In re Xura, Inc. Stockholder Litigation

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
417 S. State Street
JOSEPH R. SLIGHTS III Dover, Delaware 19901
VICE CHANCELLOR Telephone: (302) 739-4397
Facsimile: (302) 739-6179
Date Submitted: January 10, 2019
Date Decided: February 13, 2019
A. Thompson Bayliss, Esquire John L. Reed, Esquire
Abrams & Bayliss LLP DLA Piper LLP (US)
20 Montchanin Road, Suite 200 1201 N. Market Street, Suite 2100
Wilmington, DE 19807 Wilmington, DE 19801
Re: In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
Dear Counsel:
On December 31, 2018, the court-appointed Special Master, Peter B. Ladig,
Esquire, issued his Report and Recommendation No. 3 (the “Report”) in which he
recommended that the Court deny the parties’ competing requests for fee shifting.1
Specifically, the Petitioner, Obsidian Management, LLC, requested that the Court
shift fees as a sanction for alleged spoliation of evidence by representatives of
Respondent, Xura, Inc., and non-party, Siris Capital Group, LLC. Xura and Siris
cross-moved for fee shifting as a sanction for Obsidian’s alleged violation of Court
1
D.I. 285.
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
February 13, 2019
Page 2
orders relating to discovery in aid of Obsidian’s spoliation allegations. The Special
Master determined that Obsidian’s request for fee shifting must await the Court’s
merits adjudication of Obsidian’s motion for an adverse inference based on
spoliation. As for Xura and Siris’s request, the Special Master denied that request
on the grounds that the movants had not carried their onerous burden of
demonstrating bad faith and had not otherwise justified fee shifting as a sanction for
discovery violations. Based on these findings, the Special Master recommended that
both parties bear the Special Master’s fees equally.
Xura and Siris have filed joint exceptions to the Report.2 For the reasons that
follow, the exceptions are overruled.
Under Court of Chancery Rule 144(c), “[a]ny party may take exception to a
final report or a draft report” issued by a court-appointed special master.3 When
exceptions are taken, the Court reviews those exceptions, and the recommendations
of the special master, de novo.4
2
D.I. 288 (Opening Brief); DI 294 (Reply Brief).
3
Ct. Ch. R. 144(c).
4
See Lynch v. City of Rehoboth Beach, 2005 WL 2000774, at *1 (Del. Ch. Aug. 16, 2005).
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
February 13, 2019
Page 3
Here, the exceptions rest principally on the premise that the Special Master
ignored the fact that Obsidian initiated and pursued spoliation discovery in violation
of the Court’s orders. I disagree. The Special Master’s Report clearly reflects that
he was well aware of the Court’s orders with respect to spoliation discovery and was
also well aware of Obsidian’s discovery conduct following the entry of those orders.5
With knowledge of the Court’s orders, the Special Master characterized Obsidian’s
discovery conduct as “aggressive but not unjustified.”6 I share that view. He also
concluded, after careful analysis, that Xura and Siris had not carried their “stringent
burden” of demonstrating that Obsidian engaged in bad faith litigation conduct in
pursuing spoliation discovery.7 After carefully reviewing the matter, I agree with
that conclusion as well. Accordingly, “[b]elieving the [Special] Master to have dealt
5
See Report at 8–9, 22–24.
6
Id. at 20.
7
Id. at 19 (quoting Beck v. Atl. Coast PLC, 868 A.2d 840, 851 (Del. Ch. 2005) (“The bad
faith exception [to the American Rule] is not lightly invoked. The party seeking a fee
award bears the stringent evidentiary burden of producing ‘clear evidence’ of bad faith
conduct.”)).
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
February 13, 2019
Page 4
with the issues in a proper manner and having articulated the reasons for [his]
decision well, there is no need for me to repeat [his] analysis.”8
The exceptions to the Special Master’s Report are OVERRULED. The
Report is hereby adopted in its entirety.
IT IS SO ORDERED.
Very truly yours,
/s/ Joseph R. Slights III
cc: Marcus E. Montejo, Esquire
Rudolf Koch, Esquire
Robert S. Saunders, Esquire
Michael F. Bonkowski, Esquire
Peter B. Ladig, Esquire
8
In re Erdman, 2011 WL 2191680, at * 1 (Del. Ch. May 26, 2011).