ITG Brands, LLC v. Reynolds American Inc.

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
LORI W. WILL LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
Date Submitted: February 5, 2024
Date Decided: April 1, 2024
Stephen C. Norman, Esquire Kurt M. Heyman, Esquire
Matthew F. Davis, Esquire Aaron M. Nelson, Esquire
Tyler J. Leavengood, Esquire Heyman Enerio Gattuso & Hirzel LLP
Potter Anderson & Corroon LLP 300 Delaware Avenue, Suite 200
1313 North Market Street Wilmington, Delaware 19801
Wilmington, Delaware 19801
Gregory P. Williams, Esquire
Rudolf Koch, Esquire
Robert L. Burns, Esquire
Matthew D. Perri, Esquire
Edmond S. Kim, Esquire
Richards, Layton & Finger, P.A.
920 North King Street
Wilmington, Delaware 19801
RE: ITG Brands, LLC v. Reynolds American Inc., et al.,
C.A. No. 2017-0129-LWW
Dear Counsel:
This letter resolves Philip Morris USA Inc.’s motion to intervene. Philip
Morris seeks to assert an unjust enrichment claim against the parties. But
intervention could have been sought long ago and comes on the cusp of trial. The
motion is denied as untimely.
I. BACKGROUND
The background of this action is described in memorandum opinions by this
court dated September 30, 2022 (the “2022 Opinion”) and October 2, 2023 (“2023
C.A. No. 2017-0129-LWW
April 1, 2024
Page 2 of 7
Opinion”).1 Capitalized terms used below have the same meanings given in the
2023 Opinion.
In the 2022 Opinion, I held that the Florida Judgment Liability was an
Assumed Liability that ITG was responsible for under the APA.2 In the 2023
Opinion, I held that Reynolds was entitled to indemnification for the Losses
associated with the Florida Judgment Liability based on ITG’s sales of Acquired
Brand cigarettes.3 The amount of Reynolds’ damages will be determined after trial
this July. The issues for trial include the potential application of a Profit
Adjustment allocation, which ITG avers may reduce the amount of indemnification
available to Reynolds.4
The Profit Adjustment relates to annual payments to Florida, based on the
volume of ITG’s sales of the Acquired Brands, in connection with a settlement
agreement among Florida, Reynolds, and Philip Morris. The Profit Adjustment
formula has been in place since the Florida Judgment in 1998, and a separate
agreement between the Settling Defendants dictates allocation of the Profit
1
ITG Brands, LLC v. Reynolds Am., Inc., 2022 WL 4678868 (Del. Ch. Sept. 30, 2022)
(“2022 Op.”); ITG Brands, LLC v. Reynolds Am., Inc., 2023 WL 6383240 (Del. Ch. Oct.
2, 2023) (“2023 Op.”).
2
2022 Op. at *20.
3
2023 Op. at *23.
4
Id.C.A. No. 2017-0129-LWW
April 1, 2024
Page 3 of 7
Adjustment among them.5 In general, the Profit Adjustment “applies if the Settling
Defendants’ aggregate net operating profits from domestic sales of cigarettes in the
current year exceed aggregate inflation-adjusted ‘base year’ profits from a 1997
base year.”6 It is intended to “ensure[] that if the Settling Defendants’ post-
settlement shipment volumes decrease but their profits increase, settlement
payments increase as well.”7
In Philip Morris’s view, assessment of the Profit Adjustment at trial
implicates its own interests. On October 31, 2023, Philip Morris moved to
intervene in this action so that it could advance an unjust enrichment claim against
ITG and Reynolds.8 It argues that since the “aggregate portion of the Profit
Adjustment payment allocated to Reynolds was reduced (because ITG did not join
the Florida Settlement), the portion allocated to Philip Morris was increased by the
exact same amount.”9
5
ITG Brands, LLC’s Combined Opening Br. in Supp. of Mot. for Summ. J. on Remedies
and Answering Br. in Opp’n to Reynolds’ Mot. for Summ. J. (Dkt. 343) Ex. 5 at App. A;
Id. Ex. 8.
6
2023 Op. at *3.
7
Id.8
Id.; see Philip Morris USA, Inc.’s [Proposed] Compl. in Intervention (Dkt. 396).
9
Philip Morris USA, Inc.’s Mot. to Intervene (Dkt. 396) (“Mot.”) ¶ 13.
C.A. No. 2017-0129-LWW
April 1, 2024
Page 4 of 7
After Reynolds and ITG opposed the motion,10 Philip Morris filed a reply,11
and oral argument was held on February 5, 2024.12
II. ANALYSIS
Court of Chancery Rule 24 allows intervention by right or by permissive
intervention.13 Rule 24(a)(2) requires the court to permit intervention when the
movant “claims an interest relating to the property or transaction” at issue and “is
so situated that disposing of the action may as a practical matter impair or impede
the movant’s ability to protect its interest, unless existing parties adequately
represent that interest.”14 Rule 24(b)(1)(b) permits intervention as a matter of the
court’s discretion when the movant “has a claim or defense that shares with the
main action a common question of law or fact.”15 Philip Morris argues that either
provision provides a means for it to intervene.
10
Reynold’s Opp’n to Philip Morris USA Inc.’s Mot. to Intervene (Dkt. 401); ITG
Brands, LLC’s Opp’n to Philip Morris USA Inc.’s Mot. to Intervene (Dkt. 403).
11
Dkt. 409.
12
Dkt. 410; see Tr. Of Oral Arg. on Philip Morris USA Inc.’s Mot. to Intervene (Dkt.
411) (“Hr’g Tr.”).
13
Ct. Ch. R. 24.
14
Ct. Ch. R. 24(a)(2).
15
Ct. Ch. R. 24(b)(1)(b).
C.A. No. 2017-0129-LWW
April 1, 2024
Page 5 of 7
Intervention of right and permissive intervention require a “timely
motion.”16 “Timeliness is a flexible concept, requiring consideration of all the
circumstances of a particular case.”17 A timeliness determination is fact specific
and discretionary.18 The court’s analysis is driven by two factors: “the
inexcusableness of the delay and the prejudice to existing parties.” 19 Neither
supports granting Philip Morris’s motion.
First, Philip Morris’s delay is inexcusable. “[C]ourts have generally been
reluctant to allow intervention when the applicant appears to have been aware of
the litigation but has delayed unduly in seeking to intervene.”20 Philip Morris
could have sought intervention long before now and offers no reason for its failure
to do so.21
16
Ct. Ch. R. 24(a), (b).
17
Dugan v. Dineen, 1990 WL 82719, at *5 (Del. Ch. June 12, 1990).
18
GMF ELCM Fund L.P. v. ELCM HCRE GP LLC, 2021 WL 4313430, at *10 (Del. Ch.
Sept. 22, 2021) (quoting Great Am. Leasing Corp. v. Republic Bank, 2003 WL 22389464,
at *1 (Del. Ch. Oct. 3, 2003)).
19
Id.20
Great Am. Leasing, 2003 WL 22389464, at *1 (quoting 7C Charles Alan Wright,
Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1916 (2d ed.
1986)).
21
See In re Reinz Wisconsin Gasket, LLC, 2023 WL 4986411, at *4 (Del. Ch. Aug. 3,
2023) (denying intervention where the movant “was aware of its interest in [the]
litigation and the steps needed to directly protect those interests” but offered “no
justification for its delay”).
C.A. No. 2017-0129-LWW
April 1, 2024
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Philip Morris’s delay is measured in years. It entered its appearance in this
action in February 2017, in connection with the first motion hearing before
Chancellor Bouchard.22 The thrust of its present motion is that it has been wrongly
losing funds under the Profit Adjustment allocation since the Florida Judgment was
entered in 2018.23 Nothing prevented Philip Morris from arguing—in Florida or
Delaware—that ITG inequitably retained funds belonging to Philip Morris due to
the Profit Adjustment. At the most generous, Philip Morris could have intervened
after ITG was found liable to Reynolds in my 2022 Opinion.24 Yet Philip Morris
waited until the following October to seek intervention.
Second, Philip Morris’s delay is compounded by the prejudice intervention
would inflict on the parties.25 Prejudice may arise when intervention would “delay
the termination of the litigation.”26 The parties have been litigating this action for
nearly seven years. Liability and threshold remedy issues were resolved on
22
Dkt. 15.
23
Mot. ¶¶ 5, 17, 19, 38, 46.
24
Dkt. 328; see Hr’g Tr. at 37 (Philip Morris’s counsel acknowledging that it could have
attempted to bring its claim in “October of 2022”).
25
Great Am. Leasing, 2003 WL 22389464, at *1 (“The most important consideration in
deciding whether a motion for intervention is untimely is whether the delay in moving for
intervention will prejudice the existing parties to the case.” (quoting Wright et al., supra
note 20)).
26
7C Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and
Procedure § 1916 (3d ed. 1998), Westlaw (database updated Sept. 2023).
C.A. No. 2017-0129-LWW
April 1, 2024
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summary judgment, and a two-day trial on damages begins in several months.
Adding Philip Morris’s unjust enrichment claim would inject new issues into and
risk postponing the conclusion of this long-pending matter.27
III. CONCLUSION
Philip Morris’s inexcusable delay and the potential disruption to this action
are grounds to reject intervention. The motion to intervene is denied. IT IS SO
ORDERED.
Sincerely yours,
/s/ Lori W. Will
Lori W. Will
Vice Chancellor
27
See State v. MERSCORP, Inc., 2012 WL 1949867, at *1 (Del. Ch. May 23, 2012)
(denying intervention where proposed claims “could give rise to complicated issues of
fact and law that would not otherwise be implicated”); CAPM Corp. Advisors AB v.
Protegrity, Inc., 2001 WL 1360122, at *12 (Del. Ch. Oct. 30, 2001) (denying
intervention where it would require “further discovery” in a “dispute of narrow focus”);
Great Am. Leasing, 2003 WL 22389464, at *1 (“Courts routinely deny intervention when
‘trial has begun or is about to begin.’” (quoting Wright et al., supra note 20)).