In re Xura, Inc. Stockholder Litigation
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COURT OF CHANCERY OF THE STATE OF DELAWARE 417 S. State Street Dover, Delaware 19901 Telephone: (302) 739-4397 Facsimile: (302) 739-6179 JOSEPH R. SLIGHTS III VICE CHANCELLOR Date Submitted: January 10, 2019 Date Decided: February 13, 2019 A. Thompson Bayliss, Esquire Abrams & Bayliss LLP 20 Montchanin Road, Suite 200 Wilmington, DE 19807 Re: John L. Reed, Esquire DLA Piper LLP (US) 1201 N. Market Street, Suite 2100 Wilmington, DE 19801 In re Xura, Inc. Stockholder Litigation Consolidated C.A. No. 12698-VCS Dear Counsel: On December 31, 2018, the court-appointed Special Master, Peter B. Ladig, Esquire, issued his Report and Recommendation No. 3 (the “Report”) in which he recommended that the Court deny the parties’ competing requests for fee shifting.1 Specifically, the Petitioner, Obsidian Management, LLC, requested that the Court shift fees as a sanction for alleged spoliation of evidence by representatives of Respondent, Xura, Inc., and non-party, Siris Capital Group, LLC. Xura and Siris cross-moved for fee shifting as a sanction for Obsidian’s alleged violation of Court 1 D.I. 285. In re Xura, Inc. Stockholder Litigation Consolidated C.A. No. 12698-VCS February 13, 2019 Page 2 orders relating to discovery in aid of Obsidian’s spoliation allegations. The Special Master determined that Obsidian’s request for fee shifting must await the Court’s merits adjudication of Obsidian’s motion for an adverse inference based on spoliation. As for Xura and Siris’s request, the Special Master denied that request on the grounds that the movants had not carried their onerous burden of demonstrating bad faith and had not otherwise justified fee shifting as a sanction for discovery violations. Based on these findings, the Special Master recommended that both parties bear the Special Master’s fees equally. Xura and Siris have filed joint exceptions to the Report.2 For the reasons that follow, the exceptions are overruled. Under Court of Chancery Rule 144(c), “[a]ny party may take exception to a final report or a draft report” issued by a court-appointed special master.3 When exceptions are taken, the Court reviews those exceptions, and the recommendations of the special master, de novo.4 2 D.I. 288 (Opening Brief); DI 294 (Reply Brief). 3 Ct. Ch. R. 144(c). 4 See Lynch v. City of Rehoboth Beach, 2005 WL 2000774, at *1 (Del. Ch. Aug. 16, 2005). In re Xura, Inc. Stockholder Litigation Consolidated C.A. No. 12698-VCS February 13, 2019 Page 3 Here, the exceptions rest principally on the premise that the Special Master ignored the fact that Obsidian initiated and pursued spoliation discovery in violation of the Court’s orders. I disagree. The Special Master’s Report clearly reflects that he was well aware of the Court’s orders with respect to spoliation discovery and was also well aware of Obsidian’s discovery conduct following the entry of those orders.5 With knowledge of the Court’s orders, the Special Master characterized Obsidian’s discovery conduct as “aggressive but not unjustified.”6 I share that view. He also concluded, after careful analysis, that Xura and Siris had not carried their “stringent burden” of demonstrating that Obsidian engaged in bad faith litigation conduct in pursuing spoliation discovery.7 After carefully reviewing the matter, I agree with that conclusion as well. Accordingly, “[b]elieving the [Special] Master to have dealt 5 See Report at 8–9, 22–24. 6 Id. at 20. Id. at 19 (quoting Beck v. Atl. Coast PLC, 868 A.2d 840, 851 (Del. Ch. 2005) (“The bad faith exception [to the American Rule] is not lightly invoked. The party seeking a fee award bears the stringent evidentiary burden of producing ‘clear evidence’ of bad faith conduct.”)). 7 In re Xura, Inc. Stockholder Litigation Consolidated C.A. No. 12698-VCS February 13, 2019 Page 4 with the issues in a proper manner and having articulated the reasons for [his] decision well, there is no need for me to repeat [his] analysis.”8 The exceptions to the Special Master’s Report are OVERRULED. The Report is hereby adopted in its entirety. IT IS SO ORDERED. Very truly yours, /s/ Joseph R. Slights III cc: 8 Marcus E. Montejo, Esquire Rudolf Koch, Esquire Robert S. Saunders, Esquire Michael F. Bonkowski, Esquire Peter B. Ladig, Esquire In re Erdman, 2011 WL 2191680, at * 1 (Del. Ch. May 26, 2011).
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