Standard General Master Fund L.P. v. Majeske

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: November 14, 2018
Date Decided: December 11, 2018
Elena C. Norman, Esquire Thomas W. Briggs, Jr., Esquire
Elisabeth S. Bradley, Esquire Zi-Xiang Shen, Esquire
Young Conaway Stargatt & Taylor, LLP Morris, Nichols, Arsht & Tunnell LLP
1000 North King Street 1201 North Market Street
Wilmington, DE 19801 Wilmington, DE 19805
Samuel T. Hirzel, II, Esquire Daniel C. Kerrick, Esquire
Heyman Enerio Gattuso & Hirzel LLP Garvan F. McDaniel, Esquire
300 Delaware Avenue, Suite 200 Hogan♦McDaniel
Wilmington, DE 19801 1311 Delaware Avenue
Wilmington, DE 19806
Re: Standard General Master Fund L.P. v. Majeske, et al.
C.A. No. 2017-0561-JRS
Dear Counsel:
Defendants and non-party, Strategic Value Partners, LLC (“SVP”), have
moved for partial reargument under Court of Chancery Rule 59(f) (the “Motion”)
following the Court’s October 31, 2018 bench ruling (the “Ruling”) in which I
Standard General Master Fund L.P. v. Majeske, et al.
C.A. No. 2017-0561-JRS
December 11, 2018
Page 2
granted Plaintiffs’ motion to compel. For the reasons that follow, the Motion is
denied.1
Plaintiffs brought this case challenging, among other things, the White
Energy Holdco, LLC (“Holdco”) and White Energy, Inc. (collectively “White
Energy”) boards of directors’ use of board committees as a means of excluding one
of their members, Vladimira Mircheva, from meaningful participation in board-level
decision making.2 In their counterclaims, Defendants allege that plaintiffs,
Mircheva and Standard General Master Fund L.P., breached the Holdco operating
agreement, the implied covenant of good faith and fair dealing and fiduciary duties
by releasing confidential information to a competitor and by interfering with
Holdco’s selection of a new CEO. In last month’s Ruling, I addressed competing
motions for dispositive relief and Plaintiffs’ Motion to Compel. In this latter motion,
Plaintiffs sought certain documents that Defendants withheld from production on the
basis of privilege. As noted, that motion was granted.
1
Because I am denying the Motion, I deny as moot Defendants’ Motion to Stay Discovery
Pending Resolution of the Motion for Reargument. (DI 113).
2
Compl. ¶¶ 64, 128, 151, 156.
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C.A. No. 2017-0561-JRS
December 11, 2018
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“A motion for reargument under Court of Chancery Rule 59(f) will be denied
unless the court has overlooked a controlling decision or principle of law that would
have controlling effect, or the court has misapprehended the law or the facts so that
the outcome of the decision would be different.”3 Reargument “is only available to
re-examine the existing record,”4 not to consider new evidence, entertain arguments
not raised previously or rehash arguments already made.5 In other words,
reargument motions may not be used to relitigate matters already fully litigated or
3
Those Certain Underwriters at Lloyd’s, London v. Nat’l Installment Ins. Servs., Inc., 2008
WL 2133417, at *1 (Del. Ch. May 21, 2008).
4
Reserves Dev. LLC v. Severn Sav. Bank, FSB, 2007 WL 4644708, at *1 (Del. Ch. Dec. 31,
2007) (citing Miles, Inc. v. Cookson Am., Inc., 677 A.2d 505, 506 (Del. Ch. 1995)).
5
Id. (“Reargument under Court of Chancery Rule 59(f) is only available to re-examine the
existing record; therefore, new evidence generally will not be considered on a Rule 59(f)
motion.”); Sunrise Ventures, LLC v. Rehoboth Canal Ventures, LLC, 2010 WL 975581,
at *1 (Del. Ch. Mar. 4, 2010) (“[A] motion for reargument is ‘not a mechanism for litigants
to relitigate claims already considered by the court,’ or to raise new arguments that they
failed to present in a timely way.” (quoting Am. Legacy Found. v. Lorillard Tobacco Co.,
895 A.2d 874, 877 (Del. Ch. 2005)); Miles, 677 A.2d at 506 (“Where . . . the motion for
reargument represents a mere rehash of arguments already made at trial and during post-
trial briefing, the motion must be denied.”).
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C.A. No. 2017-0561-JRS
December 11, 2018
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to present arguments or evidence that could have been presented before the court
entered the order from which reargument is sought.6
In the Ruling, I held Defendants had not adequately demonstrated that
Mircheva, as a member of the White Energy boards of directors, was adverse to
White Energy such that the boards could withhold communications involving the
companies from her on the basis of attorney-client privilege. In the absence of
adversity, I determined that Mircheva’s service as board member and manager
entitled her to have access to the withheld documents.
Defendants’ reargument motion is premised on three notations in Plaintiffs’
privilege log that they maintain reveal Plaintiffs’ adversity to White Energy. First,
Defendants point to Plaintiffs’ “opposition” to White Energy’s effort to enforce the
LLC Agreement at issue in the Post Union Litigation.7 Defendants argue,
“[s]pecifically, at the 6/14 Board Meeting, Standard General . . . (i) refused to permit
6
11 Wright, Miller & Kane, Federal Practice and Procedure: Civil § 2810.1 (2005).
7
Mot. at 4–5. “Contrary to the Court’s decision, these actions are more than mere ‘contrary
views about certain board matters at a board meeting.” (Opinion at 22). Instead, these
actions––and particularly the refusal by Standard General to appoint a designated
manager––were contrary to the Existing LLC Agreement that it previously executed.”
Mot. at 5.
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Mircheva to attend as Standard General’s designated manager, and (ii) claimed that
Post Union’s position . . . was ‘reasonable.’”8 These positions, Defendants maintain,
can only be characterized as adverse to White Energy.
The argument is not persuasive. First, this same argument was raised in
opposition to the motion to compel and rejected. Defendants offer nothing new here
to justify reargument. Moreover, as I stated in the Ruling, “Mircheva’s comments
expressing her contrary views about certain board matters at a board meeting and
the fact that certain board members determined that she could not be a member of
the litigation committee are not enough to infer that she was adverse to White
Energy.”9 Indeed, Defendants concede that Standard General ultimately took “‘no
position’ regarding the dispute between the LLC and Post Union.”10
Defendants’ second argument is that because Plaintiffs sought legal advice
regarding whether to adhere to a term of the existing LLC Agreement
8
Mot. at 4–5.
9
Telephonic Bench Ruling on Cross Mots. for J. on the Pleadings and Pls.’ Mot. to Compel
at 22.
10
Mot. at 5.
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C.A. No. 2017-0561-JRS
December 11, 2018
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(i.e., appointment of a designated manager), I should infer that Plaintiffs ceased to
support the LLC Agreement and were thus adverse to White Energy. Again, this is
not cause for reargument. Indeed, it appears Defendants did not think much of this
argument when the motion to compel was argued given that it merited only passing
treatment in a footnote in their opposition papers and was not mentioned at all during
oral argument. In any event, seeking outside counsel on how (or even whether) to
conform to the LLC Agreement did not render Plaintiffs adverse to White Energy.
To the contrary, Standard General sought guidance on how to govern its behavior in
accordance with the LLC Agreement. This behavior is laudable, not adversarial.
For these reasons, I remain satisfied that Defendants have failed to meet their
burden of showing that Plaintiffs’ consultation with outside counsel somehow
rendered Plaintiffs adverse to White Energy such that Standard General’s board
designee should be denied access to White Energy documents.11 Holding otherwise
would set a dangerous precedent. By Defendants’ lights, anytime a director sought
11
See Moyer v. Moyer, 602 A.2d 68, 72 (Del. 1992) (holding that the party asserting a
privilege as a basis to withhold discovery bears the burden of demonstrating that the
privilege “applies to a particular communication”).
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C.A. No. 2017-0561-JRS
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outside legal advice regarding matters before the board, the other directors could
assert adversity and block access to information critical to effective board-level
participation. That is not, or should not be, our law.
Defendants’ last point is that Plaintiffs’ privilege log reflects that Plaintiffs
had begun discussions with outside counsel “in anticipation of litigation” against
White Energy by the time certain documents subject to the motion to compel were
created.12 Defendants did not advance this argument in opposition to the motion to
compel, despite having had access to the evidence upon which the argument rests
(the privilege log) all along. Thus, on this basis alone, reargument is not proper.13
Moreover, Defendants acknowledge that the log entries at issue reflect work product
communications between Plaintiffs and outside counsel regarding the “Post Union
and White Energy” litigation.14 Without more, this is inadequate to evidence
adversity between Plaintiffs and White Energy that would justify denying documents
12
Mot. at 7.
13
Am. Legacy Found., 895 A.2d at 877.
14
Pls.’ Opp’n at 12–13.
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C.A. No. 2017-0561-JRS
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to a White Energy board member, particularly given that Standard General was itself
involved in litigation against Post Union at the same time.
SVP’s Joinder depends solely on Defendants’ arguments. It is, therefore,
denied for the reasons stated above.15
For the foregoing reasons, the Motion is DENIED.
IT IS SO ORDERED.
Very truly yours,
/s/ Joseph R. Slights III
15
I note SVP’s Joinder could be denied, alternatively, on the sole basis that it was untimely
filed. According to Court of Chancery Rule 59(f), SVP’s Joinder was required to be filed
on November 8, 2018. It was filed on November 9, 2018.