Elutions Capital Ventures S.A.R.L. v. Betts
| Decision Date | 18 November 2022 |
| Docket Number | C. A. 2020-0455-NAC |
| Parties | ELUTIONS CAPITAL VENTURES S.A.R.L., NBL FUND I, LP and HASHMINE LLC, Plaintiffs, v. JOHN BETTS, Defendant, and NOBLE TALENTS, LLC, Nominal Defendant. |
| Court | Court of Chancery of Delaware |
ORDER DENYING DEFENDANTS' APPLICATION FOR CERTIFICATION OF INTERLOCUTORY APPEAL
Nathan A. Cook Vice Chancellor
1. Plaintiffs are preferred members of Nominal Defendant Noble Talents, LLC (the "Company"). Defendant John Betts founded the Company and served as its CEO. Plaintiffs allege that Betts breached his fiduciary duties during the Company's sale process and interfered with and ultimately thwarted a potential deal.
2. Betts has embarked on a campaign of scorched-earth litigation that has been delaying the case and taxing judicial and party resources. This has included 61 non-party subpoenas, six motions for commission, a motion for judgment on the pleadings, a motion to dismiss, a motion for reargument, and most relevant here, three requests for leave to amend or add counterclaims.
3. In their latest effort to prevent the case from advancing beyond the pleading stage, Defendants[1] have applied for certification of an interlocutory appeal (the "Application").[2] Defendants seek review of my October 24, 2022, oral decision granting them leave to amend their answer and denying their third attempt to amend and add counterclaims (the "Order").[3] Plaintiffs oppose the Application.[4]
4. The Application quotes from the wrong transcript mischaracterizes the Order's scope and reasoning, and asserts grounds for appellate review that were not raised previously. The Order did not decide a substantial issue of material importance and none of the certification factors would support immediate appeal anyway. The Application, if granted, would reward Defendants' over the top conduct and freeze this two-year-old case at the pleading stage. So I will deny it.
5. On March 30, 2021, Betts answered the complaint, raised defenses, and brought four counterclaims.[5] Then he served over five dozen subpoenas.[6] Some of those subpoenas were served in June 2021 (the "June Subpoenas"). The documents yielded by the June Subpoenas allegedly were not produced until the first week of October 2021 (the "October Records").
6. Plaintiffs moved under Rule 12(b)(6) to dismiss Betts's counterclaims. Before the June Subpoenas returned, Betts opposed the motion. Betts alternatively requested dismissal without prejudice. The request was unelaborated; it did not raise the possibility that the June Subpoenas might uncover supportive evidence.[7]
7. On November 8, 2021, the Court heard argument on Plaintiffs' motion to dismiss.[8] Betts did not discuss the October Records at the hearing.
8. On February 2, 2022, the Court dismissed all Betts's counterclaims with prejudice.[9] At no point between November and February did Betts alert the Court to the October Records.
9. Betts moved for reargument five days later.[10] He also renewed his request for leave to amend. As support for leave Betts averred elliptically that he had received information from conversations with Company insiders that could support his counterclaims.[11] Again, he did not reference the October Records.
10. The Court denied reargument.[12] Citing Court of Chancery Rule 15(aaa), the Court also denied Betts's second request for leave to amend.[13]
11. Undeterred, Defendants tried once more. On July 1, 2022, they moved to amend their answer and to add six counterclaims (the "Motion").[14] Two of the proposed counterclaims were concededly dismissed back in February.[15] The four remaining counterclaims repackaged Betts's dismissed allegations by adding words like "conspiracy" and splitting his former theories into separate counts.[16]
12. As support for their unabashed attempt to circumvent Rule 15(aaa) and the Court's rulings, Defendants cited the October Records. The Motion was the first time Defendants ever mentioned the October Records. At that point, Defendants possessed the October Records for nine months.
13. Defendants contended that the October Records contained "new evidence" to support their counterclaims. But Defendants did not identify anything "new" or material in the October Records. They still have not.[17]
14. On October 7, 2022, I heard oral argument on the Motion.[18]
15. I issued the Order on October 24, 2022.
16. As to the concededly dismissed counterclaims, the Order held that Defendants did not demonstrate a "compelling reason" within the meaning of settled precedent to vacate the prior dismissals with prejudice.[19] The Order explained that this result was fact-specific and based on Defendants' failure to articulate the significance of the October Records or to introduce them at any time during the nine months that preceded the Motion.
17. As to the "new" counterclaims, the Order held that Rule 15(aaa) barred Defendants from recasting dismissed allegations in the guise of renamed counts.[20]
18. The Application followed. The Application omits the procedural history recited above. It misleadingly quotes from the October 7 oral argument transcript as if it were the Order.[21] And it deploys hyperbolic rhetoric in an effort to portray a straightforward procedural decision as a catastrophe that will imperil the future of Delaware corporate law.[22] This approach enables Defendants to sidestep the Order's reasoning, raise arguments that were not presented in the Motion, and misattribute to the Order legal conclusions that are nowhere to be found. 19. Even so, the Application fails. The Order did not decide a substantial issue of material importance. And none of the certification factors Defendants invoke would outweigh the costs that interlocutory appeal would impose.
20. Supreme Court Rule 42 governs certification of interlocutory appeals. "The purpose of Rule 42 is to prevent wasteful piecemeal litigation from overwhelming the docket of the Supreme Court."[23] As a result, Rule 42 "is not an appropriate vehicle for re-litigating unsuccessful arguments preserved for . . . direct appeal."[24] "Otherwise, interlocutory review would be appropriate in every case in which a losing party contends the Court committed legal error."[25]
21. Interlocutory appeals are "generally not favored."26[] They "disrupt the normal procession of litigation, cause delay, and can threaten to exhaust scarce party and judicial resources."27[] So a Rule 42 application cannot be certified unless it clears two "rigorous" hurdles.[28] First, the order must have "decide[d] a substantial issue of material importance that merits appellate review before a final judgment."[29]Second, there must be "substantial benefits" to granting the application that "will outweigh the certain costs that accompany an interlocutory appeal."[30]
22. "The 'substantial issue' requirement is met when an interlocutory order decides a main question of law which relates to the merits of the case, and not to collateral matters."31[] The Order does not meet the substantial issue requirement.
23. A decision granting or denying leave to amend is not part of a merits determination.32[] It is collateral to a merits determination. In the Rule 15(aaa) context, denial of leave to amend or re-add a previously dismissed claim is collateral to a merits determination on the claim that was made in the motion to dismiss.
24. A decision holding otherwise would endorse immediate appeals from any adverse outcome on a Rule 12(b)(6) motion that does not result in a final judgment.33[] That type of appellate springboard would undermine the purpose of Rule 15(aaa) and Rule 42. Rule 15(aaa) is designed to curb seriatim motions to amend.34[] Rule 42 is designed to avoid "fragmentation" of cases into multiple appeals.35[] Together, both Rules are designed to conserve litigant and judicial resources. Granting the Application would do the opposite.
25. "Interlocutory appeals should be exceptional, not routine "[36] The Delaware Supreme Court reserves interlocutory review for "extraordinary" cases.[37]This is not one of them. Accordingly, I would deny the Application on the substantial issue requirement alone.
26. The Order did not address a substantial issue of material importance. Even if it did, that would not necessarily mean that the Order "merits appellate review before a final judgment."[38] If the substantial issue requirement is met, the Court next must consider whether the benefits of interlocutory review would outweigh its costs. Rule 42(b)(iii) specifies eight factors to guide this assessment.[39]
27. Having devoted the bulk of their energy to mischaracterizing the Order, Defendants give little attention to the Rule 42 factors. On the last full page of the Application, Defendants list three factors as supporting certification.40[] None does.
28. Defendants first invoke Rule 42(b)(iii)(A). This factor considers whether the Order resolved a novel question of law for the first time in Delaware. It did not. The Order applied settled Rule 15(aaa) precedent to a tattered procedural history involving parties who repeatedly tried to revive counterclaims that were dismissed with prejudice. "The mere application of long-held precedent to new facts does not make an order worthy of [interlocutory] appeal."41[] Accordingly, Rule 42(b)(iii)(A) does not support certification.
29. Defendants next invoke Rule 42(b)(iii)(B). This factor considers whether the Order conflicts with other trial court decisions. It does not. The Order applied settled law to reach a result that is consistent with decisions of this Court.
30. To create a conflict, Defendants suggest that the Order overlooked...
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