition to Plaintiffs’ motion for summary judgment.
The Answer in the Second Pleading is not denominated as an “Amended”
Answer. The affirmative defense section in the Answer in the Second Pleading,
however, is different from that of the Answer in the First Pleading in the following
respects: it renumbered the Affirmative Defenses, deleted the affirmative defense
asserting that the Determination Letter should be vacated under the Delaware
Uniform Arbitration Act, and added as a new, fifth affirmative defense that the
“Award must be vacated under the FAA, 9 U.S.C. § 10(a)(1), because the Award
was procured by corruption, fraud or undue means.” See Dkt. 24 at 21. Like the
Answer in the First Pleading, the Answer in the Second Pleading did not contain any
factual allegations that the Determination Letter was procured by fraud.
Unlike the Counterclaims in the First Pleading, the Amended Counterclaims
in the Second Pleading did not assert a claim to vacate the Determination Letter.
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Because the Buyer amended its counterclaims, Sellers filed a new motion to dismiss
the Amended Counterclaims, and the parties completed a full round of briefing
regarding the new motion to dismiss.6
The parties did not, however, conduct a full round of new briefing on
Plaintiffs’ motion for summary judgment to confirm the Award. Instead, on April
27, 2020, Plaintiffs filed a reply brief in support of the motion for summary
judgment. Because Buyer filed the Second Pleading in the middle of briefing on
Plaintiff’s motion for summary judgment, Plaintiffs were required to adjust their aim
at a moving target. In their opening brief, Plaintiffs had argued, among other things,
that Buyer had “mistakenly moved for vacatur under Section 5724(a)(5) [sic] of the
DUAA.” Dkt. 19 at 39. Because the Buyer’s Second Pleading dropped the
counterclaim for vacatur of the Award under the DUAA and the Answer cited
vacatur under the FAA rather than the DUAA as an affirmative defense, Plaintiffs’
reply brief, for the first time, argued that Buyer had not filed a timely motion to
6
Because Buyer was confronted with a motion to dismiss the Counterclaims in the First
Pleading, Buyer contends it was permitted to file the Second Pleading without seeking
written consent of Plaintiffs or leave of court under Rule 15(aaa) (permitting a party to
“respond to a motion to dismiss under Rules 12(b)(6) or 23.1 by amending its pleading”
by filing an “amended complaint, or a motion to amend . . . no later than the time such
party’s answering brief” is due in response to the motion to dismiss); but see Ct. Ch. R.
15(a) (requiring written consent of the opposing party or leave of court to file an amended
pleading after a party can no longer amend its pleading as of right).
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vacate within three months of the Determination Letter, as required by the FAA.
Dkt. 36 at 3–7. Plaintiffs further argued that none of Buyer’s pleadings satisfied the
requirements to vacate the Award under the FAA. Id.On September 30, 2020, the Court issued a Memorandum Opinion granting
and denying Sellers’ motion to dismiss in part. As to Plaintiffs’ motion for summary
judgment, the Court observed that there was a material issue of fact preventing entry
of summary judgment because it was possible that certain liabilities were
fraudulently omitted “from the Interim Financial Statements [that] formed part of
the calculations relied upon by PwC in its Determination Letter.” Opinion at 51–52.
The Court further observed that the issue of whether Buyer had timely filed a motion
to vacate the Determination Letter “arose in an awkward procedural context due to
the Buyer’s filing of amended counterclaims and altering its legal theory” after the
opening brief in support of summary judgment, which caused Plaintiffs to raise its
timeliness argument for the first time in their reply brief. Id. at 52 n.87. The Court
therefore “conclude[d] that the Buyer should be permitted to appropriately address
the procedural challenge to its attempt to vacate the Determination Letter” under the
FAA. Id. The Court thus denied the motion for summary judgment without
prejudice. Id. at 52.
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On November 20, 2020, Plaintiffs filed a renewed motion for summary
judgment. The parties briefed the renewed motion, and the Court heard oral
argument on February 9, 2021.
II. Analysis
a. Buyer Did Not Provide Notice of a Motion to Vacate the
Determination Letter as Required by the FAA.
The parties do not dispute that the Determination Letter is an arbitration award
that is governed by the terms of the FAA. Under the FAA, to vacate an arbitration
award, “[n]otice of a motion to vacate, modify, or correct an award must be served
upon the adverse party or his attorney within three months after the award is filed or
delivered.” 9 U.S.C. § 12. The Determination Letter was “filed or delivered” on
June 28, 2019 and became final five business days later. Thus, at the latest, Buyer
was required to serve a notice of motion to vacate, modify, or correct the
Determination Letter no later than October 6, 2019.
Defendant contends it was not required to file a notice of motion, pointing to
Section 6 of the FAA, which provides that any application to a court must be “made
and heard in the manner provided by law for the making and hearing of motions,
except as otherwise herein expressly provided.” Id. § 6. Defendant argues that its
Answer and Verified Counterclaims, served on September 12, 2019, are sufficient
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to serve as a motion to vacate under the FAA. Buyer’s Answer contained an
affirmative defense averring that the “Award must be vacated under 10 Del. C. §
5714(a)(5) as the agreement to arbitrate had not been complied with.” Dkt. 10 at 21.
In addition, Count II of the Verified Counterclaims asserted a claim for vacatur of
the Determination Letter. Id. ¶¶ 32–35. Like the Answer, the Verified
Counterclaims only sought to vacate the Award under the same provision of the
DUAA. Id. ¶ 34. Buyer does not contend that it provided notice of a motion to
vacate under the FAA other than through its filings in this action.
Under Court of Chancery Rule 7(b), no notice of a motion is required. Court
of Chancery Rule 7(b) provides that “[a]n application to the Court for an order shall
be by motion which, unless made during a hearing or trial, shall be in writing, shall
state with particularity the grounds therefor, and shall set forth clearly in the motion
the relief sought. The party making the application shall not file a separate notice of
motion.” Ct. Ch. R. 7(b).
Plaintiffs argue that neither the First Pleading nor the Second Pleading is
sufficient to satisfy the FAA’s requirement of a timely notice of a motion to vacate.
Plaintiffs contend that pleadings and affirmative defenses cannot be deemed
equivalent to a motion to vacate, see Ct. Ch. R. 7(a) (listing an answer as a pleading);
Ct. Ch. R. 13 (requiring counterclaims to be stated in the pleading), and that Buyer’s
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affirmative defense and counterclaims in the First Pleading invoked the DUAA,
rather than the FAA. Dkt. 10 at 21 & 33–34. 7
Federal courts applying the FAA have discretion to determine that a pleading
or other application for vacatur is equivalent to a motion. 8 There are strong policy
reasons not to do so. As the United States District Court for the Southern District of
New York has held, the FAA’s requirement of a motion to vacate ensures that the
burden of proof properly remains on the party seeking vacatur. See Kruse, 226 F.
Supp. 2d at 487 (holding that a petition to vacate was untimely because it was not a
motion to vacate and noting that, if a party could seek vacatur via pleading, “[t]he
7
Not only did Buyer improperly invoke the DUAA, but it also cited grounds to vacate
under the DUAA that are not recognized by and have no equivalent under the FAA.
Compare 10 Del. C. § 5714(a)(5) (“There was no valid arbitration agreement, or the
agreement to arbitrate had not been complied with, or the arbitrated claim was barred by
limitation and the party applying to vacate the award did not participate in the arbitration
hearing without raising the objection”), with 9 U.S.C. § 10(a)(1)–(4) (containing no similar
provision).
8
See Kruse v. Sands Bros. & Co., Ltd., 226 F. Supp. 2d 484, 486–87 (S.D.N.Y. 2002)
(discussing the policy that motions should not be deemed equivalent to pleadings for
purposes of seeking vacatur and holding that “[a] party cannot initiate a challenge to an
arbitration award by filing a complaint or an application”); Questar Cap. Corp. v. Gorter,
909 F. Supp. 2d 789, 803 (W.D. Ky. 2012) (discussing the discretionary determination to
treat a pleading as a motion and noting that “the clear intent” of the FAA “was to remove
confirmation and vacatur procedures . . . from the ambit of pleadings and their attendant
rules of civil procedure” in order to preserve the summary disposition of vacatur
proceedings). See also O.R. Sec., Inc. v. Prof’l Planning Assocs., Inc., 857 F.2d 742, 746
(11th Cir. 1988) (holding that the “erroneous nomenclature” of a complaint was immaterial
because the briefing “adequately briefed the issue of whether the arbitration award in
question should have been vacated”).
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burden would be on Petitioner to show that Respondents could not prove any facts
that would entitle them to relief from the Award. This is contrary to the FAA and
basic principles of fairness.”) (internal citations omitted); see also O. R. Sec., Inc.,
857 F.2d at 745 (“The manner in which an action to vacate an arbitration award is
made is obviously important, for the nature of the proceedings affects the burdens
of the various parties.”). Addressing the applicability of the disparate and
discretionary applications of this rule is not necessary here, however, because the
affirmative defenses in the First and Second Pleadings were deficient as a matter of
Delaware law.
The First Pleading asserted an affirmative defense for vacatur and a
counterclaim for vacatur under the DUAA, the latter of which was later withdrawn
through the Second Pleading. See Dkt. 10. The affirmative defense seeking vacatur
in the First Pleading avers, in its entirety, that “[t]he Award must be vacated under
[the DUAA] as the agreement to arbitrate had not been complied with.” Dkt. 10 at
21. The affirmative defense was not supported by any factual allegation. The
affirmative defense in the First Pleading seeking vacatur was not supported by any
well-pleaded fact, as required by Delaware law. Under Delaware law, “affirmative
defenses must be supported by pled facts.” Cypress Assocs., LLC v. Sunnyside
Cogeneration Assocs. Project, 2007 WL 148754, at *18 (Del. Ch. Jan. 17, 2007);
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accord Leaf Invenergy Co. v. Invenergy Wind LLC, 2016 WL 3566365, at *3 (Del.
Ch. June 30, 2016) (holding that a conclusory affirmative defense was insufficient
to warrant denial of motion for judgment on the pleadings); Di Loreto v. Tiber Hldg.
Corp., 1999 WL 1261450, at *4 n.9 (Del. Ch. June 29, 1999) (dismissing conclusory
affirmative defenses); Kurz v. Holbrook, 2009 WL 4682622, at *6 (Del. Ch. Dec. 1,
2009) (dismissing an unclean hands defense because it was alleged “in conclusory
fashion without providing any supporting allegations,” and holding that “[t]he rote
recitation of an unclean hands defense is not a free pass to conduct discovery”); see
also Shechter v. Comptroller of City of New York, 79 F.3d 265, 268 (2d Cir. 1996)
(“Affirmative defenses which amount to nothing more than mere conclusions of law
and are not warranted by any asserted facts have no efficacy.”) (internal citations
omitted). At best, Count II of the Buyer’s Counterclaim alleged a violation of the
DUAA and that “[t]he Purchase Agreement has not been complied with, in that the
Counterclaim Defendants failed to abide by the good-faith requirement of Section
1.3 of the Purchase Agreement, by omitting material information from the Sample
Statement in bad faith.” Id. at 33. This bare allegation did not provide notice that
Buyer would seek to vacate the Determination Letter under the FAA on the grounds
that the Determination Letter was “procured by corruption, fraud, or undue means.”
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9 U.S.C. § 10(a)(1).9 The affirmative defense in the First Pleading was therefore not
an adequate substitute for notice of a motion to vacate under the FAA because it
cited the wrong statute, did not provide notice of the eventual fraud defense asserted
under the FAA, and was insufficient as a matter of Delaware law.
Buyer argues that the amended affirmative defense in the Second Pleading
seeking vacatur under the FAA relates back to the date of its original pleading. As
Buyer observes, federal courts have permitted parties to amend motions to vacate to
assert new theories of vacatur after timely notice of a motion to vacate. But Buyer’s
argument fails because the Second Pleading is just as conclusory as the First
Pleading. See Dkt. 24 at 21 (averring that the Determination Letter “must be vacated
under the FAA, 9 U.S.C. § 10(a)(1), because the Award was procured by corruption,
fraud or undue means”). The affirmative defense seeking vacatur in the Second
Pleading is, like the affirmative defense in the First Pleading, unsupported by any
pleaded fact. It merely cites and quotes a portion of the statutory provision. Thus,
9
PwC was not authorized to address whether Sellers engaged in pre-arbitration fraud by
omitting information from the Sample Statement. The Purchase Agreement provides that
the “scope of the disputes to be resolved by the Independent Accounting Firm shall be
limited to correcting mathematical errors and determining whether the items and amounts
in dispute were determined in accordance with the Applicable Accounting Principles and
the Sample Statement, and the Independent Accounting Firm is not to make any other
determination.” Purchase Agreement § 1.3(d).
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even if the Second Pleading related back to the date of the First Pleading, the
affirmative defense in the Second Pleading was not sufficient to provide notice of a
motion to vacate as required by the FAA because it was deficient as a matter of
Delaware law.
Buyer relies on M3 Healthcare Solutions v. Family Practice Associates, P.A.,
996 A.2d 1279 (Del. 2010), to support its position that it has effectively moved to
vacate the Determination Letter under the FAA by asserting vacatur in its affirmative
defenses. In M3 Healthcare, the Delaware Supreme Court held that an “application”
to vacate an arbitration award under the Delaware Uniform Arbitration Act “may be
raised in an answer to a complaint to confirm the award,” including by “listing
‘affirmative defenses’ that requested modification, vacation or correction of errors
in the arbitration award.” Id. at 1283. Buyer argues that, because “the assertion of
affirmative defenses or counterclaims is sufficient for purposes of making an
‘application’ under the DUAA,” “[t]he same should be true for purposes of making
a ‘notice of motion to vacate’ under the FAA.” Def.’s Answering Br. 18.
Buyer’s argument fails for two reasons. First, in M3 Healthcare, the party
seeking vacatur provided factual allegations in support of its affirmative defense
seeking to vacate an arbitration award. In M3 Healthcare, the party seeking vacatur
averred, as an affirmative defense, that the arbitration award should be vacated under
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the DUAA because the arbitrator improperly permitted a “previously unidentified
witness” to testify, that such witness offered testimony regarding “purported internal
working guidelines of Blue Cross/Blue Shield,” and that the witness had not been
required to “produce the internal guidelines for use during cross-examination.”
Family Practice Assocs., P.A., v. M3 Healthcare Solutions, C.A. No. 4488-VCS,
Dkt. 6 ¶ 19. By contrast, Buyer’s affirmative defense here is facially inadequate and
more closely resembles the pleading deemed untimely in Kruse, where the
“paragraphs relevant to the petition’s substance” contained “only conclusory
statements” and were “devoid of any argument or factual or legal support.” See
Kruse, 226 F. Supp. 2d at 486. Buyer cannot forestall confirmation of the
Determination Letter indefinitely on the basis of a conclusory affirmative defense.
Second, the FAA and the DUAA do not contain interchangeable language
regarding the procedural requirements to timely vacate an arbitration award. The
DUAA permits a party to seek vacatur “[u]pon complaint or application of a party
in an existing case” and permits “[a]n application under this section . . . within 90
days after delivery of a copy of the award to the applicant.” 10 Del. C. § 5714. By
comparison, the FAA requires “[n]otice of a motion to vacate, modify, or correct an
award” to be “served upon the adverse party or his attorney within three months after
the award is filed or delivered.” 9 U.S.C. § 12. The FAA is narrower than the
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DUAA, which expressly permits a party to seek vacatur through a “complaint or
application . . . in an existing case.” 10 Del. C. § 5714. As previously noted, the
parties do not dispute that the FAA applies to the Determination Letter.
Superimposing the requirements of the DUAA over the FAA is not appropriate
merely because Buyer initially sought to vacate the Determination Letter under the
wrong statute. Buyer’s belated and ineffective invocation of the FAA therefore does
not cure its failure to provide notice that it would affirmatively move to vacate the
Determination Letter in the first instance.
As a final argument, Buyer asserts that this Court may set aside the timeliness
requirements of the FAA altogether, and argues that “each state is free to apply its
own procedural requirements so long as those procedures do not defeat the purposes
of the [FAA].” Def.’s Answering Br. 18–19 (quoting TowerHill Wealth Mgmt., LLC
v. Bander Family P’ship, L.P., 2008 WL 4615865, at *1 n.3 (Del. Ch. Oct. 9, 2008));
see also 9 U.S.C. § 6 (“Any application to the court hereunder shall be made and
heard in the manner provided by law for the making and hearing of motions, except
as otherwise herein expressly provided.”). TowerHill involved a different section of
the FAA that concerned application for an interlocutory appeal. The FAA provides
that “[a]n appeal may be taken from . . . an interlocutory order granting . . . an
injunction against an arbitration.” 9 U.S.C. § 16. In TowerHill, the court held that
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the FAA cannot be read so broadly as to require the Court of Chancery to certify an
interlocutory appeal. TowerHill does not require the court to disregard the language
of the FAA. In any event, as discussed above, the affirmative defenses seeking to
vacate the Award lacked factual support and were inadequate under Delaware law
and, therefore, cannot be deemed a timely motion to vacate.
For the foregoing reasons, the First and Second Pleadings did not timely
provide notice of a motion to vacate under the FAA, and the motion for summary
judgment will be granted.
b. Buyer Has Not Demonstrated that There Is a Material Issue of
Disputed Fact Requiring Denial of the Motion.
Under Court of Chancery Rule 56, summary judgment may be granted if
“there is no genuine issue as to any material fact and . . . the moving party is entitled
to judgment as a matter of law.” Ct. Ch. R. 56(c). “A motion for summary judgment
is the ‘common [method] for this court to determine whether to vacate or confirm an
arbitration award.’” TD Ameritrade, Inc. v. McLaughlin, Piven, Vogel Sec., Inc.,
953 A.2d 726, 730 (Del. Ch. 2008) (quoting Beebe Med. Ctr. Inc. v. InSight Health
Servs. Corp., 751 A.2d 426, 431 (Del. Ch. 1999)).
Plaintiffs’ motion for summary judgment must be granted for the independent
reason that Buyer has failed to meet its burden to establish that the Determination
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Letter was “procured by corruption, fraud, or undue means.” 9 U.S.C. § 10(a)(1).
A party seeking to vacate an arbitration award under Section 10(a)(1) of the FAA
must establish “(1) the existence of fraud by clear and convincing evidence, (2) that
the fraud was not discoverable with the exercise of due diligence, and (3) that the
fraud materially relates to an issue in the arbitration.” Int’l Brotherhood of
Teamsters, Local 701 v. CBF Trucking, Inc., 440 F. App’x 76, 77–78 (3d Cir. 2011).
The FAA “does not provide for vacatur in the event of any fraudulent conduct, but
only where the award was procured by corruption, fraud, or undue means.”
Forsythe Int’l, S.A. v. Gibbs Oil Co. of Tex., 915 F.2d 1017, 1022 (5th Cir. 1990)
(quoting 9 U.S.C. § 10(a)).
Buyer does not dispute that this standard applies to confirmation of the
Determination Letter, and Buyer does not contend that it has established fraud by
“clear and convincing evidence.” Indeed, Buyer has not advanced any argument
supported by evidence that the Determination Letter was procured by fraud. Buyer
instead relies on the Court’s Opinion denying Plaintiffs’ initial motion for summary
judgment without prejudice. Buyer argues that this Court previously determined that
there was a material issue of disputed fact preventing summary judgment, that the
Court’s holding is the law of the case, and that Plaintiffs’ renewed motion for
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summary judgment is an untimely motion for reargument under Court of Chancery
Rule 59(f). According to Buyer:
Giving Defendant the benefit of every reasonable inference, this
Court can readily conclude that its prior determination in the Opinion
was correctly reached. The present record poses multiple fact question
as to whether Plaintiffs’ nondisclosure of the Medical Claim Liabilities
and Management Bonus Liabilities resulted in the procurement of the
PwC Determination Letter by fraud and denied Defendant a
“fundamentally fair hearing.”
Def.’s Answering Br. 28 (quoting Hayne, Miller & Farni, Inc. v. Flume, 888 F. Supp.
949, 942–53 (E.D. Wis. 1995)).
The Opinion observed that Buyer did not have a meaningful opportunity to
respond to Plaintiffs’ argument that it had never provided notice of a motion to
vacate the Determination Letter within ninety days because Plaintiffs raised that
issue for the first time in their reply brief. Opinion 52 n.87. The Opinion also
observed that “it is possible that the Determination Letter was procured by fraud to
the extent that the omission of the Management Bonus Liabilities and the Medical
Claim Liabilities from the Interim Financial Statements formed part of the
calculations relied upon by PwC in its Determination Letter.” Id. at 51–52. In that
regard, the Opinion noted that the Determination Letter appeared to contradict
Buyer’s allegations, and indicated that further clarification of that factual issue
would be helpful. Id. at 52 n.86. Based on the record before me at the time, I
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determined that resolving all issues relating to Plaintiffs’ motion for summary
judgment at once would be the fairest and most efficient method to proceed, and for
those reasons, I denied it without prejudice.
The law of the case doctrine applies “‘when a specific legal principle is
applied to an issue presented by facts which remain constant throughout the
subsequent course of the same litigation.’” Frederick-Conaway v. Baird, 159 A.3d
285, 296 (Del. 2017) (quoting Kenton v. Kenton, 571 A.2d 778, 784 (Del. 1990)).
The law of the case doctrine appears “‘most often when a trial court is required to
give effect to law established in a case after it has been appealed,’” but the doctrine
also “‘applies to decisions rendered by a court that arise again later in the same court,
in the same proceedings.’” Frederick-Conaway, 159 A.3d at 296 (quoting Carlyle
Inv. Mgmt. L.L.C. v. Moonmouth Co. S.A., 2015 WL 5278913, at *7 (Del. Ch. Sept.
10, 2015)). Here, the law of the case doctrine does not require denial of the renewed
motion for summary judgment because the Opinion denied the first motion for
summary judgment without prejudice. The Opinion did not hold that a future motion
for summary judgment by Plaintiffs would be unsuccessful—otherwise, denying the
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motion for summary judgment “without prejudice” would have been a futile act.10
The law of the case doctrine therefore has no application here because granting the
renewed motion for summary judgment is consistent with “the principle of stability
and respect for court processes and precedent.” See Gannett Co., Inc. v. Kanaga,
750 A.2d 1174, 1181 (Del. 2000).11
Buyer’s reliance on the Opinion is additionally unavailing because it has
failed to provide “clear and convincing” evidence, as required to vacate the
Determination Letter and to prevent confirmation. 9 U.S.C. § 9 (requiring courts to
confirm arbitration awards unless the award is “vacated, modified, or corrected”).
Under Court of Chancery Rule 56(e), a party confronting a supported motion for
summary judgment “may not rest upon the mere allegations or denials of [its]
pleading, but . . . must set forth specific facts showing that there is a genuine issue
for trial.” Ct. Ch. R. 56(e). Buyer has submitted no evidence in response to
Plaintiffs’ renewed motion for summary judgment. The only evidence that Buyer
10
To the extent that the Opinion may be read to imply that summary judgment was
unavailable, the law of the case doctrine does not prevent this Court from clarifying its
prior language. Frederick-Conaway, 149 A.3d at 297.
11
For the same reasons, the renewed motion for summary judgment is not a motion for
reargument. See Techmer Accel Hldgs., LLC v. Amer, 2011 WL 567456, at *3 n.28 (Del.
Ch. Feb. 8, 2011) (holding that the Court “made no determination” regarding a particular
issue and therefore “there is no decision to reexamine on a Court of Chancery Rule 59(f)
motion for reargument”).
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has submitted to date has been an affidavit submitted in connection with the original
motion for summary judgment. See Dkt. 26 (“Cherniak Aff.”). The affidavit does
not satisfy Buyer’s burden to present evidence from which any rational trier of fact
could infer that Plaintiffs engaged in fraud in procuring the Determination Letter by
clear and convincing evidence, as the FAA requires. See Forsythe, 915 F.2d at
1022.12 As the Opinion held, Buyer may eventually prevail on a claim of fraud
against the Sellers arising from the transaction, but that does not preclude
confirmation of the Determination Letter prior to the resolution of the fraud claim.
See MarkDutch Co 1 B.V. v. Zeta Interactive Corp., 411 F. Supp. 3d 316, 328–29
(D. Del. 2019) (declining to deny a motion to confirm an arbitral award because it
would “transform a summary proceeding into a protracted dispute”).
Buyer has also not presented evidence sufficient to create an issue of fact as
to its burden of showing that the fraud was not discoverable with the exercise of
reasonable diligence. Buyer argues that “the timing of what [Buyer] discovered and
12
See Cerberus Int’l v. Apollo Mgm’t, L.P., 794 A.2d 1141, 1149 (Del. 2002) (adopting
majority rule that the substantive burden of proof can be taken into account at the summary
judgment stage). In that regard, Buyer’s burden of establishing fraud for purposes of the
FAA (clear and convincing evidence) is higher than that of its common law fraud
counterclaim, which is governed by Delaware law. See In re IBP, Inc. S’holders Litig.,
789 A.2d 14, 54 (Del. Ch. 2001) (observing that under Delaware law a party must prove
fraud by a preponderance of the evidence).
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when, and whether [Buyer] could have uncovered Plaintiffs’ fraudulent
nondisclosures in time to present the matters at the arbitration, are fact-specific
issues that must await discovery.” Def.’s Answering Br. 28. Buyer cannot rely on
that argument to avoid summary judgment. The Cherniak Affidavit submitted in
opposition to the original summary judgment motion states:
Following the Award, Buyer learned of additional bad faith
conduct and fraud by Sellers who, upon information and belief, have
intentionally concealed information that “past practices” as well as
unsigned agreements, provide for merit increases for certain field
management personnel each February based upon defined goals and
milestones, as well as incentives based on performance targets. . . .
Cohen has further learned of medical claim liabilities, which
were known to Sellers prior to closing, of roughly $500,000 . . . . 13
The answers to the questions of what Buyer discovered and when is wholly
within Buyer’s knowledge and control. Buyer controls the Company and has had
access to the Company’s emails and employees since the closing of the transaction
in December 2018. Dkt. 24 ¶ 12 (“Defendant admits entering into the Purchase
Agreement and closing on the acquisition of Landmark Acquisition Corporation . . .
on or about December 3, 2018.”). Discovery of Sellers is not required for Buyer to
present facts to establish when it learned of the existence of the items that it claims
13
Cherniak Aff. ¶¶ 44–45.
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that establish the grounds for its claim that the Award was procured by fraud. See
Chartis Specialty Ins. Co. v. LaSalle Bank, Nat’l Ass’n, 2011 WL 3276369 (Del. Ch.
July 29, 2011) (noting that “discovery is limited in actions challenging an arbitration
award under the FAA,” and that “post-arbitration discovery is rarely permitted”).
Buyer’s cagey assertions as to what it discovered and when are not sufficient to deny
summary judgment. See Bay Capital Finance, L.L.C. v. Barnes and Noble Educ.,
Inc., 2020 WL 1527784, at *10 (Del. Ch. Mar. 30, 2020) (observing that when a
party invokes Rule 56(f) to seek additional discovery in response to a motion for
summary judgment, “the onus is on the non-moving party to state with some degree
of specificity, the additional facts sought by the requested discovery”) (internal
citations omitted). In short, Buyer has not adequately established a factual basis for
the denial of summary judgment.
For the foregoing reasons, the confirmation of the Determination Letter is
overdue, and Plaintiffs’ motion for summary judgment must be granted. The Court
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will enter Plaintiffs’ proposed form of order contemporaneously with the issuance
of this Letter Opinion. 14
Very truly yours,
/s/ Paul A. Fioravanti, Jr.
Vice Chancellor
14
Plaintiffs seek their costs for obtaining confirmation of the Determination Letter in this
action. Buyer has not contested that Plaintiffs are entitled to costs in the event that
Plaintiffs prevail. See Purchase Agreement § 1.3(e) (“The costs of any dispute resolution
pursuant to this Section 1.3, including the fees and expenses of the Independent Accounting
Firm and of any enforcement of the determination thereof, shall be borne, on the one hand
by the Sellers and, on the other hand, by the Buyer, in inverse proportion as they may
prevail on the matters resolved by the Independent Accounting Firm, which proportionate
allocation shall be calculated on an aggregate basis based on the relative dollar values of
the amounts in dispute and shall be determined by the Independent Accounting Firm at the
time the determination of such firm is rendered on the merits of the matters submitted. The
fees and disbursements of the Representatives of each party incurred in connection with
the preparation or review of the Final Closing Statement and preparation or review of any
Notice of Disagreement, as applicable, shall be borne by such party.”).