The Coleman Analysis Applies to Untimely Expert Reports

In Kent v. The Dover Ophthalmology, et al., the Superior Court recently clarified the appropriate standard in reviewing a party’s motion to file untimely expert reports.

The Defendants sought to file an untimely supplemental expert report after the Court excluded a portion of Defendants’ causation expert’s opinions, finding them unreliable.  The Defendants urged the Court to apply factors from Christian v. Counseling Resource Associates, Inc., and Drejka v. Hitchens Tire Services Inc. in support of its argument to allow the supplemental report.  The Court found these cases inapplicable and noted that their holdings are confined to situations where a trial court is deciding whether to dismiss a case for discovery violations.

Although the Court’s decision here did exclude a significant portion of the Defendants’ causation expert, the Court noted that the Defendants did not bear the ultimate burden of proof at trial, Defendants’ expert could attack the Plaintiffs’ expert’s opinions, and the Defendants intended to call other witnesses to rebut liability and damages.

The Court found the Coleman standard applicable and balanced the following factors to deny Defendants’ Motion to File a Supplemental Disclosure:  1) the terms of the original scheduling order; 2) whether good cause exists to allow the supplemental disclosure; 3) prejudice to the opposing party; and 4) possible trial delay. Applying the above factors to the case sub judice, the court found: a six month delay in complying with the original scheduling order evinced “substantial noncompliance;” good cause was not shown because the Defendants had three opportunities to disclose the bases for their causation expert’s opinions; Plaintiffs would face substantial prejudice as trial was only days away; and trial would be delayed because based on Defendants’ representations, a second motion to reargue, accompanied by full briefing, would follow.

Read the full opinion here.

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Forum Non Conveniens and an Alternate Forum

In a set of consolidated appeals originating from personal injuries allegedly sustained by Argentinian farmers and their children due to the mandatory use of Roundup in tobacco cultivation, the Delaware Supreme Court addressed a singular question – “whether the trial court must first determine that an available alternative forum exists before dismissing a case for forum non conveniens.”

The Court held that the availability of an alternative forum is a factor that should be considered in the forum non conveniens analysis; however, an alternative forum is not a prerequisite to obtaining dismissal.

The Court acknowledged that while federal courts and most state courts require a finding of an available alternative forum before considering dismissal, Delaware Courts do not.  Delaware Courts have routinely considered the availability of an alternative forum as a factor in the forum non conveniens analysis, but it has never been a prerequisite.  The sine qua non of the forum non conveniens analysis has been and remains the inconvenience on the defendant, not the availability of an alternative forum.

The Superior Court’s decision denying the Plaintiffs’ request that the Defendant’s dismissal be conditioned on a waiver of any jurisdictional defenses was similarly affirmed as the Court found an available alternative forum was not necessary to dismiss a case for forum non conveniens.

Of note, Justice Vaughn concurred in the judgment but agreed with the federal courts and a majority of state courts that an available alternative forum should be a precondition to obtaining dismissal for forum non conveniens.

Read the full opinion here.

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Deposition Transcripts and Errata Sheets

Vice Chancellor Slights recently addressed the appropriate course of action when a party challenges substantive changes to a deposition transcript made through the use of an errata sheet.

In Mediacom Delaware LLC v. Sea Colony Recreational Association, Inc., Sea Colony moved to strike the errata sheet of Mediacom’s 30(b)(6) witness as either a sham affidavit or under the Court’s rules.

The Court found neither argument persuasive due to Mediacom’s compliance with Chancery Rule 30(e).  The Court noted that it has the authority to strike an errata sheet, but the preferable practice is to allow substantive changes and to consider the changes when assessing the witness’s credibility.  Further, the Vice Chancellor explained that he would reconsider his ruling if Mediacom did not make the witness available for cross examination at an upcoming evidentiary hearing on injunctive relief.

Read the opinion here.

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The Middle Ground of Forum Non Conveniens

The Delaware Supreme Court recently affirmed but clarified an opinion out of the Court of Chancery addressing dismissal based on forum non conveniens in the case of Gramercy Emerging Markets Fund, et al. v. Allied Irish Banks, P.L.C., et al.

In Gramercy, a Cayman Island investment fund and two of its Delaware subsidiaries initiated suit in Illinois against a bank organized under Delaware law with offices in Bulgaria and Illinois and an Irish bank headquartered in Dublin.  The claims arose under Bulgarian law.  The Defendants moved to dismiss on forum non conveniens grounds, which the Illinois Court granted.  Afterward, the Plaintiffs refiled in Delaware, and the Defendants again moved to dismiss based on forum non conveniens.

Until recently, Delaware utilized a two-tier forum non conveniens approach.  If the Delaware action was first-filed, our courts would apply the traditional Cryo-Maid factors, which include: (1) the access to proof; (2) the availability of a compulsory process for witnesses; (3) the possibility of viewing the premises; (4) factors that would make trial easy, expeditious and inexpensive; (5) whether the controversy is dependent upon Delaware law; and (6) the pendency or nonpendency of a similar action. Based on these factors, a party need show “overwhelming hardship” and inconvenience to be awarded a dismissal of a first-filed Delaware action.

If the Delaware case was not the first-filed, courts apply the McWane factors, which include whether there is: “(1) [] a prior action pending elsewhere; (2) in a court capable of doing prompt and complete justice; (3) involving the same parties and the same issues.”  Dismissal under this standard is discretionary, if all three factors are met.

In the present action, the procedural history did not fit neatly into Cryo-Maid nor McWane.   There was a first-filed Illinois action that the Illinois court dismissed on forum non conveniens grounds.  The court noted that Bulgaria was the appropriate forum as the suit addressed an issue of first impression under Bulgarian law and many of the witness were in Bulgaria.

Based on the odd procedural history, the Court of Chancery turned to a recent decision out of the Delaware Supreme Court, Lisa, S.A. v. Mayorga, due to the similarity of facts and issues to the present case.  In Lisa, the Supreme Court utilized the McWane factors to dismiss Plaintiff’s claims where there was a prior pending suit in another jurisdiction but where that case was dismissed with prejudice.  Based on Lisa, the Court of Chancery applied a mixture of the Cyro-Maid and McWane factors, without requiring a showing of overwhelming hardship as it found “the two doctrines of overwhelming hardship and McWane … operate consistently and in tandem to discourage forum shopping…”

The Supreme Court affirmed the Court of Chancery’s decision, but did so with clarification.  The Court found that “[b]etween Cryo-Maid’s overwhelming hardship standard and McWane’s discretionary standard lies an intermediate analysis that applies to situations like Gramercy’s: a straightforward assessment of the Cryo-Maid factors, where dismissal is appropriate if those factors weigh in favor of that outcome.”  Thus, the Supreme Court utilized the Cyro-Maid factors in granting dismissal, but did so without requiring the Defendants to show overwhelming hardship.

Read the full opinion here.

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Court of Chancery Holds Business Judgment Protections Announced in Kahn v. M&F Worldwide Corp. Extends to Conflicted One-Side Controller Transactions

Stockholders of Martha Stewart Living Omnimedia, Inc. (MSLO) brought suit in the Court of Chancery against Martha Stewart, alleging that Stewart, as controlling stockholder of MSLO breached her fiduciary duties by negotiating greater consideration for herself to the detriment of the minority stockholders  of MSLO during the course of a merger with Sequential Brands Group, Inc. (“Sequential”).  The stockholders also brought suit against Sequential under an aiding and abetting theory.

Much of the litigation was over the appropriate standard the Court should use to review the merger.  Stewart claimed the business judgment rule was appropriate because there was no conflicted transaction, but even if there was, the procedural safeguards – that the transaction was recommended by a properly-empowered and independent special committee of the Board and a nonwaivable condition that the merger be approved by a majority of the minority stockholders, were fully complied with.  The stockholders sought entire fairness review.

Sequential entered into negotiations with MSLO, who in turn formed a special committee to assist in contemplating a merger.  Sequential requested the ability to simultaneously negotiate with Stewart while also negotiating the merger with MSLO’s special committee; the committee granted that request. Relevant to the merger, Stewart was party to several other agreements with MSLO, including: an employment agreement, an IP agreement, and a license agreement.

Sequential and MSLO eventually entered into a merger agreement where the stockholders of MSLO were entitled to $6.15 per share or shares of Sequential common stock equal to the shareholders’ shares in MSLO.  On the same day, Sequential entered into, and extended, certain agreements with Stewart.  The license agreement was extended for three more years, but otherwise remained the same as did the IP agreement, other than Stewart forfeiting the use her name in new businesses. The employment agreement changed slightly, but in no material way, according to the Court.

The Court found there was no conflicted transaction, noting that a conflicted transaction will either have the controlling stockholder on the buy and sell side of the transaction, or the controlling stockholder will extract “different consideration or derive some unique benefit from the transaction…”  Neither of these two scenarios arose under the merger. Stewart was plainly only on the sell side of the transaction, and received the same $6.15 per share merger consideration that other stockholders received.  The Court found that the plaintiffs failed to distinguish the “new” side deals from the “old” side deals in any meaningful way that could support the assertion that Stewart extracted additional consideration that otherwise was afforded to MSLO shareholders.

The Court rejected Plaintiffs’ characterizations of the merger negotiations.  They claimed that after entering into negotiations with Stewart, the offering price dropped from $6.20 per share to $6.15 per share.  Initially, Sequential did offer $6.20 per share; however, after a period of due diligence, but before entering into negotiations with Stewart, that offer dropped to $5.75 per share.  After entering into negotiations with Stewart, that offer increased to $6.15 per share.  The merger consideration actually increased after Sequential began negotiations with Stewart.

The Court answered the additional question of when the dual safeguards of a special committee and a majority of the minority vote need be implemented to secure review under the business judgment rule. Plaintiffs urged the safeguards need be implemented at the outset of discussions between the target and third party, while Stewart argued the safeguards need be applied before any actual agreement between the third party and the controller is reached. The Court ended up in the middle, finding that the necessary time for the safeguards is “where the controlling stockholder actually sits down with an acquirer to negotiate for additional consideration.”  The Court found that both a properly-empowered and independent special committee of the Board and a nonwaivable condition that the merger be approved by a majority of the minority stockholders, were fully complied with at the appropriate time.  As such, the business judgment rule applied, and having failed to plead a claim for waste, the claims against Stewart and Sequential failed. The Court granted the motions to dismiss.

Read the full Opinion here.

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UNITED STATES SUPREME COURT FURTHER LIMITS GENERAL PERSONAL JURISDICTION

In 3 recent opinions, the United States Supreme Court has undeniably confirmed that general jurisdiction is only appropriate in a forum where a defendant is either incorporated or headquartered (aka, “at home”).  These decisions come on the heels of the decisions that set the foundations for the new era of personal jurisdiction, Goodyear v. Brown and Daimler v. Bauman.

The first of these new cases, TC Heartland LLC v. Kraft Foods Grp. Brands LLC, required that patent infringement claims be filed where the defendant is incorporated.  The second case, BNSF Railway Co. v. Tyrell, required that FELA cases be filed where the defendant is “at home”.

Finally, on June 19th, the United Supreme Court reversed a California Supreme Court decision and held in Bristol-Myers Squibb v. Superior Court, that plaintiffs must file tort cases where a defendant is “at home”.  In Bristol-Myers Squibb, the California Supreme Court tortured the definition of specific jurisdiction in an effort to get around the law as set forth in Goodyear and Daimler.  The State court allowed an out of state plaintiff to sue the defendant in California although none of the activities giving rise to the plaintiff’s injury (such as sales or manufacturing) occurred there.  The only contact with California was the defendant’s nationwide marketing campaign.  The U.S. Supreme Court reversed the California Supreme Court and held, for the fifth time in six years, that a defendant is subject to general personal jurisdiction in the jurisdictions in which it is “at home,” otherwise articulated as where they are incorporated or headquartered.

Now that the dust has settled, it remains clear that specific jurisdiction, the jurisdiction where the tort was committed, is alive and well.  As such, a manufacturer may be sued in the forum where he sells the product and in which the plaintiff is injured by such product.  However, jurisdiction based on a defendant’s “continuous” presence in a State is no longer a sufficient basis for general jurisdiction.

The practical implication of this line of cases is that plaintiff’s may no longer file huge numbers of cases forums where potentially liable defendants have had continuous and systematic contacts.  They are left with two options:  1) they may go to each states where specific jurisdiction exists; or 2) they may file where a majority of the defendants are “at home”.  Where some states have been slow to recognize Daimler and have found excuses to circumvent it, that door is now firmly shut.  The days of forum shopping to friendly courts are simply over.

Friendly forums for plaintiffs in mass tort cases such as Madison County, Illinois, St. Louis, Missouri and the Southern District of New York may no longer be available because few defendants are “at home” there.  In her dissent, Justice Sotomayor actually observed that Delaware may be the only jurisdiction available to garner numerous defendants.

Read the full opinion here.

Chris Lee and Scott Reese

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SCOTUS DEFINES BOUNDARIES OF FAIR DEBT COLLECTION PRACTICES ACT

In his first written opinion, Justice Gorsuch wrote on behalf of a unanimous Court that the Fair Debt Collection Practices Act does not apply to entities that purchase the debts of others and attempt to collect for themselves.

CitiFinancial Auto loaned money to consumers to purchase cars.  When certain consumers defaulted on their loans, Santander Consumer USA purchased those debts (at a discount, of course) and attempted to collect on their own behalf.  A class of consumers sued Santander on the premise that the efforts they were undertaking to collect the debts they now owned were violative of the FDCPA.

Justice Gorsuch began his opinion with a memorable paragraph:

Disruptive dinnertime calls, downright deceit, and more besides drew Congress’s eye to the debt collection industry. From that scrutiny emerged the Fair Debt Collection Practices Act, a statute that authorizes private lawsuits and weighty fines designed to deter wayward collection practices. So perhaps it comes as little surprise that we now face a question about who exactly qualifies as a “debt collector” subject to the Act’s rigors. Everyone agrees that the term embraces the repo man—someone hired by a creditor to collect an outstanding debt. But what if you purchase a debt and then try to collect it for yourself-does that make you a “debt collector” too? That’s the nub of the dispute now before us.

Ultimately, the Court held that a company may collect debts that it purchased for its own account, like Santander did here, without triggering the statutory definition in dispute.

Read the full opinion here.

-Chris Lee

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United States Supreme Court Issues Much Anticipated TC Heartland LLC v. Kraft Foods Group Brands LLC Decision

This morning, the United States Supreme Court decided a matter that will likely have a significant impact on Delaware.  In TC Heartland LLC v. Kraft Foods Group Brands LLC Decision, the Court concluded that most patent infringement lawsuits can only be brought in the defendant’s state of incorporation.  In so holding, the Court reversed the Federal Circuit’s broad application of 28 U. S. C. § 1400(b), which provides  that  “[a]ny civil  action  for  patent infringement  may  be  brought  in  the  judicial district  where  the  defendant  resides,  or  where the  defendant  has committed  acts  of  infringement  and  has  a  regular  and  established place  of  business.”  The Federal Circuit had concluded that 28 U.S.C. § 1391’s broader definition of what it means for a company to “reside” in a judicial district controlled.

The Court noted that § 1391 (as amended), provides that, “[e]xcept as otherwise provided by law” and “[f]or all venue purposes,” a corporation “shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.”  The Court concluded, however, that the amendments to § 1391 were not intended to and did not modify the meaning of § 1400(b).  Ultimately, the Court opined that a “domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute.”

With so many companies incorporated in Delaware, the Supreme Court’s holding could lead to even more patent infringement lawsuits being filed in Delaware.  Although a significant percentage of patent suits are already filed in Delaware, many patent plaintiffs chose to file in other jurisdictions that some viewed as more favorable to plaintiffs.  Most of those plaintiffs, however, will now have to come to Delaware if they want to file a claim against a Delaware entity.

The Court’s full Opinion can be found here.

Blake A. Bennett is a Director in the firm’s Litigation Department with significant experience serving as Delaware counsel to both plaintiffs and defendants in patent infringement disputes.

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Cooch and Taylor Obtains Summary Judgment for its Clients on Trade Secret Claims

Cooch and Taylor continues to lead in the field of trade secret law in Delaware.  On April 20, 2017, Delaware Superior Court Judge Butler granted partial summary judgment in favor of Cooch and Taylor’s clients, Defendants Gastroenterology Associates P.A., Thomas Spahr, Mark Corso M.D., David Beswick M.D., Ira Lobis M.D., and Joseph Hacker M.D.  Plaintiff, Atlantic Medical Associates LLC, claimed that Defendants had misappropriated its alleged trade secrets concerning its profitability and reimbursement rates for anesthesia services.  The Court, however, agreed with Defendants that no reasonable jury could conclude that the information at issue constituted trade secrets.  Judge Butler’s forty-nine page opinion is a must read for any attorney who regularly litigates trade secret claims.

Cooch and Taylor attorney Christopher Lee argued the Defendants’ motion, and he and Blake Bennett briefed the complicated summary judgment motion.  They and their clients were extremely pleased to have the Court dismiss the trade secret claim, which sought not only significant damages but also exemplary damages and attorneys’ fees.  In a separate opinion, the Court also dismissed all claims pending against the individual Defendants, leaving only a tortious interference claim against the entity Defendant, Gastroenterology Associates P.A.

The Court’s full opinion on the trade secret claims is available here.

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Attorneys – Will Workers’ Compensation Cover Your Softball Injury?

In the case of Morris James LLP v. Weller, the Superior Court reversed and remanded the findings of the Industrial Accident Board (the “Board”), holding that the Board applied the incorrect legal standard in finding a softball related injury was compensable under workers’ compensation.

A work injury is compensable through workers’ compensation if the injury occurred within the course and scope of employment. To determine whether a recreational event occurred in the course and scope of employment, the court must first determine whether the event is company sponsored.  If the event is company sponsored, the Court uses the four factor conjunctive test set forth in Larson’s Workers’ Compensation Law and adopted by Delaware Court in Nocks.  If the event is not company sponsored, the Court uses the three factor disjunctive test set forth in Larson’s and adopted by Delaware Courts in Dalton.

The Court and the Board found that the event was sponsored by the Wilmington Lawyers’ Softball League, not Appellant, and as such Dalton was the correct test.  Although the Board determined the corrected test, they applied the Nocks factors, which was the source of legal error requiring remand.

Appellant argued that the factor test in Dalton explicitly excludes the types of intangible benefits from which the Board based its decision.  Appellee conceded the Board applied the incorrect legal test, but that such error was harmless because both tests have an identical factor, whether the recreational event provided a direct and tangible benefit to the employer.

In addition to one test appearing in the conjunctive and the other in the disjunctive, another difference exists between the two tests.  Under Dalton, the benefit the employer receives must be a “substantial direct benefit.”  Intangible benefits, such as increased efficiency and morale, are excluded from consideration under the “substantial direct benefit” standard because such benefits arise out of many games played “whether connected with his work or not.”

The Court remanded the matter back to the Board for a full analysis of the course and scope of employment under the Dalton lens to determine whether the probable increased productivity from the games amounted to a “substantial direct benefit”.

Read the full opinion here.

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