Search results for: deadlines

Two recent letter rulings serve as practical reminders that even though the grant of a motion for expedited proceedings in the Delaware Court of Chancery is common for corporate and commercial litigation, there remains a standard that must be satisfied before such expedition will be granted: irreparable harm must be shown as both imminent and non-speculative in order to impose on parties and the court abbreviated deadlines and a quick timetable for hearings and trial. Threatened financial insolvency must also be demonstrated with some detail and substantiation. See Smollar v. Potarazu, C. A. No 10287-VCN (Del. Ch. Nov. 19, 2014) and Platinum Partners Value Arbitrage Fund L.P. v. Echo Therapeutics, Inc., C.A. No. 10303-VCN (Del. Ch. Nov. 14, 2014).

 

Mehta v. Smurfit-Stone Container Corp., C.A. No. 6891-VCL (Del. Ch. Oct. 20, 2014).  This case is noteworthy for its description of the measure of damages that are potentially available for a stockholder who is wrongfully denied shares.

Background: This decision involves stockholders who initially made a demand for statutory appraisal rights in connection with a merger. The merger that is part of the background of this case, followed a plan of reorganization approved by the Bankruptcy Court in connection with a prior Chapter 11 bankruptcy proceeding of the company. The confirmation order of the Bankruptcy Court discharged and released all claims against the company and its directors relating to the bankruptcy. Shortly after the bankruptcy, the company merged. Pursuant to the merger, each share of the company’s common stock was converted into the right to receive a combination of cash, as well as a number of shares in the new company. See previous court decision in 2011 by the Delaware Court of Chancery involving this company and merger related litigation, highlighted on the pages.

The stockholders in this case made a timely demand for appraisal through their broker, and therefore did not receive the merger consideration. However, they did not complete the prerequisites for perfecting their statutory appraisal rights because they never filed a formal petition for appraisal. No other stockholder filed an appraisal either. The 120-day time period during which at least one stockholder must file an appraisal petition for an appraisal proceeding to move forward, came and went on September 24, 2011. Thereafter, the stockholders in this case withdrew the initial demand for an appraisal. After withdrawing their appraisal demand, they consistently argued and requested their right to receive the merger consideration.

The company refused to provide the merger consideration unless the stockholders agreed to broader settlement terms and other demands that the stockholders did not consent to, and therefore the company never provided the merger consideration to the stockholders in this case.

As a result the stockholders initiated this case alleging claims for breach of fiduciary duty. After a somewhat unexplained procedural delay, a motion to dismiss under Rule 12(b)(6) was briefed and oral argument was heard on September 15, 2014.

The court reviewed the relevant standard under a motion to dismiss and found that some claims were barred by the bankruptcy confirmation order which released bankruptcy related claims.

Highlights: Although the court found that there was no applicable fraud exception to the continuous ownership requirement for a derivative claim, the court found that there was a claim against the company due to the failure of the company to provide merger consideration to the stockholders in this case because after the effective date of the merger passed, and no stockholder filed a petition for appraisal by that deadline, the right to appraisal lapsed for all stockholders who had previously demanded appraisals. That triggered an obligation on the part of the surviving corporation to pay the merger consideration. Because that merger consideration was never paid, a stockholder has a claim to recover it. See Section 262(d)(1) of the Delaware General Corporation Law. See Section 262(e) regarding the deadlines within which a stockholder can withdraw an appraisal demand without the consent of the corporation. Compare also the deadline after which time the consent of the corporation is needed.

The claim against the corporation by the stockholders in this case could be framed as either a breach of contract or one for unjust enrichment.

Scope of the Remedy and Measure of Damages: The court explained that on a breach of contract claim, a plaintiff can only recover consequential damages if the damages were foreseeable at the time of the contract. Consequential damages are defined as those that do not flow directly or immediately from the breach. The court reasoned that those types of damages were not available in this case because that part of the relief requested was not reasonably foreseeable.page2image26208page2image26368 

The court described the remedy for the failure to provide the stock portion of the merger consideration as “more difficult and will require input from the parties if this case reaches the remedial stage.”

The court further explained that:

One method would be to convert the stock component into a cash value based on the trading price of the shares on the date when payment was due and bring that amount forward with interest. Another method would be to award the value of the shares at the time of judgment, including intervening splits and dividends. Both of these approaches, however, select arbitrary points for valuing the shares. A third possibility would be to recognize that if the [stockholders] had received the stock component when it was due, they [the stockholders] would have had the ability to sell at a time of [their] own choosing during the period after September 25, 2011 [the date the stock should have been issued], until the date of judgment. In other situations where a party has a right to sell and the defendant has foreclosed the plaintiff from exercising that right, the law awards the plaintiff the highest intermediate value of the shares. See Duncan v. TheraTx, 775 A.2d 1019, 1023 (Del. 2001); Paradee v. Paradee, 2011 WL 3959604, at *13 (Del. Ch. 2010); Am. Gen. Corp. v. Continental Airlines Corp., 622 A.2d 1, 10 (Del. Ch. 1992).

Slip Op. at 14-15.

In sum, the court allowed the claim for nonpayment of merger consideration to proceed and noted that other remedial issues regarding any damages due would be confronted at a later time in the case.

 In Re Activision Blizzard, Inc. Stockholder Litigation, Cons. C.A. No. 8885-VCL (Del. Ch. Feb. 21, 2014).

Why this case matters: This Delaware Court of Chancery decision addresses the restrictions imposed by French law and the Hague Evidence Convention on efforts to take depositions and compel production of documents of French residents–in a pending matter in Delaware–some of whom are also directors of Delaware companies involved in the case. This decision would also be useful in the increasing number of instances where discovery is needed from parties or witnesses who attempt to use foreign law to block replies to discovery requests in a pending Delaware case.

This opinion relied in part on decisions of the U.S. Supreme Court which held that American courts have the power to require a party to respond to discovery in accordance with the rules of civil procedure, though “the court must make a discretionary determination about whether to do so on the facts of the case.” See also Restatement (Third) of Foreign Relations Law, Sections 441 and 442 (1987).

Importantly, although Vivendi is a French company, in the restructuring agreements at issue in this case, it agreed “… to the exclusive jurisdiction of Delaware courts and agreed that Delaware law would govern any disputes.” Slip op. at 31.

Bottom line: The Court required the residents of France who were directors of Delaware entities to “make themselves available for deposition in the United States.” See 10 Del. C. Section 362. Slip op. at 37. For other witnesses located in France, the court required that they make a good faith effort to comply with French law but if that proved unsuccessful for purposes of meeting imminent deadlines in the Chancery case, the Court would revisit the issue of whether to compel them to come to the U.S. to be deposed. See generally footnote 8.

Prior Delaware decisions in this case, which provide more background details, were highlighted on these pages here.

Top Ten 2013 Delaware Corporate and Commercial Decisions

By: Francis G.X. Pileggi and Kevin F. Brady

This is our ninth annual review of key Delaware corporate and commercial decisions. During 2013, we reviewed and summarized over 200 decisions from Delaware’s Supreme Court and Court of Chancery on corporate and commercial issues. Among the decisions with the most far-reaching application and importance during 2013 are the “top ten” that we are highlighting in this short overview. Prior annual summaries are linked in the right margin of this blog.Photo of the Supreme Court Courthouse in Dover (The Supreme Court’s stately building in Dover is featured in the photo from the Court’s website.)

Whenever a “Top Ten” list is prepared, there remains a risk of omitting some opinions that also are noteworthy, so we encourage readers to send us suggestions for additions to this list. Hyperlinks below lead to both a synopsis and each slip opinion. Of course, all the opinions we reviewed in 2013 are available on this blog for those who would like to read all of them and make their own list. In chronological order, the winners are:

Supreme Court Determines that There is No Fiduciary Duty to Structure Executive Compensation to Take Advantage of Corporate Tax Deduction. Freedman v. Adams. This decision is another example of how difficult it remains to challenge compensation decisions on the basis of Delaware corporate law.

Supreme Court Enforces Duty to Negotiate in Good Faith. SIGA Technologies v. PharmAthene. Most lawyers will be surprised to know that an obligation to negotiate can be enforced in Delaware even when a term sheet is not complete or final.

Supreme Court Upholds Presumption of Good Faith in Agreement to Bar Claims. Norton v. K-Sea Transportation. This is one of many recent examples where an LP agreement waived all duties except the non-waivable implied duty of good faith, but the agreement also created a presumption of good faith that made it almost impossible to challenge wrongdoing. N.B. Waivers will be enforced. Read before signing to know what duties and rights are being waived.

Chancery Clarifies Fiduciary Duty of Disclosure Owed by Directors and Majority Shareholders when Purchasing Shares or Selling Shares to Existing Shareholders. In re: Wayport, Inc. Litigation. This opinion provides a textbook-style explanation of the duty of disclosure in general, as well as in the context of selling and buying shares among existing shareholders.

Supreme Court Establishes New Standard for Trial Courts to Determine Appropriate Penalty when Pretrial Deadlines are Not Met. Christian v. Counseling Resource Associates, Inc. This is a must-read for lawyers (and their clients) to understand when court approval is needed to extend pre-trial deadlines and the consequences of missing pre-trial filing deadlines.

Chancery Emphasizes Duty of Oversight Owed by Directors Includes Corporate Operations in Foreign Countries. Rich v. Chong and Puda Coal and In re:  China Agritech, Inc. Shareholder Derivative Litigation. This trio of decisions, all involving operations in China of Delaware corporations, should worry directors of companies with far-flung operations in distant countries unless they make visits to those countries or otherwise make themselves sufficiently aware of those operations.

Business Judgement Rule Announced as Standard Applicable to Controlling Shareholder Transactions with Safeguards.  In Re MFW Shareholders Litigation. This iconic Chancery decision provides a clear standard to practitioners who formerly had less definitive guidance (and multiple conflicting standards) to advise clients on the standard that would apply in Delaware to controlling shareholder freezeouts. This decision was appealed and on December 18, 2013, the Supreme Court heard oral argument en banc. When that decision is published, we will highlight it.

Chancery Addresses Whether Notice Required Before Board Ousts CEO/Controlling Shareholder. Klaassen v. Allegro Dev. Corp. et al.,. This Chancery decision is the subject of an expedited appeal to the Delaware Supreme Court. Among the issues to be addressed by Delaware’s high court is whether the actions of a board to dismiss the CEO, who also had voting power over a controlling percentage of shares, are void — as compared to voidable. The trial court opinion considering a motion for a stay pending appeal provides a mini-treatise on the Delaware law applicable to notice requirements for board meetings and the consequences of ineffective notice. The opinion is also must-reading for anyone interested in the proper approach to contests for control among warring factions of dissident directors and competing shareholder groups.

Supreme Court Addresses Business Combination Not Requiring Shareholder Vote. Activision Blizzard Inc. v. Hayes, et al., No. 497-2013, order issued (Del. Oct. 10, 2013). In a rare ruling from the bench, after oral argument, the Delaware Supreme Court reversed an injunction granted by the Court of Chancery in  Hayes v. Activision Blizzard Inc., No. 8885, 2013 WL 5293536 (Del. Ch. Sept. 18, 2013).  The formal written Supreme Court opinion was issued on Nov. 15, 2013. The issue addressed was whether the structure of the deal qualified as the type of business combination that required a vote by public shareholders. In a unanimous ruling, Delaware’s high court ruled that no vote was required. Notably, merely a month or so transpired between the date of the complaint being filed and the Supreme Court’s oral ruling after its review of an injunction that was issued by the trial court. Especially in a major case like this, that remains remarkable celerity.

Chancery Addresses State Insider Trading Claims Twice in Two Weeks (Two cases tied for the last spot in top ten list). In re Primedia, Inc. Shareholders Litigation. In connection with discussing the elements of the claim, this opinion addressed whether equitable tolling of the state insider trading claim applied to extend or suspend the statute of limitations. In Silverberg v. Gold, for the second time in as many weeks, a state insider trading claim, called a Brophy claim in Delaware, was analyzed in a Chancery opinion. This 40-page decision denied a motion to dismiss based on an alleged failure to make pre-suit demand on the board.

UPDATE: The Harvard Law School Corporate Governance Forum published a version of this annual review on their blog.

Among the key corporate and commercial Delaware decisions that we have highlighted on these pages during the first five months of 2013, the following decisions either clarified existing Delaware law or announced new law on important substantive or procedural topics. This is a supplement to the annual review of cases we have provided on this blog for the last eight years. Other cases decided so far in 2013 may have been the subject of more commentary elsewhere, but we think that among the 80 or so cases we have reviewed from January through May of 2013, those listed below have the most wide-ranging importance and relevance.

The list was intentionally kept relatively short, which increased the risk of omitting some opinions that also are noteworthy, so we encourage readers to send us suggestions for additions to this list. Hyperlinks below lead to both a synopsis and each slip opinion.

Supreme Court Determines that There is No Fiduciary Duty to Structure Executive Compensation to Take Advantage of Corporate Tax Deduction (Freedman v. Adams). This decision is another example of how difficult it remains to challenge compensation decisions on the basis of Delaware corporate law.

Supreme Court Enforces Duty to Negotiate in Good Faith (SIGA Technologies v. PharmAthene). Most lawyers will be surprised to know that an obligation to negotiate can be enforced in Delaware even when a term sheet is not complete or final.

Supreme Court Upholds Presumption of Good Faith in Agreement to Bar Claims (Norton v. K-Sea Transportation). This is one of many recent examples where an LP agreement waived all duties except the non-waivable implied duty of good faith, but the agreement also created a presumption of good faith that made it almost impossible to challenge wrongdoing. N.B. Waivers will be enforced. Read before signing to know what duties and rights are being waived.

Chancery Clarifies Fiduciary Duty of Disclosure Owed by Directors and Majority Shareholders when Purchasing Shares or Selling Shares to Existing Shareholders (In re: Wayport, Inc. Litigation). This opinion provides a textbook-style explanation of the duty of disclosure in general, as well as in the context of selling and buying shares among existing shareholders.

Supreme Court Establishes New Standard for Trial Courts to Determine Appropriate Penalty when Pretrial Deadlines are Not Met (Christian v. Counseling Resource Associates, Inc.). This is a must-read for lawyers (and their clients) to understand when court approval is needed to extend pre-trial deadlines and the consequences of missing pre-trial filing deadlines.

Chancery Emphasizes Duty of Oversight Owed by Directors Includes Corporate Operations in Foreign Countries (Rich v. Chong and Puda Coal and In re:  China Agritech, Inc. Shareholder Derivative Litigation). This trio of decisions, all involving operations in China of Delaware corporations, should worry directors of companies with far-flung operations in distant countries unless they make visits to those countries or otherwise make themselves sufficiently aware of those operations.

Business Judgement Rule Announced as Standard Applicable to Controlling Shareholder Transactions with Safeguards (In Re MFW Shareholders Litigation). This iconic Chancery decision provides a clear standard to practitioners who formerly had less definitive guidance (and multiple conflicting standards) to advise clients on the standard that would apply in Delaware to controlling shareholder freezeouts.

In Christian v. Counseling Resource Associates, Inc., Del. Supr., No.  460, 2011 (Jan. 2, 2013) (revised March 26, 2013), the Delaware Supreme Court promulgated a new standard for trial courts to apply in determining what the penalty should be when a pre-trial deadline is not met by one of the parties in the case.

Why this decision is important: This is one of several cases decided on the same day by Delaware’s High Court, addressing the trial court’s dismissal of a case due to a missed pre-trial deadline.

New Standard Announced:  This decision modifies the previous standard announced in a 2010 Supreme Court opinion. The new standard that trial courts in Delaware need to follow henceforth to determine the appropriate penalty when a pre-trial deadline is missed, based on the strong public policy in Delaware to decide cases on their merits, was explained as follows:

This is one of four appeals that the Court has considered together because, in each case, the plaintiff’s claims were dismissed without being heard on the merits. (1)

For the past two years, the trial courts have been applying the factors set forth in Drejka v. Hitchens Tire Service Inc. (2) when deciding whether a case should be dismissed for the attorneys’ failure to obey scheduling orders. Because experience has shown that sanctions are not always effective, to achieve the goal of eliminating this problem, the Court has determined that it is necessary to refine the Drejka analysis.

Henceforth, parties who ignore or extend scheduling deadlines without promptly consulting the trial court, will do so at their own risk. In other words, any party that grants an informal extension to opposing counsel will be precluded from seeking relief from the court with respect to any deadlines in the scheduling order. By the same token, if the trial court is asked to extend any deadlines in the scheduling order, the extension should not alter the trial date. Counsel may face a compressed time period to complete discovery, or the filing of dispositive motions, but the most important aspect of the scheduling order – the trial date – will be preserved.  In the unusual circumstance where the trial court does decide to postpone the trial date, litigants should expect that the trial will be rescheduled after all other trials already scheduled on the court’s docket.

1.  Hill v. DuShuttle, No. 381, 2011, ___A.3d ___ (Del. 2013); Adams v. Aidoo, No. 177, 2012, ___ A.3d ___(Del. 2013); and Keener v. Isken, No. 609, 2011, ___ A.3d___ (Del. 2013).

2.  15 A.3d 1221 (Del. 2010).

Another key quote from the case:

If one party misses a discovery deadline, opposing counsel will have two choices – resolve the matter informally or promptly notify the court. If counsel contacts the court, that contact can take the form of a motion to compel, a proposal to amend the scheduling order, or a request for a conference. Any one of these approaches will alert the trial court to the fact that discovery is not proceeding smoothly. With that knowledge, the trial court will be able to take whatever steps are necessary to resolve the problem in a timely fashion. If the party chooses not to involve the court, that party will be deemed to have waived the right to contest any late filings by opposing counsel from that time forward. There will be no motions to compel, motions for sanctions, motions to preclude evidence, or motions to continue the trial. It is entirely possible, under this scenario, that some vital discovery will not be produced until the day before trial. Still, the party prejudiced by the delay accepts that risk by failing to promptly alert the trial court when the first discovery deadline passes.

Each of the bevy of cases decided as a group, and cited above, had different factual backgrounds, as one might expect, but the common theme was that a pre-trial deadline of some type was missed, and the trial court dismissed each of the cases for failure to meet the deadline. (Careful readers may recall decisions from the Court of Chancery that barred the introduction of expert reports that were not submitted by the deadline in the scheduling order. Query if those decisions would have been decided differently if this new standard were applied.)

Each of the cases decided in this “collection of decisions” are different enough that they should be consulted by anyone confronted with this type of unpleasantness. For example, in the Hill case cited above, an attorney failed to submit an expert report in a “trip and fall” case, because he did not think one was necessary despite being subject to a motion to compel. Although that stubbornness was not exemplary, the Court reasoned that a “less harsh penalty” should have been employed prior to the ultimate penalty of dismissal.

In the Keener case cited above, a reasonable explanation was provided for filing a reply to a summary judgment motion only a few dates late, when the case was only a few months old and no scheduling order had been in place yet. This was not the type of situation, the Court reasoned, where justice would be served by a dismissal of the case, and would violate the strong public policy of Delaware to decided cases on the merits and not on some procedural technicality.

Any lawyer who has been practicing long enough will confront a situation where she or an opposing lawyer has missed a pre-trial deadline, for either very good reasons or otherwise. This new decision from the Delaware Supremes shows a kinder and gentler approach to the practice of law–while at the same time upholding the high standards that the country has come to expect from the Delaware Bench and Bar.

IQ Holdings, Inc. v. Am. Comm. Lines, Inc., C.A. No. 6369-VCL (Del Ch. Aug. 30, 2012).

Short Overview:

This short letter ruling addressed the effort of the plaintiff in an appraisal proceeding to submit an updated expert report beyond the deadline for submitting such reports. The updated report also changed the substance of the same expert’s earlier report in a material manner. The Court of Chancery explained why the supplemental revised report, and any testimony regarding it, would not be admissible at trial.

Why this case is noteworthy:

This decision is useful for litigators to keep handy because is explains the importance (in the Delaware Court of Chancery) of adhering to the various deadlines in scheduling orders, and how unlikely it is for the Court of Chancery to agree to change those deadlines, or allow extensions of those deadlines, especially as trial becomes imminent.

The Court also provides copious citations to cases that support the public policy behind pre-trial disclosures being made as early as possible, and the need to avoid “trial by surprise”, as well as the need to avoid the prejudice that may result from belated disclosure.

Although the Court acknowledges the benefit, especially in an appraisal case, of updated expert reports where concessions may be made to reach agreement with all parties on a particular issue to reduce the matters to be addressed by the Court, in this case the change was material, new and contested, so that to allow it would be contrary to the principle that supports the compliance with deadlines in order to avoid surprise that “deprive[s] the opposing party of an orderly process in which to confront and respond to the expert’s views.” See generally, Ams. Mining Corp. v. Theriault, __ A.3d __, __, 2012 WL 3642345, at *21 (Del. Aug. 27, 2012)(recent Delaware Supreme Court opinion upholding the exclusion of a witness sought to be offered for trial testimony after the applicable deadline passed for identifying witnesses).

Pryor v. IAC/InterActiveCorp., C.A. No. 6884-CS (Del. Ch. June 7, 2012).

Issues Presented: (1)  Whether the challenge to an arbitration award via a Chancery complaint was timely; and (2) Whether a collateral attack of the award was permissible.

Short Answer: The Court dismissed the complaint as untimely and any related issues would be subject to the arbitration clause for the arbitrator to determine.

Background

This case involved the challenge to an arbitration award pursuant to a binding arbitration clause in a stockholders agreement in connection with the determination of the value of shares.  The Court determined that the Federal Arbitration Act (the “FAA”) was controlling, and most of the decisions cited in this Court of Chancery opinion were rulings from federal courts interpreting the FAA.  The Court explained that the FAA requires a challenge to the arbitration decision to be served within three months of the award.  The Court found that the three month deadline was not met in this case.  In addition, the Court determined that the attempt to collaterally attack the arbitration award did not satisfy the prerequisites of the FAA, but that in any event it was an issue within the scope of the arbitration clause and which would need to be determined by the arbitrator.

Analysis

This relatively short 19-page decision by the Court of Chancery applied federal law regarding the FAA.  The opinion addressed whether the three month deadline by which an arbitration decision must be challenged begins to run from the date that the arbitration award is filed or delivered.  See footnote 16.  There was some discussion about whether the arbitration award was received or mailed by a certain date. 

The Court explained that because the award was e-mailed by the arbitrator,it would be deemed to be received on the date that it was e-mailed.  In addition, there was an issue about whether the “designated stockholder representative” was deemed to have received the award on behalf of the other stockholders that he represented.  The Court found that receipt by the representative was deemed to be receipt for those other stockholders whom he represented, based at least in part on principles of agency.

The Court provides an extended analysis both in the text of the decision and in the expansive footnotes regarding the basic agency principle that:  “A notification given to an agent is effective as notice to the principal if the agent has actual or apparent authority to receive the notification.”  See footnote 49.

In addition, the Court explained why the concept of equitable tolling would not apply, and cited what it referred to as “distinguished federal courts” that supported the inapplicability of that equitable exception to deadlines involved in this case.

The Court also explained why the separate claims for breach of contract and breach of fiduciary duty failed as being impermissible collateral attacks on the arbitration award, and not satisfying the prerequisites of the FAA to make such an attack.

In one of the many fulsome footnotes the Court referred to an argument by one of the parties as an “epistemological hole.”  See footnote 56.  Also notable was the reference in footnote 61 to one of the treatises authored by the valuation icon, Shannon Pratt.

Lastly, the Court provides extensive citations to authority both on the federal and Delaware level, which explain the high threshold that must be met before a Court will set aside an arbitration decision.

Dishmon v. Fucci, No. 784, 2010 (Del. Supr., Nov. 10, 2011) (en banc), read Delaware Supreme Court decision here.

A former associate of Eckert Seamans prepared the overview of this case.

Although tangential to the substantive topic of commercial and corporate litigation, this negligence case is relevant to corporate and business litigators because it establishes an important rule applicable to procedural aspects of all cases before the Delaware courts. The gist of this opinion is that procedural defects caused by excusable neglect should not prevent a litigant from having her day in court for an adjudication of her case.

Background

In December 2006, plaintiff filed a complaint alleging that medical negligence caused the death of his father. In medical negligence cases, Delaware statute requires a plaintiff to submit an Affidavit of Merit with a complaint. An Affidavit of Merit is a statement signed by an expert witness supporting the plaintiff’s assertion that there are reasonable grounds to support a medical negligence claim. Affidavits of Merit are not discoverable by defendants, and must be submitted to the court in a sealed envelope marked “CONFIDENTIAL.”

Procedural History

With his complaint, plaintiff filed a motion for extension of time to file his Affidavit of Merit. That motion was granted, and the plaintiff thereafter submitted Affidavit of Merit to the court within the newly prescribed deadline. Four months later, the court dismissed plaintiff’s complaint (it is unclear from the Delaware Supreme Court’s written decision whether a motion to dismiss was pending) for failure to comply with the statutory requirements governing the submission of an Affidavit of Merit. In dismissing the case, the court found that plaintiff failed to submit his expert’s curriculum vitae with the Affidavit of Merit. Plaintiff moved for relief from judgment in a timely fashion.

More than three years passed before the court denied plaintiff’s motion (without explanation–i.e., no explanation for the delay or for denying the motion).

On appeal, the Delaware Supreme Court reversed and held that a procedural defect that does not prejudice the defendants in any way should not bar a litigant from receiving his day in court:

[W]e conclude, as a matter of law, that trial courts must give weight to Delaware’s well known public policy that favors permitting a litigant to have his day in court. In these circumstances, the absent curriculum vitae should have been viewed as a procedural defect, but not an independent basis for dismissal.

The court further admonished the trial court for the inexplicable and regrettable delay in ruling on the motion for relief from judgment.

Comparison to Recent Chancery Decision Refusing to Extend Pre-Trial Deadline, in:  Encite LLC v. Soni, 2011 Del. Ch. LEXIS 58 (Apr. 15, 2011). See highlights of that opinion here.

In one of Chancellor Chandler’s final decisions, summarized at the link above, the Court of Chancery declined to allow counsel to submit an expert report after the court-ordered discovery deadline had passed. The overarching holding of Dishmon—that procedural defects should not deny a plaintiff his right to his day in court—was a peripheral issue in Encite. The starkly different decisions in these cases are noted and compared briefly as practice points:

The decision in Encite was not dispositive of the merits. Disallowing a party to file an expert report is not the equivalent of dismissing a plaintiff’s case in its entirety, as happened in Dishmon. In Encite, the plaintiff still was allowed its day in court.

The procedural defect in Encite was not due to excusable neglect. In Encite, plaintiff’s counsel proffered to the court that the parties had reached an agreement to extend the deadline to submit expert reports, but defendants’ counsel did not concur. Further, plaintiff’s counsel only moved the court to extend the applicable deadlines after the deadline had passed, and only days before dispositive motions were set to be filed.

In contrast, in Dishmon, the Delaware Supreme Court found that counsel’s failure to confirm that the expert’s curriculum vitae was included in the sealed envelope was excusable because administerial tasks like sealing an expert report and accompanying documents in an envelope are not typically completed by an attorney.

The defendant in Dishmon was not prejudiced. Unlike the clearly prejudicial effect of submitting an expert report to opposing counsel within days of the dispositive motion deadline (and where expert reports were intended to be submitted simultaneously by all parties), there was no prejudice in Dishmon since Affidavits of Merit are not submitted to, or discoverable by, defendants.

Conclusion

Procedural defects can result in myriad outcomes; but they should never result in denying a litigant of his day in court.

Encite LLC v. Soni, et al., C.A. No. 2476-CC (Del. Ch. April 15, 2011), read letter decision here.

Holding

Court of Chancery rejected a request for the extension of a deadline for submitting expert reports.

Brief Overview

 

This 7-page letter ruling is a useful tool for the toolbox of Chancery practitioners who deal with the issue of extending deadlines imposed by a Scheduling Order.

 

Court of Chancery Rule 6(b) applies to motions to extend deadlines after the expiration of the prescribed period, during which the Court may grant an extension “if the failure to act was the result of excusable neglect.” Excusable neglect has been defined in other circumstances by the Delaware Supreme Court as “neglect which might have been the act of a reasonably prudent person under the circumstances.” (citing Dolan v. Williams, 707 A.2d 34, 36 (Del. 1998)). The Court reasoned in this decision that the foregoing standard was not met.

 

I love it when the Court uses Latin. In this decision the Court explained that: “Informal agreements among counsel do not operate, ex proprio vigore, to modify a Court’s Order.” 

 

The salient background facts of this case involve a conversation with counsel in which one of the attorneys thought that there was an oral agreement to extend the deadline for submitting expert reports. That oral understanding was not confirmed in writing and one of the attorneys denied having that understanding.

 

The bottom line “takeaways” from this ruling are at least three-fold: 

 

(1) No modifications of the deadlines in a Scheduling Order will be effective, regardless of written confirmation among counsel, unless and until the Court approves such modifications of the Scheduling Order;

 

(2) Even if all counsel agree in writing to a modification of the Scheduling Order, and even if they are deadlines that do not impact dispositive motions or trial dates, those modifications must be submitted to the Court for approval prior to the expiration of the applicable deadlines; and

 

(3) Requests for modification after the expiration of the deadlines in the Scheduling Order are subject to the “excusable neglect” standard under Court of Chancery Rule 6(b). Because that standard was not met here, the Court determined that the plaintiff’s “thirteenth-hour attempt to modify the Scheduling Order is denied.” The Court relied on a recent Delaware Supreme Court decision upholding a trial court’s refusal to include an expert report that was submitted after the deadline in the Scheduling Order. See Jackson v. Hopkins Trucking Company, Inc., 2010 WL 3397478, at * 3 (Del. Aug. 30, 2010).

 

Parenthetically, in closing, although the Court did not address it and did not rule on it, the Court mentioned “in passing” but did not condemn the position of one party who required that a discovery request made during a deposition be submitted in writing afterwards.

 

UPDATE: A motion for reconsideration was denied in a letter ruling on April 26, 2011, available here.