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This action involved a dispute between certain members of two Delaware real estate holding companies, Defendant Companies and the Companies' manager, Rubin Schron. Plaintiffs, MICH and SEEVA Entites, originally brought an action against Schron and Schron-affiliated entities in New York (the MICH/SEEVA action) alleging breaches of fiduciary duty and of the Companies' operating agreements. In response, Schron filed an opposing action in New York against the MICH and SEEVA entities' majority owners and controllers, alleging breaches of fiduciary duty and legal malpractice. The New York court dismissed the MICH/SEEVA action, holding that the operating agreements required all claims against the Companies to be brought in Delaware. Plaintiffs then filed this action, which Schron moved to stay or dismiss. The Chancery Court granted Defendants' motion to stay this action in favor of Schron's first-filed New York action. Plaintiffs then filed combined motions for reconsideration and certification of an interlocutory appeal. The Chancery Court held that, with the exception of Plaintiffs' claim regarding Defendants' withholding of certain distributions allegedly owed to Plaintiffs, Plaintiffs' motion should be denied because Plaintiffs did not demonstrate that relief was warranted.Receive FREE Daily Opinion Summaries by Email
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
MICH II HOLDINGS LLC,
SEEVA II HOLDINGS LLC,
MICH HOLDINGS LLC,
and SEEVA HOLDINGS LLC,
C.A. No. 6840-VCP
and CAM-ELM COMPANY LLC,
SMV PROPERTY HOLDINGS LLC
and SWC PROPERTY HOLDINGS LLC,
Submitted: July 24, 2012
Decided: August 7, 2012
John L. Reed, Esq., Scott B. Czerwonka, Esq., DLA PIPER LLP, Wilmington, Delaware;
Anthony P. Coles, Esq., Shand S. Stephens, Esq., Michael R. Hepworth, Esq., Peter D.
Sharp, Esq., DLA PIPER LLP, New York, New York; Attorneys for Plaintiffs.
Bruce L. Silverstein, Esq., Martin S. Lessner, Esq., Emily V. Burton, Esq., YOUNG
CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Andrew J.
Levander, Esq., David A. Kotler, Esq., Steven A. Engel, Esq., DECHERT LLP, New
York, New York; Attorneys for Defendants and Nominal Defendants.
PARSONS, Vice Chancellor.
This action involves a dispute between certain members of two Delaware real
estate holding companies, nominal Defendants SWC Property Holdings LLC (“SWC”)
and SMV Property Holdings LLC (“SMV” and together with SWC, the “Companies”),
and the Companies‟ manager, Rubin L. Schron. Plaintiffs, members MICH Holdings
LLC, MICH II Holdings LLC, SEEVA Holdings LLC, and SEEVA II Holdings LLC
(together, the “MICH and SEEVA Entities”), originally brought an action against Schron
and Schron-affiliated entities in New York in March 2010 (the “MICH/SEEVA Action”)
alleging various breaches of fiduciary duty, as well as breaches of the Companies‟
operating agreements (the “Operating Agreements”). In response to the MICH/SEEVA
Action, Schron filed an opposing action in New York against the MICH and SEEVA
Entities‟ majority owners and controllers, Leonard Grunstein and Murray Forman, as
well as related parties, alleging breaches of fiduciary duty and legal malpractice, among
In June 2011, the New York court dismissed the MICH/SEEVA Action, holding
that § 9.4 of the Operating Agreements required all claims against the Companies,
including derivative suits where the Companies are nominal defendants, to be brought in
Delaware. As a result, Plaintiffs filed this action on September 6, 2011, and Schron
moved to stay or dismiss the action on October 10, 2011.
In a Memorandum Opinion on June 29, 2012 (the “June 29 Opinion”), I
determined that the issues and parties in this action and the New York Action were
substantially similar and that the New York Action had the potential to resolve all or a
substantial number of the claims at issue here.1 Therefore, I granted Defendants‟ motion
to stay this action in favor of Schron‟s first-filed New York Action. Then, on July 9,
2012, Plaintiffs moved for reconsideration of the June 29 Opinion, or alternatively,
certification of an interlocutory appeal.
This Memorandum Opinion addresses Plaintiffs‟ combined motions for
reconsideration under Court of Chancery Rule 59(f) and certification of an interlocutory
appeal pursuant to Supreme Court Rule 42 (the “Motion”). Having considered Plaintiffs‟
arguments, I conclude that, with the exception of Plaintiffs‟ claim regarding Defendants‟
withholding of certain distributions allegedly owed to Plaintiffs, the Motion should be
denied. Plaintiffs have not demonstrated that this Court misapprehended any controlling
fact or legal principle in rendering the June 29 Opinion, nor have Plaintiffs demonstrated
that the issues here warrant certification of an interlocutory appeal. Therefore, for the
reasons stated herein, with one exception, I deny Plaintiffs‟ Motion.
MOTION FOR REARGUMENT
The standard applicable to a motion for reargument under Rule 59(f) is well
settled. To obtain reargument, the moving party must demonstrate either that the Court
overlooked a controlling decision or principle of law that would have a controlling effect,
or the Court misapprehended the facts or the law so the outcome of the decision would be
See generally MICH II Hldgs. LLC v. Schron, 2012 WL 2499507 (Del. Ch. June
different.2 It is the moving party‟s burden to show that “the court‟s misunderstanding of
a factual or legal principle is both material and would have changed the outcome of its
earlier decision.”3 As such, motions for reargument must be denied when a party merely
restates its prior arguments.4
Here, Plaintiffs seek reargument on five separate grounds, asserting that the Court
materially misapprehended material issues of fact and law in deciding to stay this action.
Having considered Plaintiffs‟ arguments, I find that they generally do not state a valid
basis for reargument or reconsideration of the June 29 Opinion.
As to Plaintiffs‟
argument regarding the discrete issue of Defendants‟ withholding of certain distributions
allegedly owed to Plaintiffs, however, Plaintiffs essentially have supplemented the record
by reporting that they have rejected the Court‟s suggestion in the June 29 Opinion that
they pursue that aspect of their claims in the New York Action.
Based on that
information, I will alter the stay order slightly to enable Plaintiffs to proceed in this Court
only on the narrow claim regarding Defendants‟ withholding of distributions. I deny
Plaintiffs‟ motion to reargue in all other respects.
See, e.g., Medek v. Medek, 2009 WL 2225994, at *1 (Del. Ch. July 27, 2009);
Reserves Dev. LLC v. Severn Sav. Bank, FSB, 2007 WL 4644708, at *1 (Del. Ch.
Dec. 31, 2007).
Medek, 2009 WL 2225994, at *1 (internal quotation marks omitted); see also Serv.
Corp. of Westover Hills v. Guzzetta, 2008 WL 5459249, at *1 (Del. Ch. Dec. 22,
Guzzetta, 2008 WL 5459249, at *1; Reserves Dev. LLC, 2007 WL 4644708, at *1.
“Reargument . . . is only available to re-examine the existing record; therefore,
new evidence generally will not be considered on a Rule 59(f) motion.” Reserves
Dev. LLC, 2007 WL 4644708, at *1.
Plaintiffs‟ first ground for reargument is their claim that this Court erred in
holding that the New York court conceivably could order rescission of the interests of
Grunstein, Forman, and Lawrence Levinson in the MICH and SEEVA Entities, which, in
turn, could enable Schron to cause Plaintiffs to stop litigating in Delaware. According to
Plaintiffs, such a ruling is contrary to the earlier decision of this Court in the books and
records action between the parties where I expressly stated that “[t]he fact that [Plaintiffs]
membership might be lost or rescinded in the future is not considered relevant.” 5
Plaintiffs also argue that the Court‟s ruling ignores the fact that no claim or motion has
ever been made in the New York Action seeking rescission of the membership interests
of the MICH and SEEVA Entities in SMV and SWC.
As an initial matter, Plaintiffs‟ argument that the Court failed to recognize that a
motion or argument for rescission has not been made against the MICH and SEEVA
Entities‟ membership interests in the New York Action overlooks the plain language of
the June 29 Opinion. In the opinion, I expressly acknowledged the situation before the
New York court and explained:
There is no dispute that the MICH and SEEVA Entities were
established for the sole purpose of receiving equity interests
in SMV and SWC. Therefore, instead of ordering direct
rescission of the MICH and SEEVA Entities‟ membership
interests in SMV and SWC, the New York court conceivably
could order rescission of Grunstein, Forman, and Levinson‟s
interests in the MICH and SEEVA Entities and perhaps even
transfer those interests to Schron. If that occurred, Schron
effectively would gain control of the MICH and SEEVA
Pls.‟ Br. Ex. A at 38 (Oct. 27, 2011 Transcript Ruling).
Entities and this litigation. As a result, although rescission
would not directly deprive the MICH and SEEVA Entities of
standing to pursue their claims, as a practical matter,
resolution of the New York Litigation could enable Schron to
force the MICH and SEEVA Entities to stop litigating in
Whether the New York court can order rescission in the
manner Defendants envision turns on New York law and
should be decided in the New York Litigation. For purposes
of this Memorandum Opinion, however, I find the possibility
of relief in the nature of rescission in the New York Litigation
to be sufficiently colorable as to provide additional support
for staying this action until that matter can be resolved.
Rescission of Grunstein, Forman, and Levinson‟s
membership interests in both SMV and SWC through the
MICH and SEEVA Entities drastically would undermine
Plaintiffs‟ ability to pursue their claims in this action and
effectively could terminate, or materially reduce the scope of,
Plaintiffs plainly disagree with this conclusion. Plaintiffs have not shown, however, that
I overlooked or disregarded any material point of New York law. In any case, such an
argument would be futile because, as I stated in the June 29 Opinion, any such matter of
New York law should be decided by the New York court. Therefore, I reject Plaintiffs‟
assertion that this Court‟s observations regarding the possibility of rescission provide a
basis for reargument.
I also find unpersuasive Plaintiffs‟ contention that the June 29 Opinion is contrary
to the Court‟s own statements in resolving Plaintiffs‟ earlier action for inspection of the
books and records of SMV and SWC under 8 Del. C. § 220. Plaintiffs‟ § 220 action is
MICH II Hldgs. LLC, 2012 WL 2499507, at *11.
distinct from this action and I allowed the § 220 action to proceed for reasons not present
In declining to stay Plaintiffs‟ § 220 action, I noted that the scope of the § 220
action was limited solely to the inspection of the books and records of SMV and SWC
and, therefore, was “distinct from the New York action” and involved different issues.7 I
further explained that the issues in the New York Action and the § 220 action were
substantially different, in part, because the § 220 action was “a summary proceeding,”
that was “limited in scope,” and “relate[d] to the particular rights of a member of a
Delaware LLC to access documents of that LLC.”8
In contrast, the current action is largely plenary, not summary, in nature.
Moreover, as I determined in the June 29 Opinion, this action and the New York Action
present substantially similar issues sufficient to warrant a stay under McWane.
Therefore, there is nothing inconsistent between my previous ruling that the possibility of
rescission was immaterial to granting a stay in the § 220 action and the contrary
conclusion I reached based on the different circumstances presented by Defendants‟
motion to stay this action.
Finally, although I concluded that the possibility of rescission weighed in favor of
staying Plaintiffs‟ action here, my decision to stay Plaintiffs‟ action was based
independently on the overlap between the issues relating to the Citibank Swap and the
Pls.‟ Br. Ex. A at 32-33.
Id. at 33.
Omnicare Transaction.9 In other words, even if there were no possibility of rescission of
the MICH and SEEVA Entities‟ membership interests in New York, such a change would
not have affected the outcome of my decision to grant a stay. Therefore, this aspect of
Plaintiffs‟ motion does not provide a sufficient basis for reargument.10
B. Defendants’ Contrary Statements to the New York Court
Plaintiffs also argue that this Court should not have credited Defendants‟ assertion
that the issues in this action are substantially similar to those in the New York Action
because Defendants made contrary representations to the New York court in support of
their successful effort to dismiss the MICH/SEEVA Action. This is not an argument,
however, that this Court misapprehended a material fact or the law in arriving at its
decision. Instead, it is a rehashing of an argument Plaintiffs already made, and I rejected,
in deciding to grant a stay. That Plaintiffs disagree with the weight I gave Defendants‟
statement to the New York court is not a valid basis for reargument.
Moreover, I note that both the Grunstein Parties and Schron made representations
in the New York Action regarding the substantial similarity of their claims that conflict
with assertions they made in this action. Although Plaintiffs emphasize Defendants‟
representation to the New York court that the issues upon which this action is based and
MICH II Hldgs. LLC, 2012 WL 2499507, at *10.
Cont’l Ins. Co. v. Rutledge & Co., 2000 WL 268297, at *1 (Del. Ch. Feb. 15,
2000) (“The Court of Chancery will not grant a motion for reargument „unless the
Court has overlooked a decision or principle of law that would have controlling
effect or the Court has misapprehended the law or the facts so that the outcome of
the decision would be affected.‟”).
those in the New York Action are not substantially similar, Plaintiffs likewise represented
to the New York court in the MICH/SEEVA Action that the issues before it in the New
York Action were “the same issues brought by SMV and SWC in the derivative claims in
the [MICH/SEEVA] action.”11 In the same vein, Plaintiffs also argued in New York that
“the complaint by SMV and SWC in the [New York] Action specifically puts at issue all
the allegations and claims made in the [MICH/SEEVA] Action brought on behalf of
SMV and SWC . . . .”12 Because most of the claims in this action in Delaware stem from
the MICH/SEEVA Action, Plaintiffs‟ current argument here arguably contradicts the
position they previously advanced in New York.
In light of both sides‟ conflicting representations, I informed the parties at the
March 29, 2012 hearing that I was “not going to put too much stock” in the statements
made in New York regarding the similarity or dissimilarity of the issues as they related to
the New York Action.13 Indeed, neither side‟s statements in New York weighed heavily
in my decision to grant Defendants‟ motion to stay. For all of these reasons, I find that
these issues provide no basis for reargument as sought in Plaintiffs‟ Motion.
Defs.‟ Opening Br. in Support of Defs.‟ Mot. to Stay, or in the Alternative, to
Dismiss for Failure to State a Claim, Docket Item No. 7, Ex. B at 12 (Dec. 27,
2011) (emphasis added).
Id. at 13.
Mar. 29, 2012 Hr‟g Tr. 11.
C. Plaintiffs’ Escrow Claims
Plaintiffs make two claims in the context of their motion to reargue related to
Schron‟s withholding of $3.5 million in distributions allegedly owed to Plaintiffs. First,
Plaintiffs argue that Schron‟s refusal to recognize their membership interests in SMV and
SWC constitutes irreparable harm and that this Court erred by not granting them prompt
relief. Plaintiffs also assert that this Court misapprehended the fact that Plaintiffs‟ escrow
claim can only be brought in Delaware when it granted Plaintiffs leave to bring that claim
in New York.
Both of these arguments relate to Plaintiffs‟ claim in this Delaware action that
Schron, as manager of SMV and SWC, wrongfully is withholding distributions from
Plaintiffs by placing those distributions into escrow instead of paying them directly to the
MICH and SEEVA Entities. I did not misapprehend any of the relevant law or facts
related to this issue. In the June 29 Opinion, I noted that, in their briefing on the motion
to stay, Defendants agreed to waive the forum selection clause under § 9.4 of the SMV
and SWC Operating Agreements to allow Plaintiffs‟ escrow claims to be litigated in New
York. Based on that and the fact that Plaintiffs originally chose to bring their claims
against Schron in New York, I also stated that:
In the interests of allowing prompt adjudication of Plaintiffs‟
equitable claims for release of those escrowed distributions,
this Court has no objection to Plaintiffs filing their claim in
New York so that it may be adjudicated there along with the
rest of the New York Litigation. If the New York court
determines that Plaintiffs‟ equitable claim relating to the
escrow cannot proceed in New York for any reason, however,
Plaintiffs may seek to reactivate their claim here and I will
reconsider at that time whether the escrow claim should
proceed in Delaware in parallel with the New York
In their motion for reconsideration, however, Plaintiffs rejected that invitation and
insisted on pursuing their escrow claim in Delaware.15
Unfortunately, there appears to be a high degree of gamesmanship on both sides of
this overall dispute, which, when all the claims of the Grunstein Parties and Schron are
considered, involves far more than $100 million.
Plaintiffs‟ escrow claim, which
currently pertains to distributions in the range of $3.5 million, is relatively small in
comparison. Nevertheless, because it challenges self-help actions taken by a controller of
two Delaware LLCs to the detriment of holders of minority interests in those companies,
the escrow claim raises potentially important issues that should be addressed in a timely
fashion. Despite Plaintiffs‟ protestations to the contrary, there is no reason to doubt that
the New York court could have dealt with the escrow issue promptly with a modicum of
cooperation from the parties. But, it may have been overly optimistic to have expected
such cooperation. More importantly, this Court did consider, in the context of the June
29 Opinion, Plaintiffs‟ choice of forum, and now must reconsider that issue in view of
Plaintiffs‟ rejection of the Court‟s suggestion that they pursue their escrow claim in New
MICH II Hldgs. LLC, 2012 WL 2499507, at *11.
In this respect, I consider it more appropriate to analyze Plaintiffs‟ Motion as a
Rule 59(e) motion to alter or amend a judgment. Plaintiffs do not seriously assert
that the Court misapprehended a fact or law, but rather rely on a new development,
i.e., their refusal to bring their escrow claim in the New York Action, in requesting
relief from the order implementing the June 29 Opinion.
York, where they initially brought their claims and where most of the relevant issues in
the parties‟ wide-ranging dispute will proceed first.
The issues presented by the escrow claim appear to be sufficiently discrete and
separable from the issues presented in the New York Action to enable this Court to
entertain that claim in Delaware without creating undue risk of wasteful, overlapping
proceedings and conflicting judgments with the New York Action. In their escrow claim,
Plaintiffs essentially contend that Schron breached the SMV Operating Agreement, his
duties thereunder, and his fiduciary duties, by improperly failing to declare and make
necessary and appropriate distributions of SMV‟s profits. In addition, Plaintiffs claim
that Schron breached the SWC Operating Agreement by failing properly to calculate and
distribute declared distributions to Plaintiffs. The relief sought includes release of the
escrowed funds. To the extent Schron has made distributions from SMV or SWC or both
and not paid those distributions to Plaintiffs, but rather put the funds in escrow, I will
allow Plaintiffs‟ escrow claim to proceed in Delaware in parallel with the New York
Action. I recognize that one or both sides to this dispute may attempt to complicate that
effort by trying to inject into the litigation regarding the validity of Schron‟s nonpayment
of distributions from SMV or SWC to Plaintiffs a number of broader issues from the New
York Action. I intend to resist any such efforts, and am confident that the legal propriety
of Schron‟s escrowing of distributions otherwise due to Plaintiffs can be addressed here
with minimal, if any, overlap with the New York Action. Thus, in that narrow sense, and
based on Plaintiffs‟ refusal to pursue the escrow claim in New York, even if Schron
waives any reliance on the forum selection clause, I grant in part Plaintiffs‟ motion for
D. Forum Selection Clause
Finally, Plaintiffs‟ claim that the Court misinterpreted the primary import of the
Supreme Court‟s ruling in Ingres v. CA, Inc.16 merely rehashes the argument that
Plaintiffs made in their briefing on the motion to stay. The Court‟s reasons for rejecting
Plaintiffs‟ interpretation of Ingres are described fully in the June 29 Opinion and need not
be repeated here. Plaintiffs‟ attempt to reargue a point already made and rejected is not a
valid basis for reconsideration.
MOTION FOR INTERLOCUTORY APPEAL
Plaintiffs have moved, in the alternative, for leave to file an interlocutory appeal
pursuant to Supreme Court Rule 42(b). In considering this aspect of Plaintiffs‟ Motion, I
observe first that the Supreme Court only accepts such appeals in extraordinary or
When considering whether to certify an interlocutory
appeal, this Court must balance the interests of advancing potentially case-dispositive
issues against the additional burden of fragmentation and delay that interlocutory review
can create.18 Generally, where interlocutory review is unlikely to terminate the litigation
8 A.3d 1143 (Del. 2010).
See Ryan v. Gifford, 2008 WL 43699, at *4 (Del. Ch. Jan. 2, 2008); In re Pure
Res., Inc. S’holders Litig., 2002 WL 31357847, at *1 (Del. Ch. Oct. 9, 2002).
In re Pure Res., 2002 WL 31357847, at *1.
or otherwise serve the administration of justice, certification should be denied.19
Moreover, Supreme Court Rule 42 proscribes interlocutory appeals unless the order of
the trial court to be appealed from (1) determines a substantial issue, (2) establishes a
legal right, and (3) meets at least one of the criteria in Rule 42(b)(i)-(v).20
determinations are left to the discretion of the trial court.21 Finally, I note that, relevant to
this action, our Supreme Court generally does not accept interlocutory appeals relating to
motions to stay because motions to stay usually do not address the substantive merits of
the parties‟ underlying claims, which is the central focus of the Rule 42 analysis. 22
Having considered Plaintiffs‟ application, I do not find that this action presents
any extraordinary or exceptional circumstances that would warrant interlocutory review.
Moreover, because the issues decided in the June 29 Opinion relate to Defendants‟
motion to stay a first-filed action under McWane, this Court has not yet addressed the
substantive merits of Plaintiffs‟ underlying claims. In addition, the Court‟s decision to
allow Plaintiffs to pursue their escrow claim in Delaware severely undermines Plaintiffs‟
argument that the challenged order established a legal right. As a result, I conclude that
Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial Practice
in the Delaware Court of Chancery § 14.04 (2008) (hereinafter “Wolfe &
In re Pure Res., 2002 WL 31357847, at *1.
O’Brien v. IAC/Interactive Corp., 2009 WL 2998531, at *1 (Del. Ch. Sept. 14,
Sprint Nextel Corp. v. iPCS, Inc., 2008 WL 2861717, at *2 (Del. Ch. July 22,
2008); Wolfe & Pittenger § 14.04(d).
Plaintiffs‟ application does not meet the criteria of Rule 42 requiring that the trial court‟s
order (1) address a substantial issue relating to the merits of the case 23 and (2) establish a
legal right with regard to that underlying substantial issue.24 Therefore, I deny Plaintiffs‟
request for certification of an interlocutory appeal.
For the reasons stated, I deny Plaintiffs‟ Combined Motion for Reconsideration or,
in the Alternative, Application for Certification of Interlocutory Appeal in all respects,
except that I grant the Motion to the limited extent of modifying the order associated with
the June 29 Opinion to authorize Plaintiffs to proceed promptly in this Court on their
claim related to Defendants‟ withholding of $3.5 million of distributions allegedly owed
IT IS SO ORDERED.
Id. (“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
Wolfe & Pittenger § 14.04(b) (“[A] legal right is established where the court
determines an issue essential to the position of the parties regarding the merits of