|
| The Chancery Daily notes that its reporting on factually fraught, contentious litigation -- where sanctionable misconduct is alleged -- is a perennial source of handwringing. Allegations in support of contempt or findings of bad faith are typically unsavory, and while scandal is the lifeblood of some forms of media, TCD aims more for accuracy and useful context. When the Court ultimately concludes that unsavory allegations are founded and drops the proverbial hammer, the unsavory conduct is part of the legal lesson -- on what not to do -- that we attempt to accurately report. We don't revel in it, however. When unsavory allegations ripen into rulings on motions for contempt, sanctions, fee-shifting, disqualification, or occasional self-surrender for incarceration (see, e.g., W.L. Gore & Associates, Inc. v. Huey Shen Wu, et al., C.A. No. 7946-VCP, order (Del. Ch. Nov. 2, 2012)), the legal lesson typically is "what not to do." This is perhaps ultimately to the credit of Delaware practitioners and the jurisdiction -- ostensibly, such unsavory allegations are not pressed without justification. But that fortunate circumstance has led TCD to anticipate that suspension of disbelief over convenient misfortune -- when a dog eats one's homework, or a dogfish knocks one's cell phone off the selfie-stick and into an underwater volcano whilst on a scuba expedition -- is likely to go unrewarded. Today's edition discusses Michael Dearing v. Mixmax, Inc., C.A. No. 2021-0918-PAF, order (Del. Ch. Mar. 23, 2023), which departs from the described trend and offers "what to do" lessons on forcefully-pressed motions for contempt and fee shifting. There, a director sought inspection of corporate books and records under 8 Del. C. § 220, arguing that defendant company acted to obstruct his access to information required for proper execution of his fiduciary duty to manage the company, despite a clear statutory right to unfettered access. Subscribers will appreciate that unjustified obstruction of the clear statutory right to inspect books and records came to be viewed by the Court of Chancery as problematic, and was found to warrant fee shifting, in Deborah Pettry, et al. v. Gilead Sciences, Inc., C.A. No. 2020-0132-KSJM, memo. op (Del. Ch. Nov. 24, 2020). Moreover, while the company represented that board members -- including the company's CEO -- did not use personal email accounts to conduct company business, plaintiff discovered that the CEO had forwarded emails from his company account to his personal account. The company explained that the CEO accidentally sent emails to his personal account or was testing whether his email was working. Plaintiff also asserted that the CEO violated the Court's status quo order by negotiating a transaction without providing plaintiff advance notice. While these allegations are non-reassuring, the Court finds an absence of bad faith on the part of the company and its CEO. The Court walks through the company's response to plaintiff's books and records demand, finding it unproblematic. The Court reviews the evidence of the CEO's use of his personal email account, corroborating the mistake / testing explanation offered by the company, and finds that -- notwithstanding the inaccuracy of the CEO's representation -- the company produced all relevant emails that ended up in CEO's personal account and was not attempting to hide anything. And the Court finds that, although the company technically breached the Status Quo Order, the actions that it took to remedy the violation prevented plaintiff from being harmed, such that it did not warrant a finding of contempt. Thus, in contrast to many rulings where the Court digs into the facts and finds improper action that the actor has taken steps to conceal, the Court digs into the facts and finds that, to the extent defendant acted improperly, it took appropriate remedial action in compliance with its obligations to plaintiff and to the Court. Today's edition also discusses James Rivest v. Hauppauge Digital, Inc., C.A. No. 2019-0848-JTL, order (Del. Ch. Mar. 23, 2023), which contrastingly offers a "what not to do" lesson on a motion for contempt for failure to produce documents required by a Court Order in a books and records action under 8 Del. C. § 220. Unlike the scenario described above, rather than offer too-easy justifications for noncompliance, defendant here seemingly just didn't comply, which is not a strategy that TCD would commend. Cf. W.L. Gore & Associates, Inc. v. Huey Shen Wu, et al., C.A. No. 7946-VCP, order (Del. Ch. Nov. 2, 2012). |
No Bad Faith Found in Company Response to Director's 220 Demand Attorneys' Fees; American Rule; 8 Del. C. § 220; Books & Records; Litigation Conduct; Bad Faith; Fee Shifting; Burden; Established Right; 8 Del. C. § 220(d); Corporate Director; Statutory Right; Inspection Demand; Email; Personal Account; Document Production; Contempt; Sanctions; Court Order; Judicial Discretion; Preponderance of Evidence; Non-Compliance; Technical Violation; Good Faith; Conscious Disregard; Entry of Judgment; Status Quo Order; Remedial Effort; Advance Notice |
Director May Be Found in Contempt of Order Binding Company Ct. Ch. R. 70(b); Ct. Ch. R. 65(d); Ct. Ch. R. 71; Ct. Ch. R. 11; Contempt; Court Order; Non-Compliance; Show Cause; Non-Party; Parties Bound; Corporate Director; Artificial Entity |
Prescription-Plan Overcharge Claims Survive Summary Judgment Summary Judgment; Legal Standard; Burden; Cross-Motions; Statute of Limitations; Breach of Contract; Tolling; Inherently Unknowable Doctrine; Inquiry Notice; Diligent Inquiry; Fact Issue; Collateral Estoppel; Arbitration; Identical Issue; Different Issue; Claim Elements; Contract Interpretation; Ambiguity; Unambiguous Contract; Extrinsic Evidence; Industry Standard; Ambiguous Contract; Contract Formation; Consideration; Personal Information; Customer Loyalty Program; Promotion; Discount; Advertisement; Unjust Enrichment; Absence of Legal Remedy; Subject Matter Jurisdiction; Damages; Voluntary Payment Doctrine; Full Factual Knowledge |
Consolidated Action; Books And Records Action |
- Nature of Action: Fraudulent Transfer
- Plaintiff's Counsel: MORRIS JAMES; ARENTFOX SCHIFF
- Entity Defendant(s): Bank of America Corp.; Banc of America Strategic Investments Corp.
|
- Nature of Action: Advancement
- Plaintiff's Counsel: DAILEY
- Entity Defendant(s): 4301 Operations, LLC
|
- Nature of Action: Breach of Contract
- Plaintiff's Counsel: GREENBERG TRAURIG
- Entity Defendant(s): Cardiac Implants LLC
|
- Nature of Action: Stockholder Class Action
- Additional Plaintiff(s): Delena Magness
- Plaintiff's Counsel: BLOCK & LEVITON; FRIEDMAN OSTER & TEJTEL; KASKELA LAW
- Individual Defendant(s): Andrew Axelrod; Spencer Goldenberg; David Miller; Kevin Patrick; Stephen Negrotti; Patricia Wellenbach; Joseph Redling
- Entity Defendant(s): Axar Capital Management, LP
|
DAILY HEARING & TRIAL SCHEDULE |
(T) = Telephone; (Z) = Zoom; (C) = CourtScribes; (W) = Wilmington; (D) = Dover; (G) = Georgetown
Tuesday, April 4, 2023
09:00 (C) - Greyhawk SSOF Ruckus Lender, LLC v. Nelson Brothers Meadow View, LLC, et al., C.A. No. 2023-0289-PRW [status conf.]
10:00 (G) - Frank Wright, et al. v. Equity Lifestyle Properties, Inc., et al., C.A. No. 2022-0564-BWD [MTD]
11:00 (W) - Gene Marshall Betts Revocable Trust Dated 12-18-2001, et al. v. Phunware, Inc., et al., C.A. No. C.A. No. 2022-0168-NAC [MTD; partial MSJ]
01:30 (W) - ClubReady, LLC et al. v. Bradley Denton et al., C.A. No. 2022-0566-PAF [post-trial]
|
Plaintiff Dearing, a director of defendant Mixmax, brought suit seeking inspection of books and records in his capacity as director under 8 Del. C. § 220(d).
Dearing previously served on the Mixmax board from 2014 to 2019. He rejoined the board as the designee of non-party Harrison Metal in September 2021. The other board members were non-parties Mathé (Mixmax's CEO), Vogel, and Fritjofsson.
Upon rejoining the board, Dearing requested board materials from August and September 2021 and was provided the most recent board resolution and investor update emails. Dearing then requested board materials for 2021. On October 1, Mathé responded that Mixmax did not hold any board meetings in 2021 and that board members discussed business informally by email and telephone conversations and acted exclusively by written consent.
On October 12, Dearing served a formal Section 220 demand to inspect books and records including electronic documents, emails, and other electronic communications such as text messages, including from personal accounts or on personal devices used to conduct Mixmax business. On October 19, Mixmax responded that it "was getting its arms around the matter," would comply with its obligations, and would follow up regarding production of responsive documents. October 22, Dearing filed suit.
On October 27, Mixmax indicated that it would produce responsive and proposed materials by November 5. Dearing responded that the proposal was inadequate. Mixmax nevertheless produced some board materials, and answered Dearing's complaint on November 23.
On December 3, the Court entered the parties' stipulated Production Order, which represented that Mixmax did not dispute Dearing's entitlement to inspection and provided for rolling production to be completed by December 30. Mixmax produced 100,000 documents in December, and responded to concerns Dearing raised with production of 60,000 more documents in January 2022.
In discussions over the scope of inspection, Mixmax represented that Mathé did not use any personal email accounts to conduct company business and would search only Mathé's Mixmax email account, but, if Mathé was found to have used another email account, that account would also be searched.
Dearing's review of Mixmax's production revealed company communications sent to Mathé's personal email accounts, and Dearing demanded that Mixmax search those accounts. Mixmax responded that it interviewed Mathé and Vogel, confirmed the directors did not use personal accounts for company business, and represented that Mathé sent emails to his personal accounts accidentally or to test whether his email was working.
Dearing filed a motion for an award of attorneys' fees under the bad-faith exception to the American Rule on January 21, 2022, asserting that Mixmax forced him to file suit to obtain inspection to which he was clearly entitled as a director, unnecessarily prolonged litigation, and made misrepresentations regarding the information sought. Dearing filed a motion to enforce the Production Order on February 3, requesting that the Court compel Mixmax to search Mathé's personal email accounts, search Fritjofsson's email account, and produce other documents. Dearing represented in his motion to enforce that he remained unable to verify Mixmax's financials, yet the company marketed and sold Simple Agreements for Future Equity ("SAFEs") based on those financials.
On February 10, 2022, the court entered the parties' stipulated Status Quo Order precluding Mixmax from authorizing, marketing, or selling securities -- including SAFEs -- without providing 10 days' advance notice to Dearing. The Court renewed the Status Quo Order on March 11.
On February 11, Mathé began discussions with Silicon Valley Bank ("SVB") about refinancing Mixmax's existing debt and extending an additional $700,000 of debt. Mixmax's prior arrangement with SVB included issuance of warrants to purchase 0.10% of Mixmax common stock. The proposed new arrangement contemplated issuance of additional warrants that would increase SVB's warrant coverage to 0.12%. Mathé did not provide Dearing with advance notice of his discussions with SVB.
On March 7, Mixmax produced documents from Mathé's personal email accounts. Most of those emails were from a website called AngelList, reflecting responses from investors in a summer 2021 SAFE offering. The new production showed that Mathé forwarded some emails from his work account to his personal account. Mixmax represented that it had already produced all relevant emails forwarded to Mathé's personal account and that the omission of these emails from the initial production was a harmless oversight.
Mathé, executed a refinancing term sheet with SVB on March 14, and on March 21 called for a board meeting to approve and close the refinancing. Dearing expressed concern that the negotiation with SVB violated the Status Quo Order. Mathé replied that he did not believe the negotiations with SVB violated the SQO but agreed to delay the board meeting.
On March 29, Dearing moved for the entry of an order to show cause why Mathé's negotiations with SVB did not violate the Status Quo Order, requesting that the SQO be extended, that the sale of any securities in violation of the SQO be unwound, and that Dearing's fees incurred in connection with the motion be shifted to Mixmax.
The SQO expired by its terms on April 9. On May 26, the Board approved the refinancing and issuance of warrants. Dearing voted against the proposal.
The Court permitted Dearing to take limited discovery in support of his rule to show cause motion. Dearing filed a supplemental submission seeking to hold Mixmax and Mathé in contempt of the Status Quo Order. His motion for an award of attorneys' fees remained outstanding.
The Court denies Dearing's motions for entry of a rule to show cause and award of attorneys' fees in this Order, finding that: Mixmax did not refuse to provide inspection to which Dearing was clearly entitled in bad faith; although Mathé's representation that he did not use personal email accounts for company business was inaccurate, his limited use did not constitute bad faith; Mathé's refinancing discussions involving an issuance of a de minimis number of warrants did not violate the Status Quo Order in a meaningful way; and remedial steps taken in response to Dearing's assertion that the SQO was violated sufficiently rectified any noncompliance. * * * * * * * * The Court discussed the "bad faith" exception to the American Rule as a basis for fee shifting -- which may be applicable in an 8 Del. C. § 220 proceeding where a defendant obstructs a plaintiff's clear statutory right to inspect corporate books and records -- noting that a stringent burden of showing bad faith is required for application of the exception. "Under the well-established American Rule, parties to litigation bear their own attorneys' fees. 'An exception exists in equity . . . when it appears that a party, or its counsel, has proceeded in bad faith, has acted vexatiously, or has relied on misrepresentations of fact or law in connection with advancing a claim in litigation.' There is not a single standard of bad faith that gives rise to an award of attorneys' fees; rather, bad faith turns on the particular facts of each case.
'A subset of this bad faith exception is that attorneys' fees may be awarded if it is shown that the defendant's conduct forced the plaintiff to file suit to secure a clearly defined and established right.' Where a company takes on an overly aggressive litigation strategy that includes litigation practices such as blocking legitimate discovery, misrepresenting the record, and taking positions for no other purpose than obstructing [an 8 Del. C. § 220] plaintiff's clear statutory rights, fee shifting under the bad-faith exception to the American Rule may be warranted. Further, a pre-litigation failure to provide any documents despite ample evidence of a credible basis for the request and obvious responsiveness of certain categories of documents to that request may enhance a court's willingness to shift fees. This court, however, does not invoke the 'bad faith exception' lightly and imposes the stringent evidentiary burden of producing 'clear evidence' of bad-faith conduct on the party seeking an award of fees. " The Court, considering director plaintiff's motion for an award of attorneys' fees incurred pursuing inspection of books and records under 8 Del. C. § 220 due to defendant company's bad faith refusal to honor his clear statutory right, found the company's response to plaintiff's demand for inspection was reasonable, did not obviously "force" plaintiff to file suit, and did not constitute bad faith warranting fee shifting -- distinguishing decisions that have found information was wrongfully withheld from directors. "A director of a Delaware corporation has a statutory 'right to examine the corporation's . . . books and records for a purpose reasonably related to the director's position as a director' [under 8 Del. C. § 220(d)]. That inspection right 'is correlative with [the director's] duty to protect and preserve the corporation.' Plaintiff argues that he was forced to file this suit to secure his clear right, as a director, to inspect [company's] books and records. Plaintiff states: 'By [the time plaintiff filed suit], ten days had passed. The Company had retained Delaware counsel but had not met and conferred about a production. Thus, Plaintiff was forced to file suit to enforce his clear rights.' The court is not convinced that Defendant forced Plaintiff to file suit to obtain inspection or that [company] engaged in bad-faith conduct warranting fee shifting. Plaintiff delivered his Demand [ten days earlier]. [Company] promptly responded and informed Plaintiff that [company] would provide Plaintiff with responsive documents and would comply with its obligations under Delaware law. The Company did not contest Plaintiff's right to inspection. Rather, in response to Plaintiff's Demand, [company] proposed a meet and confer to be held [two weeks later]. The Demand sought to inspect 15 categories of documents, some of which included subparts, and many of them sought 'all documents and communications referring or relating to' certain decisions or events for a two-and-a-half-year period. For example, the Plaintiff demanded all documents and communications 'referring or relating to reimbursement or payment of expenses for travel, meals, entertainment, and any other similar expense paid, requested to be paid or reimbursed by the Company, by [CEO] and / or [director].' Given the granularity and breadth of some of the requests, it was not unreasonable for the Company to request a meet and confer to develop a rational approach to identifying the types of documents reasonably related to Plaintiff's position as a director and a timetable for production. Plaintiff characterizes [company's] response to Plaintiff's Demand as dilatory and part of a scheme to keep Plaintiff in the dark while [company] approved a Board resolution to ratify [CEO] and [director's] compensation pursuant to 8 Del. C. § 204 and authorize an amendment to an agreement that had been breached by certain compensation grants. In support of its position, Plaintiff cites [ Edward T. McGowan v. Empress Entertainment, Inc., C.A. No. *17780-VCJ, memo. op. (Del. Ch. Dec. 21, 2000),] and [ G. William Carlson, et al. v. Charles Hallinan, et al. and CR Services Corp., C.A. No. *19808-VCP, opinion (Del. Ch. Mar. 21, 2006)]. In McGowan, the company 'misled [the director] for over 16 months, by promising him both orally and in writing that the books and records would be produced forthwith.' In Carlson, the defendants refused a director's informal information request, purported to remove him from the board two days after he delivered a Section 220 demand, and continued their refusal to provide information after the director filed a Section 220 action. The facts of this case are not comparable to McGowan or Carlson. Here, [company] immediately recognized Plaintiff's rights to books and records and attempted to arrange a meet and confer over how the production of documents should commence. Defendant began document collection . . . only five days after Plaintiff filed his complaint in this action. Defendant conducted multiple custodian interviews with [CEO and directors]. Moreover, Defendant engaged information technology professionals to collect electronically stored information from the Custodians' work email accounts, Google Drives, Dropbox accounts, work Slack accounts, and iPhones. Defendant's lawyers also personally logged into [CEO's] Twitter account using his log-in credentials and reviewed his direct messages for responsiveness to the Demand. [Six weeks after plaintiff filed suit], [company] stipulated to the Production Order, which represented that the parties did not dispute Plaintiff's entitlement to inspection and acknowledged that the remaining dispute was 'limited to the burden and expense associated with conducting a review pursuant to the Demand.' The Production Order required a rolling production . . . to be completed [four weeks later]. [Company] produced 101,669 documents in [that] month . . . and more than 168,317 in all. The production may not have been as prompt as Plaintiff and his counsel would have liked, but Defendant's conduct, viewed in its totality, does not reflect bad faith." The Court, considering director plaintiff's motion for an award of attorneys' fees incurred pursuing inspection of books and records under 8 Del. C. § 220 due to defendant company's bad faith refusal to honor his clear statutory right, found that, although the company's CEO represented that he did not use personal emails for company business but was later found to have forwarded company emails to his personal account, the CEO's use of the personal account was not extensive, the company produced the information the CEO forwarded, and his misrepresentation, viewed in context, did not warrant a finding of bad faith. "Plaintiff . . . seeks fees over [CEO's] allegedly bad-faith representation that he never used his personal email accounts for Company business. The supplemental discovery this court ordered regarding [CEO's] personal emails revealed that [CEO] had some automated, work-related emails sent to his personal accounts. It also appears that he forwarded himself a few items from his work account. Defendant explained the forwarded emails as emails that [CEO] forwarded to himself as a test to see if a technical glitch with [CEO's] work email had subsided. Defendant explained that the automated emails resulted from [CEO] using his personal email when creating his [financing website] account. Importantly, Defendant produced many of the documents sent to [CEO's] personal email or documents containing the same information as the documents sent to [CEO's] personal email in the course of the rolling production. Although the emails in [CEO's] personal account may have presented the information in a more readable format, the documents produced in the rolling production materially duplicated the content of the [financing website] emails. The results of the supplemental discovery do not show that [CEO] engaged in extensive business dealings from his personal accounts. [CEO's] representations to the Company's counsel that he had not used his personal accounts for Company business were not accurate. The process could have been better, but the Court is not persuaded that this issue, when viewed in context, warrants a finding of bad faith." The Court discussed legal standards applicable when considering a motion to sanction civil contempt based on a failure to comply with a Court Order, which must be shown by a preponderance of evidence, noting that "conscious disregard" of a Court Order is an element that must be shown for entry of judgment as a sanction, but is not required for a finding of contempt. ". . . To be held in contempt, a party must be bound by an order, have notice of it, and nevertheless violate it. The remedy of civil contempt serves two purposes: to coerce compliance with the order being violated and to remedy injury suffered by other parties because of the disobedient behavior. Civil contempt is a weighty sanction that can be accompanied by a range of punishments, including fines and imprisonment. Whether a party should be held in contempt is a discretionary matter for the Court. The violation 'must not be a mere technical one, but must constitute a failure to obey the Court in a meaningful way.' Even where there has been a violation, the Court will consider good faith efforts to comply with the order or to remedy the consequences of non-compliance. The standard of proof required in a civil contempt proceeding in Delaware is a preponderance of the evidence. If the petitioning party is able to meet its burden, the burden shifts to the contemnors to show why they were unable to comply with the order. 'After that, the court must make findings of fact and determine whether each party carried its burden.' [Defendant] argues that contempt requires an 'element of willfulness or conscious disregard of a court order.' This argument reflects a misreading of the caselaw. The quote from [ Mitchell Lane Publishers, Inc. v. Joseph Rasemas, et al., C.A. No. 9144-VCN, letter op. (Del. Ch. Sept. 26, 2014),] is incomplete. The full quote [citing Robert Gallagher, et al. v. Richard S. Long, et al., No. 383, 2007, order (Del. Nov. 6, 2007),] is: 'Before exercising its discretion to award an entry of judgment, the Court must be satisfied that there was an element of willfulness or conscious disregard of a court order.' In Mitchell Lane, the movant sought dismissal of the contemnor's claims and entry of judgment on the movant's counterclaim. In Gallagher, the Delaware Supreme Court affirmed the trial court's entry of a final judgment against the appellants for their 'repeated contumacious disregard' of the court's orders. These cases are consistent with the prevailing standard that a movant 'is not required to show that the violation was willful or intentional, but the intentional or willful nature of a contemnor's acts may be considered in determining the appropriate sanction.'" The Court denied director plaintiff's motion to hold defendant company in contempt for violating a Status Quo Order that forbade marketing or selling securities without providing advance notice to plaintiff, where the company's CEO negotiated a debt restructuring with a lender, which involved issuance of warrants to purchase 0.02% of the company's stock. The Court found that, although the negotiation was a technical violation, the CEO did not fail to obey the SQO in a meaningful way, and the company's good faith efforts to remedy the non-compliance -- by delaying a board vote on the restructuring until plaintiff had the required notice and the SQO had expired -- precluded a finding of contempt. ". . . To be held in contempt, a party must be bound by an order, have notice of it, and nevertheless violate it. . . . The violation 'must not be a mere technical one, but must constitute a failure to obey the Court in a meaningful way.' Even where there has been a violation, the Court will consider good faith efforts to comply with the order or to remedy the consequences of non-compliance.
. . . [CEO's] interactions with [lender] constituted, at worst, a technical violation of the [Status Quo Order]. [CEO] was not engaged in a broad marketing campaign to sell [company] securities to a wide range of potential investors. It was nothing approaching [CEO's] conduct in selling [Agreements for Future Equity the previous year], a topic that was a major focus of Plaintiff's [8 Del. C. § 220] Demand. The small increase in [lender's] warrant coverage from 0.10% to 0.12% as a result of the refinancing indicates that this transaction never contemplated a significant securities issuance. Based on the record presented, the court is not persuaded that [CEO's] conduct 'constitute[d] a failure to obey the Court in a meaningful way.'
Further, the immediate remedial steps [company] took in response to Plaintiff's identifying the alleged violation of the SQO sufficiently rectified any noncompliance. After receiving [CEO's] email requesting a Board meeting [two days later], to discuss the proposed debt refinancing, Plaintiff responded that he viewed the refinancing transaction as violating the SQO and suggested that the Company 'should reschedule for a date consistent with the [SQO].' [CEO's] reply stated: 'Even though we don't view a refinancing as selling securities, happy to set up another board call one week later.'
Viewed in full context and considering the overall purpose of the SQO, [CEO's] and [company's] actions taken in response to Plaintiff's email adequately mitigated the effects of any violation of the order. As Plaintiff acknowledged, the purpose of the notice requirement of the SQO was to give Plaintiff advance warning of certain actions so that he could be sufficiently informed and to provide time to seek an injunction. Once Plaintiff raised his concern about presenting the refinancing proposal on less than ten-days' notice, the Company immediately deferred consideration of the proposal. Indeed, the Board did not meet to vote on the proposed refinancing until . . . nearly seven weeks after the expiration of the SQO and two months after [CEO] first sought Board approval. Plaintiff did not seek to enjoin the refinancing or the Board's consideration of it. Thus, it is difficult to imagine what harm Plaintiff incurred from this, at worst, technical violation of the SQO, to which [company] and [CEO] made good faith efforts to comply." |
Plaintiff James Rivest, a stockholder of delisted company Hauppauge Digital, brought suit seeking inspection of Hauppauge's books and records under 8 Del. C. § 220 for the purpose of valuing his shares. The matter was assigned to a Master in Chancery, who recommended entry of judgment favoring Rivest subject to confidentiality restrictions, finding Hauppauge's evidence of past harm to customer and vendor relationships from its disclosure of financial information justified imposing confidentiality restrictions on information less than two years old. James Rivest v. Hauppauge Digital, Inc., C.A. No. 2019-0848-PWG, final report (Del. Ch. Jan. 24, 2022). Rivest took exception to the Master's recommendation as to the confidentiality restriction, arguing that if a company could claim entitlement to confidentiality of books and records by pointing to a standard business risk -- that a competitor could use its financial information -- entitlement to confidential treatment would become presumptive. The Court, in James Rivest v. Hauppauge Digital, Inc., C.A. No. 2019-0848-PWG-JTL, memo. op. (Del. Ch. Sept. 1, 2022), declined the recommendation to impose confidentiality restrictions on Hauppauge's financial information, finding that the balance of Rivest's and Hauppauge's interests required under Alex Tiger v. Boast Apparel, Inc., No. 23, 2019, opinion (Del. Aug. 7, 2019), favored Rivest's ability to value and sell his shares -- rights that the confidentiality restrictions would frustrate -- and holding that Rivest was entitled to financial statements free of any confidentiality restrictions. The Court entered final judgment, James Rivest v. Hauppauge Digital, Inc., C.A. No. 2019-0848-JTL, order & final j. (Del. Ch. Nov. 21, 2022), and Hauppauge moved to stay entry of final judgment pending appeal. The Court granted Hauppauge's motion in part in James Rivest v. Hauppauge Digital, Inc., C.A. No. 2019-0848-JTL, order (Del. Ch. Jan. 19, 2023), staying entry of judgment pending appeal for a brief time required for Hauppauge to request a permanent stay from the Supreme Court for the duration of the appeal, conditioned on Hauppauge posting as security costs and interest awarded to Rivest, noting the company represented unwillingness to comply with the Court's final order and indicated that it was attempting to transfer assets beyond the Court's jurisdiction. The Supreme Court denied Hauppauge's motion to stay the trial court's judgment as to all production in Hauppauge Digital Inc. v. James Rivest, No. 442, 2022, order (Del. Feb. 27, 2023), finding the trial court properly stayed Hauppauge's obligation to produce financial statements from 2021 and 2022, but not financial statements from 2016 through 2020. Rivest contacted Hauppauge's counsel regarding production of the 2016-2020 financial statements. Hauppauge's counsel responded that he had provided Hauppauge with a copy of the Supreme Court's order, but had received no response, adding that he had been retained only as appellate counsel. Rivest then moved for an order under Ct. Ch. R. 70(b) to hold Hauppauge and its sole director (Plotkin) in contempt of the Court's final judgment, asking that the Court impose a daily sanction of $500 on both Hauppauge and Plotkin until Hauppauge complies with its obligations. The Court requires Hauppauge and Plotkin to show cause why they should not be held in contempt in this Order, noting that Plotkin was bound by the Court's judgment as Hauppauge's director, even though he was not a party to the litigation. * * * * * * * * The Court, in an action for inspection of books and records under 8 Del. C. § 220, in which defendant company failed to comply with the Court's Order requiring production of financial statements, ordered the company and its sole director, a non-party to the litigation, to show cause why they should not be found in contempt, noting that Court Orders binding artificial entities are also binding on individuals such as directors, officers, and those who act on behalf of the entity. "Plaintiff has moved for an order pursuant to [Ct. Ch. R. 70(b)] holding the Company and [its sole director] in contempt of the court's Final Order.
Contempt comes in two varieties: civil and criminal. 'In all civil cases, a contempt determination must be coercive or remedial rather than punitive and the court must use the least possible power adequate to the end proposed.'
To be held in contempt, a party must be bound by an order, have notice of it, and nevertheless violate it. 'For a party to be found in contempt for violation of the Court's [o]rder that violation must not be a mere technical one, but must constitute a failure to obey the Court in a meaningful way.' 'A party petitioning for a finding of contempt bears the burden to show contempt by clear and convincing evidence; the burden then shifts to the contemnors to show why they were unable to comply with the order.' Notably, intent is not an element of an application to enforce an order by holding a party in contempt. 'The moving party is not required to show that the violation was willful or intentional, but the intentional or willful nature of a contemnor' s acts may be considered in determining the appropriate sanction.' The contemnor must know about the order, but that is all. It is not a defense for contemnor to claim that he did not intend to violate the order or that he did not understand what the order required.
'An order generally binds not only the named parties, but also those identified with them in interest, in privity with them, represented by them or subject to their control.' This principle ensures that a party cannot nullify or evade an order 'by carrying out prohibited acts through aiders and abettors, although they were not parties to the original proceeding.' The Court of Chancery Rules [including Ct. Ch. R. 65(d) and Ct. Ch. R. 71] recognize that in appropriate circumstances, an order can be enforced against nonparties. Under these principles, an order that applies to an entity extends to directors, officers, and employees of the entity who are acting on behalf of the entity.
'A motion to show cause why the defendants should not be held in contempt is addressed to the discretion of this Court.' 'This must use the contempt power in a manner appropriate to the situation so as to best resolve the conflict at hand.' Even where there has been a violation, the Court will consider good faith efforts to comply with the order or to remedy the consequences of noncompliance.
The Final Order obligated the Company to produce its quarterly and annual financial statements and reports, including cash flow statements, balance sheets, and income statements, for [specified years]. The Company has failed to comply with the central obligation imposed by the Final Order. A prima facie case exists for finding the Company is in contempt and to impose coercive and remedial sanctions. Good cause exists to consider imposing sanctions on [sole director] based on his involvement in the failure to comply with the Final Order.
. . . [T]he Company and [sole director] shall show cause why they should not be held in contempt. The Company and [sole director] must file formal submissions, signed in conformity with [Ct. Ch. R. 11]. [Sole director] can file in his individual capacity. The Company may only appear through counsel. " |
Plaintiff health plans and pharmacy-benefit management companies brought fraud, breach of contract, and unjust enrichment claims in the Delaware Superior Court's Complex Commercial Litigation Division against defendant pharmacy companies (together, "Rite Aid"), alleging that Rite Aid misrepresented prescription prices charged to customers and thereby obtained inflated reimbursements. Plaintiffs, all controlled by non-party Centene Corporation, include over fifty health insurance providers (the "Health Plans") and two entities ("Envolve" and "HNPS") that act as payment intermediaries between the insurers and the pharmacies. In 2003, Envolve entered into a Participating Pharmacy Agreement (the "2003 Contract") with Rite Aid, which set rates at which Rite Aid could bill Envolve for filled prescriptions. The parties dispute the 2003 Contract's pricing structure (referred to in this Opinion as the "lesser-of logic"). According to plaintiffs, Rite Aid was entitled to reimbursement at "the 'lesser of' a negotiated rate or its [Usual and Costumery ('U&C')] price for a drug." The agreement defined U&C prices as: [t]hose amounts which participating Pharmacy normally charges its private pay patients for comparable Pharmaceutical Services and as may be provided to Patient Beneficiaries of a Third Party Payor, as provided herein. Section 2.1 of the 2003 Contract set forth pricing terms, originally stating that: Brand Name: [Average Wholesale Price ("AWP")] less 12% or [Maximum Allowable Cost ("MAC")], whichever is less, plus a $0.95 dispensing fee per 7-day supply. Generic: The lesser of AWP less 20% or MAC, whichever is less, plus a $0.95 dispensing fee per 7-day supply. A 2007 amendment altered Section 2.1's percentages and dispensing fees. Rite Aid argued that the lesser-of logic was set by Section 2.1, which did not include the U&C price. In 2008, Rite Aid created an "Rx Savings Card" program (the "Program"), under which customers could request and receive, free of charge, a customer loyalty card that would entitle them to lower prices. Defendants continued to report the non-Program prices as the U&C Price for applicable transactions, resulting in their alleged receipt of inflated payments from plaintiffs. Also in 2008, Rite Aid initiated a heavily advertised price-matching policy that allowed Rite Aid pharmacists to match competitors' verified prices. Plaintiffs assert that matched prices should have been accounted for in calculation of U&C prices. Rite Aid argues that they should not. The parties entered into a new agreement in 2013 (the "2013 Contract"), which changed the U&C Price definition to: the lowest price the Pharmacy would charge to a non-contracted, cash-paying customer with no insurance for an identical Pharmaceutical Service on the date and at the location that the product is dispensed, inclusive of all applicable discounts, promotions, or other offers to attract customers. Plaintiffs allege that they learned of the price discrepancies some time before October 2018 and raised a dispute thereafter, but defendants continued to overbill. Plaintiffs filed this action on December 23, 2019, alleging that defendants' billing constituted fraud, unjustly enriched defendants, and breached the 2003 and 2013 contracts. The Court previously granted in part defendants' motion to dismiss, eliminating the fraud claim for absence of damages separate from those sought for breach of contract. Envolve Pharmacy Solutions, Inc., et al. v. Rite Aid Headquarters Corp., et al., C.A. No. N19C-12-214-PRW-CCLD, memo. op. (Del. Super. Jan. 15, 2021). Plaintiffs moved for summary judgment on the claims for breach of the 2003 and 2013 Contracts, arguing that the contracts' U&C price definitions included the discounts that Rite Aid extended to its customers but were not accounted for, and that Rite Aid was collaterally estopped from litigating whether Program participants are "cash" customers for purposes of the U&C definition because it litigated a similar issue in a prior action with a different health plan provider. Rite Aid moved for summary judgment on all remaining claims ( i.e., breach of the 2003 and 2013 Contracts and unjust enrichment), arguing that: the claims were barred by the three-year statute of limitations, Rite Aid's practices did not violate the contracts, plaintiffs could not prove damages, and all three claims failed under the voluntary payment doctrine. The Court denies both motions in this Opinion, ruling that: Rite Aid is not entitled to summary judgment on its timeliness defense because fact issues remain regarding when plaintiffs were on inquiry notice of their claims and whether, even with inquiry notice, diligent inquiry would have allowed them to uncover sufficient facts to bring their claims; Rite Aid is not estopped from arbitrating the cash-customer issue because the previous arbitration did not raise the identical issue; although it can be determined that absence of the U&C definition from Section 2.1 prior to amendments in 2010 foreclose liability for breach to the extent plaintiffs allege overpayment in that period, fact issues otherwise prevent resolution for either party regarding breach of the 2003 Contract; personal information that Rite Aid customers agreed to share in exchange for participation in the Program constituted consideration, such that the Program created a contractual relationship, fell outside the 2013 Contract's U&C definition, and cannot be the basis of a claim of breach; the price-matching policy did not give rise to a contract between Rite Aid and participating customers, and the program therefore cannot form the basis of a breach claim; fact issues prevent determination of whether price-matching participants were "cash-paying" customers and whether they fall within the 2013 Contract's U&C definition; fact issues also prevent summary judgment on the unjust enrichment claim; at the summary judgment stage, plaintiffs are required only to demonstrate "some credible evidence . . . that supports a claim for damages"; and the voluntary payment doctrine is inapplicable at this stage because fact issues surround whether plaintiffs tendered payment without "full knowledge of the facts." * * * * * * * * The Superior Court set forth burdens and legal standards applicable when considering a motion for summary judgment or cross-motions for summary judgment. "'Summary judgment is appropriate where the record demonstrates that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.' The Court's function when deciding a motion for summary judgment is to determine whether genuine issues of material fact exist, 'but not to decide such issues.' Summary judgment 'will not be granted if a material fact is in dispute' or 'it seems desirable to inquire thoroughly into [the facts] to clarify the application of the law to the circumstances.' Initially, the movant bears the burden of demonstrating its motion is supported by undisputed material facts. If the movant succeeds in that, the burden shifts to the non-movant to demonstrate there is a 'genuine issue for trial.' The Court construes the record in the light most favorable to the non-movant to determine whether there is a genuine issue for trial.
'These well-established standards and rules equally apply [where] the parties have filed cross-motions for summary judgment.' '[W]here cross-motions for summary judgment are filed and neither party argues the existence of a genuine issue of material fact, the Court shall deem the motions to be the equivalent of a stipulation for decision on the merits based on the record submitted with the[m].' Even so, 'the existence of cross motions for summary judgment does not act per se as a concession that there is an absence of factual issues.' In other words, 'the [C]ourt is not relieved of its obligation to deny summary judgment if a material factual dispute exists.' To determine whether a genuine issue of material fact exists, the Court evaluates each motion separately. The Court will deny summary judgment if 'it is not reasonably certain that there is no triable issue' of fact. And while 'summary judgment is encouraged when possible, there is no absolute right to summary judgment.' In the end, summary judgment 'must be denied if there is any reasonable hypothesis by which the opposing party may recover, or if there is a dispute as to a material fact or the inferences to be drawn therefrom.'" The Superior Court noted the three-year statute of limitations applicable to contract claims, and discussed accrual of such claims, the parties' respective burdens when arguing timeliness, and operation of tolling doctrines. "In Delaware, contract claims are subject to a three-year statute of limitations. And those claims must be brought within three years 'from the date that the cause of action accrued.' A breach-of-contract claim accrues 'at the time the contract is broken, not at the time when the actual damage results or is ascertained.' Stated differently, 'the statute is triggered as soon as the breach occurs, even if the aggrieved plaintiff is ignorant of the breach.' When a claim falls outside the limitations period on its face, 'the plaintiff bears the burden of pleading facts leading to a reasonable inference that a tolling exception applies.' 'Ignorance of the cause of action will not toll the statute, absent concealment or fraud, or unless the injury is inherently unknowable and the claimant is blamelessly ignorant of the wrongful act and the injury complained of.'
. . . [T]he movant, must prove the evidence supports the conclusion that the limitations period has lapsed. If [the movant] meets its burden, the burden shifts to [the non-movants] to demonstrate that circumstances exist to justify tolling." The Superior Court -- considering cross motions for summary judgment on plaintiff health plan and prescription benefit management companies' claim that defendant pharmacy chain breached the parties' contracts and were unjustly enriched by charging prescription drug sale reimbursements in excess of contractually mandated rates (derived in part from "usual and customary" ("U&C") prices) -- found resolution of defendant's statute of limitations argument unavailable because fact issues prevented determination of whether plaintiffs were on inquiry notice of their claims outside the limitations period and, if so, whether "diligent inquiry . . . would have uncovered facts sufficient for them to assert [their claims]." "Under [the inherently unknowable doctrine], the statute of limitations begins to run 'upon the discovery of facts constituting the basis of the cause of action or the existence of facts sufficient to put a person of ordinary intelligence and prudence on inquiry which if pursued, would lead to the discovery of such facts.'
[Plaintiffs] maintain their injury caused by the exclusion of discount prices was 'inherently unknowable until 2017' when they became aware of a 'whistleblower lawsuit' claiming [defendant] inflated its U&C prices. Moreover, [plaintiffs] state that the injury was not reasonably knowable until 2017 because [defendant] set its U&C price and did not share how it formulated that price. [Plaintiffs] contend that as a result of the confidential nature of [defendant's] pricing formula, they had no way to know [defendant] did not include its Program prices in its U&C price until the 2017 whistleblower lawsuit.
[Defendant], at bottom, argues [plaintiffs] were on notice and/or knew Program prices and price-matched prices were not incorporated into U&C more than three years before [plaintiffs] commenced this action.
In support thereof, [defendant] has latched onto a 2010 email between an Envolve employee and HEB, a regional grocery chain based in Texas. HEB, like [defendant], was a [plaintiff] vendor. The 2010 email between that Envolve employee and HEB stated that HEB did not include any discounts or special program pricing as part of its U&C price. [Defendant] contends this is enough to put [plaintiffs] on inquiry notice, or at least that [plaintiffs] were required to investigate further after they received this information. [Plaintiffs] counter that other stores, like Walmart, did include discount prices in its U&C metric.
The standard here is whether [plaintiffs] were aware of facts, more than three years before this action commenced, that constitute 'the basis of the cause of action or the existence of facts sufficient to put a person of ordinary intelligence and prudence on inquiry which if pursued, would lead to the discovery of such facts.' Even '[a]ssuming without deciding that [plaintiffs] were on inquiry notice, it cannot be determined, on the present record, whether a diligent inquiry by [plaintiffs] would have uncovered facts sufficient for them to assert' their breach-of-contract claims.
[Defendant] also contends it clarified the U&C definition in [the parties' second contract (the '2013 Contract'). Specifically, [defendant] argues the 2013 Contract addressed the Program, and the term 'non-contracted' in the 2013 Contract U&C definition proves this. [defendant] cites testimony from its own witness to support this 'understanding,' but no [plaintiffs'] witness. This is not enough; there remains a genuine issue of material fact. Whether [plaintiffs] were on inquiry notice, and, if they were, whether a diligent inquiry would've uncovered facts sufficient to assert their claims, is a disputed question of fact that 'preclude[s] a determination as a matter of law.'
. . . . [Defendant] additionally argues the statute of limitations bars [plaintiffs'] claim for unjust enrichment under [a Provider Agreement between defendant and a third party]. In July 2011, [third party] announced a change to its U&C definition for its Federal Employee Program ('FEP'). [Defendant] says this put [plaintiffs] on inquiry notice that Program prices were not part of U&C. Again, this is not enough. The FEP plan is entirely distinct from the contracts at issue in this case. And the FEP announcement gives no indication that Program prices were never part of U&C for other [third-party] contracts. As such, the statute of limitations does not bar [plaintiffs'] [Provider Agreement] unjust enrichment claim." The Superior Court -- considering cross motions for summary judgment on plaintiff health plan and prescription benefit management companies' claim that defendant pharmacy chain breached the parties' contracts by charging prescription drug sale reimbursements in excess of contractually mandated rates -- rejected plaintiffs' argument that a previous arbitration between defendant and another health plan collaterally estopped defendant from litigating whether participants in defendant's customer savings-card program (the "Program") qualified as "cash" customers for purposes of calculating contractually defined "usual and customary" ("U&C") prescription prices, recognizing that collateral estoppel can arise from arbitration but finding the doctrine inapplicable because the arbitration did not raise the identical issue of a defined U&C price. "[Plaintiffs] contend collateral estoppel bars [defendant] from relitigating whether its Program customers were 'cash' customers. [Plaintiffs] point to an arbitration between Humana Health Plan, Inc., and [defendant] (the 'Humana Arbitration'). On April 22, 2022, an arbitrator issued an award for Humana over a breach-of-contract claim by Humana and against [defendant]. The arbitration decision discussed the scope of 'cash' customers in participating pharmacy agreements. The contracts at issue in that decision did not define U&C price. [Defendant] argues, inter alia, the fact that the contracts at issue in the Humana Arbitration were not the same as those here precludes [plaintiffs'] collateral estoppel argument. To determine whether collateral estoppel applies to bar consideration of an issue, a court must determine whether: (1) The issue previously decided is identical with the one presented in the action in question, (2) the prior action has been finally adjudicated on the merits, (3) the party against whom the doctrine is invoked was a party or in privity with a party to the prior adjudication, and (4) the party against whom the doctrine is raised had a full and fair opportunity to litigate the issue in the prior action. 'Arbitration is included among the prior actions' that might trigger collateral estoppel. And trial courts have 'broad discretion' to determine whether collateral estoppel should apply in a given instance. Collateral estoppel does not apply to this action. The contracts at issue in the Humana Arbitration did not define U&C price. This caused the arbitrator to look outside the four corners for those contracts. The contracts here expressly define U&C price. A central issue in this case is whether [defendant's] Program and price-match customers were 'cash' customers, and whether Program and price-matched prices should have been included in the U&C price. No doubt, the requisite analyses between the Humana Arbitration and this case differ. In other words, the 'issue previously decided in the' Humana Arbitration is not 'identical with the one presented' in this action." The Superior Court set forth the elements of breach of contract and basic principles of contract interpretation applicable under the objective theory applied by Delaware courts. "The elements for a breach-of-contract claim under Delaware law are: '(1) the existence of a contractual obligation; (2) breach of that obligation; and (3) damages resulting from the breach.' Delaware courts 'adhere[] to the 'objective' theory of contracts, i.e.[,] a contract's construction should be that which would be understood by an objective, reasonable third party.' 'When the contract is clear and unambiguous, [the Court] will give effect to the plain-meaning of the contract's terms and provisions.' But a contract is ambiguous when it is subject to multiple reasonable interpretations. When a contract is ambiguous, that 'rais[es] factual issues requiring consideration of extrinsic evidence to determine the intended meaning of the provision[s] in light of the expectations of the contracting parties.'" The Superior Court denied cross motions for summary judgment on plaintiff health plan and prescription benefit management companies' claim that defendant pharmacy chain breached the parties' "2003 Contract" by charging prescription drug sale reimbursements in excess of contractually mandated rates (derived in part from "usual and customary" ("U&C") prices) after defendant initiated a customer savings-card program (the "Program") and a price-matching policy, reasoning that: the governing contract provisions were unambiguous; plaintiffs' argument impermissibly relied on extrinsic evidence (industry standards and a judicial decision regarding a similar issues litigated by other parties); plaintiffs' theory of breach relied on contract language (the "lesser-of logic") that was outside the provisions that they alleged to have been breached and that did not rely upon the U&C price during the beginning of the applicable time period; and, although the U&C price was added as a component of that provision in a revised contract, the revised contract was ambiguous as to the effect of the Program and neither party offered persuasive extrinsic evidence as to that issue. "Both parties move for summary judgment on breach of the 2003 Contract . . . (Count II). [Plaintiffs] contend [defendant] did not accurately report its U&C price; in support thereof they point to two things. First, the National Council for Prescription Drug Programs ('NCPDP') sets industry standards for transmitting prescription-drug claims information, including U&C price; NCPDP defines U&C as the '[a]mount charged cash customers for the prescription exclusive of sales tax or other amounts claimed'; and the NCPDP standards govern the 2003 Contract. Second, the Seventh Circuit in [ United States ex rel. James Garbe v. Kmart Corp., No. 15-1502, opinion (7th Cir. May 27, 2016)] held that a pharmacy's U&C price must include discount prices that are widely and consistently available to uninsured cash customers unless those discount prices are expressly excluded from U&C by contract or law. In [plaintiffs'] view, the 2003 Contract does not deviate from NCPDP standards or Garbe, and so [defendant] had a duty to include Program or price-matched prices when reporting its U&C price . . . . [Plaintiffs] say that because [defendant] excluded these prices, [defendant] breached the 2003 Contract and [the plaintiff party to the 2003 Contract] suffered damages. Not so, counters [defendant]. According to [defendant], the 2003 Contract's reimbursement lesser-of logic did not include U&C price. As support, [defendant] points out that while [plaintiffs] assert [defendant] breached 2003 Contract Sections 1.7 (definition of U&C) and 2.5 (claim submissions), the reimbursement payments are actually governed by Section 2.1 (lesser-of logic). At the outset, the plain words of the 2003 Contract control. [Plaintiffs] focus on 2003 Contract Sections 1.7 and 2.5. But [plaintiffs'] breach claim is, at its core, based on reimbursements via the 2003 Contract's lesser-of logic. And that's laid out in Section 2.1. Avoiding Section 2.1, [plaintiffs] ask the Court to look to the NCPDP standards and Garbe. But that's extrinsic evidence the Court cannot consider unless the contract terms are ambiguous. In other words, '[e]xtrinsic evidence is not to be used to interpret contract language where that language is plain and clear on its face.' Section 2.1's lesser-of logic language controls here and it's unambiguous. Section 2.1 states: The following pricing applies . . . Brand Name: AWP [Average Wholesale Price] less 12% or MAC [Maximum Allowable Cost], whichever is less, plus a $0.95 dispensing fee per 7-day supply. Generic: The lesser of AWP less 20% or MAC, whichever is less, plus a $0.95 dispensing fee per 7-day supply. U&C price is not included in this definition. U&C price also is not included in the 2007 amendment to Section 2.1. The Court is bound by the plain meaning of an unambiguous contract. [Plaintiffs] offer scads of extrinsic evidence and facts to suggest the parties' course of dealing did not follow the 2003 Contract. Maybe so, but having before it an express breach-of-contract claim, the Court cannot consider this evidence when the operable language--that of Section 2.1--is unambiguous. Turning to Sections 1.7 and 2.5, neither saves [plaintiffs]. Section 1.7 defines U&C price as '[t]hose amounts which [defendant] normally charges its private pay patients for comparable Pharmaceutical Services and as may be provided to Patient-Beneficiaries of a Third Party Payor, as provided herein.' But again, U&C price is not included in the contractual definition of the parties' lesser-of logic. Section 2.5, likewise, doesn't help [plaintiffs]. [Plaintiffs] use this Section to suggest the U&C price must track the NCPDP definition because Section 2.5 contains the language, 'where on-line communication is not possible, [defendant] agrees to file claims in writing for payment using the industry standard [ i.e., NCPDP] Universal Claims Form.' The Court notes that simply because Section 2.5 references 'industry standard,' it does not follow that the otherwise contract-defined U&C price must track NCPDP standards. Sections 1.7 and 2.5 are separate and distinct provisions, and nothing in the 2003 Contract suggests [plaintiffs'] interpretation is reasonable. As it relates to the June 2010 amendment to the 2003 Contract, it appears U&C is incorporated into the lesser-of logic. Specifically, the June 2010 amendment modified the definition of 'Generic Effective Rate' or 'GER.' The definition states that the GER is 'expressed as a percentage reduction of the [AWP] as calculated quarterly including[, inter alia,] Usual and Customary Charge Claims, . . . and multi-source Brand Name Drugs on the MAC list or . . . that price as Usual and Customary Charge Claims.' Section 2.1's lesser-of logic includes the AWP metric for generic drugs. Accordingly, the June 2010 amendment incorporated U&C price into the lesser-of logic. But the parties dispute whether the Program prices and price-matched prices are included in the 2003 Contract's U&C language. U&C price is ambiguous as it relates to whether the Program and price-match are included within the definition. Neither party cites helpful extrinsic evidence on this point. Thus, there is a genuine issue of material fact. [Plaintiffs] have no bases to support their breach-of-contract claim under the unambiguous 2003 Contract from September 2008 (the start of the applicable time period) to June 2010. [Defendant] has carried its burden to prove there is no genuine issue of material fact on Count II for the September 2008 to June 2010 period. But from June 2010 through April 30, 2013 (the end of the 2003 Contract term), U&C price was included in the lesser-of logic. Even so, there is a genuine issue of material fact over whether the Program prices and price-matched prices were included in that U&C definition. Therefore, [plaintiffs'] claim for breach of the 2003 Contract is viable only for the period of June 2010 through the expiration of the 2003 Contract ( i.e., April 30, 2013). The Court DENIES summary judgment for both parties on Count II." The Superior Court -- considering cross motions for summary judgment on plaintiff health plan and prescription benefit management companies' claim that defendant pharmacy chain breached the parties' "2013 Contract" by charging prescription drug sale reimbursements in excess of contractually mandated rates (derived in part from "usual and customary" ("U&C") prices) after defendant initiated a customer savings-card program (the "Program") and a price-matching policy -- concluded that: (1) customers participating in the Program were "contracted" with defendant for purposes of the U&C Prices definition because they exchanged consideration in the form of their personal information in order to participate, (2) customers' ability to enroll other family members and pets did not alter the contract-formation analysis, and (3) customers participating in the price-matching policy were not "contracted" because the heavily advertised policy constituted a promotion or discount and did not create a contractual relationship. "The first issue is whether members who signed up for the Program were 'contracted.' They were. 'The elements necessary to prove the existence of an enforceable contract are: (1) the intent of the parties to be bound, (2) sufficiently definite terms, and (3) consideration.' Among these, the parties most hotly contest whether there was consideration. There was.
[Defendant] says there was consideration because 'Program members offered their personal information to [defendant] and granted [defendant] permission to share it . . . in exchange for access to Program discounts.' [Plaintiffs] say there was no recognizable consideration. Not so. Consideration is 'a benefit to a promisor or a detriment to a promisee pursuant to the promisor's request.' As a general principle, 'money is not the only acceptable form of consideration.' With respect to the Program, prospective Program members provided [defendant] with personal information in exchange for the right to receive discounted prescription drug prices. No doubt there is a growing trend among courts to recognize the value of personally identifiable information. With regard to the Program, the Court views this personally identifiable information as sufficient consideration to create a valid contract. Those customers enrolled in the Program were indeed 'contracted.'
. . . . [Plaintiffs] additionally argue there can be no contract because customers could enroll family members (or pets) without those family members signing or being present. But this does not change the end result. There was an offer to enter into the Program for discounted drug prices. Prospective customers accepted the offer by signing up for the Program. And there was consideration in the form of providing personally identifiable demographic information. . . .
But the price-matching policy is not a contract. The price-matching policy permitted any customer on any given visit to provide a [defendant] pharmacist with a competitor's verified price. Then the pharmacist handling the individual transaction could match the competitor's price. The price-matching policy was widely advertised. 'An offer is the signification by one person to another of his willingness to enter into a contract with him on the terms specified in the offer.' 'But a mere statement of a person's willingness to enter negotiations with another person is in no sense an offer, and cannot be accepted so as to form a binding contract.' The price-matching policy was a statement of [defendant's] 'willingness to enter negotiations with' a prospective customer. Thus, it 'cannot be accepted so as to form a binding contract.'
Now, the price-matching policy was a promotion or discount. 'Promotion' is defined as 'the act of furthering the growth or development of something especially: the furtherance of the acceptance and sale of merchandise through advertising, publicity, or discounting.' 'Discount' is 'a reduction from the full amount or value of something.' The price-matching policy was a promotion because the goal was to further the 'sale of [prescription drugs] through advertising, publicity, or discounting.' This is highlighted by the facts that the price-match was widely advertised, and it offered discounted prices to attract customers. The price-matching policy was also a discount because it reduced the full amount a customer would pay for a given prescription drug to a markdown price. In other words, when a customer entered [defendant] with a verified lower price from a competitor, a [defendant] pharmacist could choose to match that lower price. Thus, the price-matching policy was a promotion or discount.
At bottom, the term 'non-contracted' in the 2013 Contract is unambiguous because it's susceptible to only one reasonable interpretation. And U&C encompasses only those customers who, inter alia, did not enter into a contract with [defendant] for prescription drugs. Additionally, the language that states 'inclusive of all applicable discounts, promotions, or other offers to attract customers' is unambiguous. That is, for the purposes of this action, the price-matching policy is a discount or promotion.
So, the Program is a contract and therefore falls outside the 2013 Contract's U&C definition. The Program prices therefore cannot fall within the [plaintiffs'] breach of the 2013 Contract claim. The price-matching policy though is not a contract but is a promotion or discount. The price-matched prices therefore can support [plaintiffs'] breach of the 2013 Contract claim." The Superior Court defined unjust enrichment, set forth the elements of such a claim, and recognized that the "absence of a remedy provided at law" element operates to distinguish between unjust enrichment claims properly brought before a court of law and those properly brought in equity. "'Unjust enrichment is the unjust retention of a benefit to the loss of another, or the retention of money or property of another against the fundamental principles of justice or equity and good conscience.' 'The elements of unjust enrichment are: (1) an enrichment, (2) an impoverishment, (3) a relation between the enrichment and impoverishment, (4) the absence of justification, and (5) the absence of a remedy provided by law.' The last element--the absence of a remedy provided at law-- is jurisdictional. Where the plaintiff seeks only money 'damages to correct an unjust enrichment, jurisdiction lies in [this] Court even though the claim is fundamentally an equitable one.'" The Superior Court, ruling on cross-motions for summary judgment in an action for breach of a commercial contract and unjust enrichment, rejected defendant's argument that omission of certain metrics from plaintiffs' expert report demonstrated that their claims failed for lack of provable damages, explaining that plaintiffs were required only to demonstrate "some credible evidence . . . that supports a claim for damages." ". . . [Defendant] argues [plaintiffs] can't prove damages because their expert's report allegedly omits important metrics. [Plaintiffs] counter that '[defendant] seeks to turn a dispute over how to calculate damages into a finding that no damages occurred.' [Plaintiffs] are correct. On summary judgment, there must be 'some credible evidence . . . that supports a claim for damages.' If [plaintiffs] are able to prove the other elements of their remaining claims, damages will be established based on the facts of this case. Simply put, this is a case about overpayments. If [plaintiffs] overpaid, they will be entitled to damages. Thus, [defendant's] motion for summary judgment on this ground is denied." The Superior Court, ruling on cross-motions for summary judgment in an action for breach of a commercial contract and unjust enrichment, rejected defendant's argument that plaintiffs' claims failed under the voluntary payment doctrine, finding the doctrine inapplicable at this stage because fact issues remained concerning whether plaintiffs tendered payment with "full knowledge of the facts." ". . . [Defendant] argues the voluntary payment doctrine defeats [plaintiffs'] claims. Not so. 'The voluntary payment doctrine bars recovery of payment voluntarily made with full knowledge of the facts.' Moreover, when money is paid under a mistake of fact, as opposed to a mistake of law, 'the payment may be excused and recovery [is] possible.' . . . Defendant] has not carried its burden to show [plaintiffs] had 'full knowledge of the facts.' [Defendant's] motion for summary judgment on this ground is denied." |
". . . [C.A. No. 2023-0059-JTL, C.A. No. 2023-0135-JTL, and C.A. No. 2023-0307-JTL shall be, and hereby are, consolidated for all purposes, including trial and pre-trial discovery, and are collectively referred to herein as the 'Consolidated Action.' . . . To the extent not already done, Visa shall make the same books and records available to all three Plaintiffs, subject to each individual Plaintiff's confidentiality stipulation. . . . Plaintiffs shall file a Consolidated Complaint within fourteen (14) days of the entry of this Order. The parties agree that Visa need only respond to the consolidated complaint or the designated operative complaint. Any pleading, discovery, or other document filed or served in the Consolidated Action shall bear the caption substantially as follows: IN RE VISA INC. ) Consolidated
SECTION 220 LITIGATION ( C.A. No. 2023-0135-JTL Plaintiffs and Visa shall also endeavor, where practical, to consolidate all Related Actions into this Action in the interest of judicial efficiency." |
"PLEASE TAKE NOTICE that Lebanon County Employees' Retirement Fund and Teamsters Local 443 Health Services & Insurance Plan, Plaintiffs- Below/Appellants, do hereby appeal to the Supreme Court of the State of Delaware from [ Lebanon County Employees' Retirement Fund, et al. v. Steven H. Collis, et al. and AmerisourceBergen Corp., C.A. No. 2021-1118-JTL, memo. op. (Del. Ch. Dec. 22, 2022)] and [ Lebanon County Employees' Retirement Fund, et al. v. Steven H. Collis, et al. and AmerisourceBergen Corp., C.A. No. 2021-1118-JTL, memo. op. (Del. Ch. Mar. 21, 2023)] . . . by Vice Chancellor J. Travis Laster dismissing Plaintiffs-Below/Appellants' Verified Stockholder Derivative Complaint . . . and denying Plaintiffs-Below/Appellants subsequent Rule 60(b) motion for relief from Judgment and Order, respectively." |
SUMMARIES OF NEW COMPLAINTS |
- Plaintiff(s): Craig R. Jalbert
- Plaintiff's Counsel: MORRIS JAMES - R. Eric Hacker (#6122); Tara C. Pakrouh (#6192); ARENTFOX SCHIFF - George P. Angelich; Justin A. Kesselman; James E. Britton
- Entity Defendant(s): Bank of America Corp.; Banc of America Strategic Investments Corp.
- Nature of Claim(s): Plaintiff brings this action in his capacity as liquidation trustee of nonparty liquidation trust for non-party debtor/buyer and as assignee of certain claims belonging to non-party creditor, seeking avoidance recovery of transaction proceeds debtor paid from borrowed funds to defendant selling stockholders in connection with debtor's acquisition of an extremely overvalued company while already insolvent.
Count 1: Avoidance and Recovery of Fraudulent Transfers as Assignee of GCUK Pursuant to 6 Del. C. §§ 1304, 1305
Count 2: Unjust Enrichment - Field of Law: Commercial Law
- Basis for Jurisdiction: 6 Del. C. § 1304 Transfers fraudulent as to present and future creditors; 10 Del. C. § 341 - jurisdiction over matters and causes in equity
|
- Plaintiff(s): Scarabee Holdings, LLC
- Plaintiff's Counsel: DAILEY - Patrick A. Costello (#4535); Andrew H. Sauder (#5560)
- Entity Defendant(s): 4301 Operations, LLC
- Nature of Claim(s): Plaintiff, a member and Class B unitholder of defendant 4301 Operations, seeks contractual advancement for legal fees and expenses incurred prosecuting claims it brought against defendant for breaching the operating agreement in connection with a Class B preferred return owed to plaintiff.
Count 1: Advancement
Count 2: Fees on Fees - Related Actions: Scarabee Holdings, LLC v. 4301 Operations, LLC, C.A. No. 2022-1207-MTZ
- Field of Law: LLC Law
- Basis for Jurisdiction: 6 Del. C. § 18-111 - interpretation / enforcement of LLC agreement ; 10 Del. C. § 341 - jurisdiction over matters and causes in equity
- Preliminary Motions: Motion for expedited proceedings
|
- Plaintiff(s): CI Holdings LLC
- Plaintiff's Counsel: GREENBERG TRAURIG - Samuel L. Moultrie (#5979); Bryan T. Reed (#6899); Hal S. Shaftel; Joseph D. D. Sweeny
- Entity Defendant(s): Cardiac Implants LLC
- Nature of Claim(s): Plaintiff, the majority common unitholder of defendant Cardiac Implants, seeks expedited injunctive relief in connection with defendant's breach of a binding agreement for plaintiff to purchase certain IP assets and assume certain liabilities from defendant as part of defendant's liquidation process in favor of an inferior offer for less consideration from a third party.
Count 1: Breach of Contract
Count 2: Judicial Dissolution - Field of Law: Commercial Law
- Basis for Jurisdiction: 8 Del. C. § 111 - interpretation / enforcement of corporate instruments; 10 Del. C. § 341 - jurisdiction over matters and causes in equity
- Preliminary Motions: Motion for expedited proceedings, Motion for temporary restraining order
|
- Plaintiff(s): Robert Garfield; Delena Magness
- Plaintiff's Counsel: BLOCK & LEVITON - Kimberly A. Evans (#5888); Robert Erikson (#7099); Joel Fleming; Lauren Godles Milgroom; Saranna E. Soroka; FRIEDMAN OSTER & TEJTEL - Jeremy Friedman; David Tejtel; KASKELA LAW - D. Seamus Kaskela; Adrienne Bell
- Individual Defendant(s): Andrew Axelrod; Spencer Goldenberg; David Miller; Kevin Patrick; Stephen Negrotti; Patricia Wellenbach; Joseph Redling
- Entity Defendant(s): Axar Capital Management, LP
- Nature of Claim(s): Former public stockholders of non-party StoneMor bring this action challenging a conflicted take-private transaction in which majority stockholder acquired the remaining shares of the company that it did not already own pursuant to a transaction where defendants failed to follow the MFW roadmap for a conflicted controller transaction and conducted an unfair process that led to an unfair price.
Count 1: Breach of Fiduciary Duties - Related Actions: In re Stonemor, Inc. Derivative Litigation, C.A. No. 2021-1028-SG; Lewis Titterton v. StoneMor, Inc., C.A. No. 2021-0259-SG; Lewis Titterton, et al. v. Andrew Axelrod, et al. [StoneMor], C.A. No. 2023-0095-JTL
- Field of Law: Corporation
- Basis for Jurisdiction: 10 Del. C. § 341 - jurisdiction over matters and causes in equity
|
NAC - C.A. No. 2023-0364, Craig R. Jalbert v. Bank of America Corp., et al.
MTZ - C.A. No. 2023-0365, Scarabee Holdings, LLC v. 4301 Operations, LLC
PAF - C.A. No. 2023-0366, CI Holdings LLC v. Cardiac Implants LLC
SG - C.A. No. 2023-0367, Robert Garfield, et al. v. Axar Capital Management LP, et al. [StoneMor]
|
WEEKLY HEARING & TRIAL SCHEDULE - Apr. 3 - Apr. 7, 2023 |
(T) = Telephone; (Z) = Zoom; (C) = CourtScribes; (W) = Wilmington; (D) = Dover; (G) = Georgetown
Monday, April 3, 2023
11:00 (D) - InterMune, Inc. and Roche Holdings, Inc. v. W. Scott Harkonen, MD, C.A. No. 2021-0694-NAC [cross-MSJs]
11:00 (T) - In The Matter Of The Jeremy Paradise Dynasty Trust And The Andrew Paradise Dynasty Trust, C.A. No. 2021-0354-KSJM [status conf.]
01:30 (D) - In re Emisphere Technologies, Inc. Stockholders Litigation, C.A. No. 2021-0025-NAC (consol.) [MTC; partial MTD 2nd am. compl]
01:30 (W) - Gilbert G. Menna v. Andrew J. Weidhaas, et al. [MiraDX], C.A. No. 2022-0509-MTZ [MJoP]
01:30 (Z) - Legent Group, LLC, et al. v. Axos Financial, Inc., et al., C.A. No. 2020-0405-KSJM [MTD; MJoP]
01:30 (T) - Joseph Williams v. Natalin Grace and JWNG, LLC, C.A. No. 2022-0520-LWW [pre-trial]
Tuesday, April 4, 2023
09:00 (C) - Greyhawk SSOF Ruckus Lender, LLC v. Nelson Brothers Meadow View, LLC, et al., C.A. No. 2023-0289-PRW [status conf.]
10:00 (G) - Frank Wright, et al. v. Equity Lifestyle Properties, Inc., et al., C.A. No. 2022-0564-BWD [MTD]
11:00 (W) - Gene Marshall Betts Revocable Trust Dated 12-18-2001, et al. v. Phunware, Inc., et al., C.A. No. C.A. No. 2022-0168-NAC [MTD; partial MSJ]
01:30 (W) - ClubReady, LLC et al. v. Bradley Denton et al., C.A. No. 2022-0566-PAF [post-trial]
Wednesday, April 5, 2023
09:15 (W) - In re Spire Global, Inc., C.A. No. 2023-0331-LWW [Section 205 petition]
09:15 (W) - Smash Franchise Partners, LLC, et al. v. Kanda Holdings, Inc., et al., C.A. No. 2020-0302-JTL [post-trial]
09:35 (W) - In re Skillz Inc., C.A. No. 2023-0336-LWW [Section 205 petition]
11:00 (W) - Alchemy Ltd LLC v. FANchise League Co., LLC, C.A. No. 2021-0476-LWW [cross-MSJs]
11:00 (W) - Alexander Barrett v. Muchacha, LLC, C.A. No. 2022-0203-PAF [partial MSJ]
11:00 (T) - In re Madison Square Garden Entertainment Corp. Stockholders Litigation, C.A. No. 2021-0468-KSJM (consol.); In re MSG Networks, Inc. Stockholders Class Action Litigation, C.A. No. 2021-0575-KSJM (consol.) [pretrial]
01:30 (Z) - John Tuma v. Prime Power Solutions, LLC, C.A. No. 2022-0604-KSJM [MPO]
01:30 (T) - Richard F. Baldwin, et al. v. New Wood Resources, LLC, et al., C.A. No. 2022-1059-NAC [pre-trial]
03:15 (W) - City of Sarasota Firefighters' Pension Fund v. Inovalon Holdings, Inc., C.A. No. 2022-0698-KSJM [MTD]03:15 (T) - Mars Wrigley Confectionery US, LLC v. Advantage Sales & Marketing LLC, C.A. No. 2023-0355-LWW [MTE]
Thursday, April 6, 2023
11:00 (W) - LSC Communications MCL LLC v. AmeriMark Interactive, LLC, C.A. No. 2022-0899-LWW [MTD/S; MPSJ]
11:00 (T) - Darrick West, et al. v. Ernest Anderson, et al. [Mt. Olive Baptist], C.A. No. 2020-0567-NAC [bench ruling MSJ]
11:00 (T) - Jeremy Paradise v. John Pomerance, et al. [Paradise Dynasty Trusts], C.A. No. 2023-0315-KSJM [MTE; MTRO]
11:00 (T) - Laura Bresko, et al. v. Sanford Systems, Inc., C.A. No. 2019-0486-JTL [pre-trial]
03:15 (W) - Tygon Peak Capital Management, LLC v. Mobile Investments Investco, LLC, et al., C.A. No. 2019-0847-MTZ [MPJoP]
Friday, April 7, 2023
Court Closed - Good Friday |
|
|
