Surf's Up Legacy Partners, LLC v. Virgin Fest, LLC

SUPERIOR COURT
OF THE
STATE OF DELAWARE
PAUL R. WALLACE NEW CASTLE COUNTY COURTHOUSE
JUDGE 500 N. KING STREET, SUITE 10400
WILMINGTON, DELAWARE 19801
(302) 255-0660
Date Submitted: August 23, 2021
Date Decided: November 1, 2021
Theodore A. Kittila, Esq. Eric M. George, Esq.
James G. MacMillan, III, Esq. Kim S. Zeldin, Esq.
HALLORAN FARKS + KITTILA LLP BROWNE GEORGE ROSS LLP
Wilmington, Delaware Los Angeles, California
Robert K. Beste, Esq. Marvin S. Putnam, Esq.
Jason Z. Miller, Esq. Jessica Stebbins Bina, Esq.
Smith, Katzenstein & Jenkins LLP R. Peter Durning, Jr., Esq.
Wilmington, Delaware LATHAM & WATKINS LLP
Los Angeles, California
RE: Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.,
C.A. No. No. 19C-11-092 PRW CCLD
Dear Counsel:
This Letter Order addresses the Plaintiffs’ Exceptions to the Special
Discovery Master’s Decision on the Defendants’ Motion to Compel Financial
Records (D.I. 155). For the reasons below, the Special Discovery Master’s Decision
is ADOPTED and the Defendants’ Motion to Compel Financial Records is
GRANTED.
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. No19C-11-092
November 1, 2021
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I. FACTUAL AND PROCEDURAL BACKGROUND
The Court detailed the background of this case in its most recent
Memorandum and Order.1 In short, each party blames the failure of their business
relationship on the allegedly unlawful conduct of the other.2 The parties have
brought numerous claims, but relevant here are Virgin Fest’s counterclaims alleging
that the Surf’s Up entities (collectively, “Surf’s Up”), Bryan Gordon, Seth Wolkov,
and Robert Walker misrepresented Surf’s Up’s financial health.3
A month after the appointment of the Special Discovery Master in March
2021,4 the parties stipulated to a Confidentiality Order.5 That Confidentiality Order
allows discovery material to be designated “Confidential” or “Highly Confidential”
subject to standards described therein.6 Such designations serve to limit the
1
Memorandum and Order (D.I. 109); see also Surf’s Up Legacy Partners, LLC v. Virgin Fest,
LLC, 2021 WL 117036 (Del. Super. Ct. Jan. 13, 2021).
2
See Complaint at ¶¶ 1–8. (D.I. 1); Am. Counterclaims at ¶¶ 1–9 (D.I. 54); see also D.I. 76
(granting Virgin Fest’s motion for leave to file a supplemental and amended counterclaim).
3
Am. Counterclaims at ¶¶ 206–233.
4
D.I. 88; see also Order of Reference to Special Discovery Master (D.I. 96); Entry of
Appearance of Michael A. Weidinger (D.I. 120)..
5
Confidentiality Order (D.I. 127).
6
Id. at 2–4.
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. No19C-11-092
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individuals to whom those certain materials may be disclosed.7 Too, the
Confidentiality Order provides “Discovery Material shall be used solely for purposes
of this Litigation and shall not be used for any other purpose,” unless such material
“is or becomes part of the public record.”8 Finally, each party is permitted to
challenge confidentiality designations by the other party.9
Virgin Fest filed a Motion to Compel Financial Records in late June that
sought an order compelling Surf’s Up, Gordon, Wolkov, and Walker to produce:
“(A) financial records relating to the Kaaboo music festivals in the Cayman Islands
and Texas and (B) complete financial and tax records from each Surf’s Up entity
and each entities’ correspondence with its investors.”10 Virgin Fest claimed this
information was relevant to its counterclaims alleging Surf’s Up improperly
concealed liabilities.11 Virgin Fest sought Surf’s Up’s correspondence with its
investors to “shed light on both the accuracy and completeness of the financial
7
Id. at 5–8.
8
Id. at 10.
9
Id. at 12–13, 15.
10
Virgin Fest’s Answering Br. in Response to Surf’s Up’s Exceptions at 1 (D.I. 158) (citing
id., Ex. B at 4–10 (Transcript of July 30 Hearing)).
11
See Virgin Fest’s Mot. to Compel Financial Records at 5 (D.I. 141).
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
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disclosures made to Virgin Fest.”12 The parties subsequently narrowed their dispute
until one issue remained: whether Surf’s Up could redact the names and identifying
information of its investors in the documents it agreed to produce and whether the
production could be designated Highly Confidential.13
The Special Master issued his written decision on the issue on August 2,
2021.14 After noting that “the identity of potential witnesses or persons with
potentially relevant information is discoverable” and that “the parties had entered a
confidentiality stipulation . . . that provides protective provisions for confidential
Discovery Material, including the ability of a party to designate information that it
believes in good faith requires Confidential or Highly Confidential Treatment,” the
Special Master ruled that the identity of the investors should not be redacted, “but
that in the first instance Surf’s Up could review and designate documents it produced
in accordance with the procedures set forth in the Confidentiality Order.”15
Previously, at a hearing, the Special Master had stated that “if there becomes a
12
See id. at 9–10.
13
See Surf’s Up’s Opp. to Mot. to Compel Financial Records at 3 (D.I. 146); Virgin Fest’s
Reply Supporting Mot. to Compel Financial Records at 1 (D.I. 149).
14
Special Discovery Master’s Order on Mot. to Compel Financial Records (D.I. 151).
15
Id. at 2–3.
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dispute about whether or not that information or identity needs to be de-designated
to a lower tier, that can be had at a later time.”16 Following the ruling, Surf’s Up
filed the Notice of Exceptions now before the Court.
II. STANDARD OF REVIEW
A Special Master’s Report is subject to de novo review by this Court.17
III. LEGAL ANALYSIS
After careful de novo review of the Special Master’s decision, the Court
adopts it in whole.
Delaware’s rules of discovery are well-established. “When faced with a
motion to compel discovery, the Court determines whether the discovery sought is
reasonably calculated to lead to admissible, non-privileged evidence.”18 The scope
of permissible discovery is “broad” and objections to discovery requests, in general,
will not be allowed.19 The objecting party bears the burden to show why the
16
Surf’s Up’s Notice of Exceptions, Ex. H at 55 (Transcript of July 30 Hearing) (D.I. 155).
17
Del. Super. Ct. Civ. R. 122(c).
18
Henlopen Hotel, Inc. v. United Nat'l Ins. Co., 2019 WL 3384843, at *1 (Del. Super. Ct. July
26, 2019) (citing Del. Super. Ct. Civ. R. 26(b)(1); Alberta Sec. Comm. V. Ryckman, 2015 WL
2265473, at *9 (Del. Super. Ct. May 5, 2015)).
19
Id. (citing Hunter v. Bogia, 2015 WL 5050648, at *2 (Del. Super. Ct. July 29, 2015)).
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information is improperly requested.20 Once an objection is lodged, “the party
seeking the information must provide some minimal explanation as to why the
discovery satisfies the requirements of relevance and conditional admissibility.”21
Virgin Fest has done so here, having explained that Surf’s Up investors are
material witnesses in possession of relevant information and documents.22
Throughout this dispute, Virgin Fest has taken the position that Surf’s Up
provided financial information to its investors that differed from that Surf’s Up
provided to Virgin Fest.23 Therefore, Virgin Fest seeks to subpoena the investors to
investigate its fraud and failure-to-disclose claims.24 This explanation is sufficient
to show why the identities of the investors satisfies the conditions of relevance.
Indeed, Surf’s Up has never claimed that the identities of its investors are irrelevant
or that they may not possess relevant documents. Rather Surf’s Up’s exceptions
focus on the alleged harm that Gordon and Wolkov will suffer should the identities
20
Id. (citing Hunter, 2015 WL 5050648, at *2).
21
Id. (citing Hunter, 2015 WL 5050648, at *6 n.54).
22
See Virgin Fest’s Answering Br. in Response to Surf’s Up’s Exceptions at 2–3.
23
See Virgin Fest’s Mot. to Compel Financial Records at 9–10; Virgin Fest’s Reply Supporting
Mot. to Compel Financial Records at 1–2; Virgin Fest’s Answering Br. in Response to Surf’s
Up’s Exceptions at 2–3, 5.
24
Virgin Fest’s Answering Br. in Response to Surf’s Up’s Exceptions at 5.
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C.A. No. No19C-11-092
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of the investors be revealed to the public after Surf’s Up produces them.25 But that
is no reason to withhold discoverable information,26 and particularly not under the
facts here.
The parties knew that discovery might involve the production of “confidential
and sensitive commercial, financial, or business information.”27 Accordingly, they
adopted a two-tiered Confidentiality Order to protect any sensitive information each
might produce.28 The Confidentiality Order was Surf’s Up’s idea. And Surf’s Up
requested the “Highly Confidential” tier specifically to protect the identities of the
private investors.29 But now Surf’s Up has decided that the very confidentiality
provisions it demanded are insufficient to accomplish the very purpose that Surf’s
Up devised them for. Now, Surf’s Up insists that it should be allowed to redact the
names of its private investors altogether.
25
See Surf’s Up Br. in Supp. of Exceptions to Special Master’s Decision at 1–2, 5–10.
26
See Hunter, 2015 WL 5050648, at *5 (“[D]eliberately withholding discoverable information
is inconsistent with the nature of our discovery rules.”); Levy v. Stern, 1996 WL 742818, at *3
(Del. Dec. 20, 1996) (“The withholding of discoverable information, either directly or through
obfuscation, does not comport with the spirit of our discovery rules.”).
27
Confidentiality Order at 1.
28
Id. at 1–2.
29
Virgin Fest’s Answering Br. in Response to Surf’s Up’s Exceptions, Ex. C at 2.
Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
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The Court will not deviate from Delaware’s well-established rules of
discovery based on Surf’s Up’s speculative claims of future harm. The information
that Virgin Fest seeks is reasonably calculated to lead to the discovery of admissible
evidence. Accordingly, Surf’s Up must produce it. Surf’s Up may avail itself to the
protections of the Confidentiality Order, and Virgin Fest may challenge Surf’s Up’s
designation if Virgin Fest believes it lacks merit.30 The parties might also employ
other mechanisms to protect the identities of Surf’s Up’s investors from public
view—e.g., filing subpoena returns or like documents under seal.
At bottom, the Court accepts, in whole, the decision of the Special Master.
The Special Master properly recognized that “the identity of potential witnesses or
persons with potentially relevant information is discoverable” and that the parties
had previously entered a Confidentiality Order to protect just such sensitive
discovery material.31 And the Special Master correctly ruled that “the identity of
such investors should not be redacted, but that in the first instance Surf’s Up could
review and designate documents it produced in accordance with the procedures set
forth in the Confidentiality Order.”32
30
See Confidentiality Order at 12–13, 15.
31
Special Discovery Master’s Order on Mot. to Compel Financial Records at 2.
32
Id.Surf’s Up Legacy Partners, LLC et al. v. Virgin Fest, LLC, et al.
C.A. No. No19C-11-092
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IV. CONCLUSION
And so, having engaged a de novo review of the discovery issues raised
therein, the Court ADOPTS, in whole Special Master’s decision on Virgin Fest’s
Motion to Compel Financial Records. That motion to compel is GRANTED and
Surf’s Up shall provide the unredacted information sought utilizing the terms and
protections it bargained for in the Confidentiality Order.
IT IS SO ORDERED.
Paul R. Wallace, Judge
Original to Prothonotary
cc: All Counsel via File and Serve