### COURT OF CHANCERY OF THE STATE OF DELAWARE

KATHALEEN ST. J. MCCORMICK

C HANCELLOR L EONARD L. W ILLIAMS J USTICE C ENTER 500 N. K ING S TREET , S UITE 11400 W ILMINGTON , D ELAWARE 19801

- 3734
April 10 , 202 3

Carl D. Neff Fisher Broyles, LL P CSC Stati on 11 2 So uth French St reet Wilmington, D E 19801 Kevin S. Mann Cross & Simon, LLC 1105 North Market Street, Suite 901 Wilmington, D E 1 9801

R e : Martin Lanz Zaslansky et al. v. FZ Holdings US, Inc. et al.
, C.A. No. 2021

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D ear Counse l :

This letter resol ves the motion for co ntempt filed by Petitioners Martin Lan z
Zaslansky and the Roberta Zaslansky Family Trust ( “ Petitioners ” ) against Respondent FZ
Holdings US, Inc. ( “ FZ Holdings ” or the “ Company ” ) as discussed at t he status

conference held on Tuesd ay , Ma rch 21 , 202 3

. 1

Petitioners moved for contempt against FZ Holdings on July 13, 2022

. 2

Petitioners also moved for a default j udgment against FZ Holdings on October 20, 2022. 3

At or al argument on November 3, 2022
, counsel fo r FZ Holdings represented that the
Company was negotiating a st r ategic transaction t hat, if successful, would allow it to pay

1 C.A . No. 2021

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, D ocket ( “ Dkt

. ”) 69 ( “Mot

. ”).

2 Id.

3 Dkt. 80.C.A. No. 2 0 2 1

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April 10 , 202 3 Page 2 of 9

Pet itioners in full and thus moot the case

. 4 At the time, FZ Holdings antici pated a closing

date appro ximately between December 3 and 18, 2022. 5

On Dece mber 2 1, 202 2, Petitioners filed a propose d f inal order and judgment on

Counts I and II against FZ Holdings

. 6 Petitioners ’ letter stated that FZ Holdings had
consented to the entry of the judgment
, 7 and I entered the order on Janu ary 3, 2023. 8

In the contex t of t he parties ’ statements at the November 3 hearing, I understood
the entry of the final order and judgment to mean that the transaction had closed
, allowing Petitioners and FZ H o ldings t o resolve the dispute amicably

. I theref ore viewed

Petitioners ’ c ontem p t m otion as moot. At the March 23 , 2023 status conference
, however, the part ies advised th at the stra t egic transaction had not closed, so the motion

for co ntempt was not moot. I now address the motion for contempt

.
P etitioners have moved for conte mpt a gain st FZ Hold ings for failing to comply

with my April 2 1 , 2022 discovery order (the “ April 21 Order ” )

. 9 That order comp elled

F Z Holdings to produc e all responsive documents to Petitioners ’ firs t document request
, to serve supple mental written respon ses t o Pe titioners ’ docume nt requests and first set of
interrogatories, and to disclose the i dentity of cus todian s and steps taken to collect

4 Dkt. __ ( “No v. 3, 2 022 H r ’g Tr. ”) at 10:23

– 11:12

. 5 Id. at 11:8

– 12

. 6 Dkt. 90.

7 Id.

8 Dkt. 9 1.

9 M ot .; see also Dkt. 55 ( “ Apr. 21 Order ”).C.A. No. 2 0 2 1

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April 10 , 202 3 Page 3 of 9

d ocuments and electronically stored data. 10 Petitioners state that FZ Holdings has since

fail ed to provide the rel evant doc uments , re sponses, and disclosures , thus warranting

contempt

. 11 Petitioners also seek to compel FZ H o ldings to comply with the April 21

Order within ten days and to shift fee s

. 12
“The Delaware Supreme Court has made clear that discovery abuse has no p l ace

in our courts.” 13 This court must hold litigants accountable to ensure “the just, s p eedy
and inexpensi ve determination of every proceeding before them.” 14 “The Delaware
Supreme Court has long recognized that the purp oses of discovery are to advance is s ue
formulation, to assist in fact revelation, and to reduce the element of surprise at t rial.” 15
“The court has the power to issue sanctions for discovery abuses under its inherent
equitable powers, as well as the Court’ s ‘inherent power to manage its own aff airs.’” 16
The sanctions imposed must be “just and reasonable.” 17

10 Apr. 21 Order ¶¶ 1

– 3.

11 See Mot. ¶¶ 6

– 11.

12 See id. ¶ 13 ; see also Dkt. 6 9 (Proposed Order)

. 13 Terramar Retail Ct rs

. , LLC v. Marion #2

- Seaport Tr. U/A/D June 21, 2002 , 2018 WL 63 31622, at *8 (Del. Ch. Dec. 4, 2018) (internal quotations omitted) (cleaned up).

14 Id. (int ernal quotations omitted) (cleane d up).

15 Id. at *9 (internal quotations omitted) (cleaned up).

16 Be ard Rsch., Inc. v. Kates
, 981 A.2d 1175, 1189 (Del. Ch. 2009) (qu oting Residential Funding Corp. v. DeGeorge Fin. Corp. , 306 F.3d 99, 106

– 07 (2d C ir. 2002 ))

. 17 Terramar
, 2018 WL 6331622, a t * 9 (quoting Gallagher v. L ong , 940 A.2d 945, 2007 WL 3262150, at *2 ( Del. Nov. 6, 2007) (TABLE)).C.A. No. 2 0 2 1

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April 10 , 202 3 Page 4 of 9
Court of Chancery R ule 37(b) authorizes this court to find a party in contempt or
enter a default judgment for refusing to comply with a discovery orde r. 18 “ When an

asserted violation of a c ourt order is the basis for contempt, the party to be sanctioned
must be bound by t h e order, have clear notice of it, and nevertheless violate it in a
meaningful way. ” 19

Petitioners argue that FZ Holdings failed to c omply with the April 21 Order in

m an y ways. First, Petitione rs identify approximately 21 shortcomings in FZ Holdings ’

document production
, including shortcomings in the production of financial and tax

information
, relevant legal agreements, and a fai lure to explain why FZ Holdings has not

p ro duced a privilege log. 20 FZ Holdings stated that it “provided a myriad of documen ts,
encompassing all responsive documents in its possess ion, c ustody, or control. ” 21 Aside

from this generali zed statement, FZ Holdi ngs does not cla im to have produced the

d ocuments Petitioners seek. 22 The Com pany just states its position that “it has full y
responded to a ll discovery requests and provided all respons ive documents as required by
the April 21 Order and that Respondent sh ould not be held in contempt of same. ” 23

18 Ct. Ch. R. 37(b).

19 TransPerfe ct Glob., Inc. v. Pincus , 278 A.3d 630 , 644 (Del. 2022 )

. 20 Mot. ¶ 6.

21 Dkt. 78 ( “ Opposition ”) ¶ 5.

22 See generally id.

23 Id. ¶ 8.C.A. No. 2 0 2 1

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April 10 , 202 3 Page 5 of 9

F rom the r ecord before me, there appear to be gaps in FZ Holdings ’ document

p roduction

. For instance, at the November 3, 2022 hearing, c ounsel for the Company

descri bed Petitioners ’ request for financials from 2022 o nw ard as “ im proper ” because the

case w as filed in 2021. 24 The Petitio n ers ’ first set of requests for documents included a

requ est for “ [m]onthly bank s tatements for all Co mpany accounts. ” 25 Nothing in this
language exclude d 2022 bank statements. The refore
, the Compan y has not fully
complied w ith the first part of the April 2 1 Order.

S e cond
, Petitioners argue that FZ Holdings ’ s upplemental responses to Petitioners ’

docume nt requests and first set of interr ogatories are deficien t

. 26 They are. By way of

e xa mp le, the fi fth interrog atory asks FZ Hol dings to id enti fy “ all subsidiaries or affiliates
of the Company [

. ] ” 27 T he Company ’ s supplemental response from May 5, 2022
, is that

“ none exist. ” 28 This statement raises ey ebrows, because FZ Holdings is controlle d by co

Respon dents Hemang Meht a and Nev il Sha h
, who m the Company admits also control at
least one separate entity called S u nris e Capital Partners M ana gement LLC. 29 The

24 No v. 3, 2 022 H r ’ g Tr. at 12:6

– 8.

25 Mot. , Ex. B ¶ 5.

26 Se e Mot., Ex. A

. 27 Id. at 3.

28 Id. at 4.

29 See Dk t . 72 (Ans wer) ¶ ¶ 13

– 15

.C.A. No. 2 0 2 1

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April 10 , 202 3 Page 6 of 9

int errogatory response does not explain why Sun r ise C apital Partners M anagement LLC

is no t a Company affiliate

. 30

A s another e xam ple
, the tenth interrogatory asks the Company to “ [ i]dentify all

insider loans made t o the Company, includ ing any involving either including [ sic ]
Hemang Mehta or Nevil Shah. ” 31 I n its initial answer, the Company st at ed that it would
produce responsive doc uments

. 32 In its su pplemental answer, the Company promised to

“ produce a copy of its general ledger which identifies all loans made to the Company. ” 33

But per Petitioners, this ledger merely list s expenses from be fore 2020 and does not

disclose “ what c o mpensation the principals have paid the mselves. ” 34 The Company has

no t connected the dots between the ledger and the tenth interrogatory.

Pet itioners also state that the Company has not verified its supplemental

in te r rogator y responses. 35 T he Company ad m its that it “ inadvertently failed to provide a
verification to its supplemental disc overy response s. ” 36 The Company, however , states

30 See Mot., Ex. A at 4.

31 Id. at 7.

32 Id.

33 Id.

34 No v. 3 , 2 0 22 H r ’g Tr. at 6:4

. 35 See Dkt. 84 (Reply) ¶ 5.

36 Opposition ¶ 7.C.A. No. 2 0 2 1

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April 10 , 202 3 Page 7 of 9
that the April 21 Order “ did not compel R espon dents to do so. If the Court so re qu ire s

that Respondent verify its supplem e ntal discovery responses, it will do so. ” 37

Court of Chancery Rule 33 req uires that interrogatory responses be answered

“ under oath [.] ” 38 An order compelling additiona l interrogatory responses does not have

to res ta te court r ules fo r them to remain appli c able to litiga nts. Here, the lack of

verification contributes to my con cern s

. Had it just been a technical oversight on

counsel ’ s part , I would not be alarmed. But here , where the Company ’ s discovery
practices a re al ready d eficient, the fact that FZ Ho l dings s eems hesitant to verify its
interrogatory responses is a red flag.

Third, Pe titioners argue that FZ Holdings failed to comply with the requirement in

the April 21 Order that the Company “ [ d ] isclose the id en ti ty of it s custodians, data

collection pr ocess , sources of el ectronic data, em ail accounts searched, whether search

terms w ill be utilized, and other steps taken by Respondent to collect and review
potentially discover able documents and electronically s to r ed data. ” 39 In respond to

Petition ers ’ mo tion for contempt, t he Company supplied this information . It should not

have taken a motion for co ntempt for the Company to provide this in formation

.

37 I d.

38 C t. Ch. R

. 33(b )(1).

39 Apr. 21 O rder ¶ 3.C.A. No. 2 0 2 1

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April 10 , 202 3 Page 8 of 9
Additionally, the A pril 21 O rder required F Z Ho ldin gs to pa y Petitioners ’

reasonable attor neys ’ fees in curre d in connection with its contempt motion. 40 On May

1 7, 2022, I entered a separate order determining that am oun t to be “ the sum of $5,545.03,
plus reasonable additional time charges that have bee n or will be incurred to enforce the

Court ’ s Order dated April 21, 2022. ” 41 FZ Holdings admits that it has not paid this

amount , stati ng that it has not received the required consent from senior creditors before
doing so. 42 In other words, the Company squar ely admits t hat it has not obeyed the fee

s hifti ng that I already ordered.

The clear and transparent violatio ns of the April 21 Order speak f or the mselves

.
The C ompany had clear notice of the April 21 Or d er , 43 but chose not to obey several parts

of it.

T o r e ctify th e situation, Petitioners hav e r equested that I give the Company ten
days to co mply with the April 21 Order

. 44 Petitioners also ask that I order the Company

to pa y the attorneys ’ fees figure stated in the May 17 , 2022 o rder immediately

. 45

Alt hough t h e C o mpany ’ s compliance with the April 2 1 Or der is long overdue, I
worry that making it rush to complete its discovery obligations is not f eas ible from a

40 Id. at 2.

41 Dkt. 5 8

. 42 Opposition ¶ 9.

43 See Transperfect Glob

. , 278 A.3d at 644.

44 Dk t. 69 ( Proposed Order) ¶ 1.

45 See Dkt. 96 ( Pet ’ rs ’ Mar. 21, 2023 Let ter) at 2.C.A. No. 2 0 2 1

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April 10 , 202 3 Page 9 of 9
practical perspective

. At the March 21, 2023 status conference, I gave M e hta and Shah

30 days each to cat c h up to their overdue discovery o b ligat ions. According ly, the

Co mpany has 30 days to do the same

.
Petitioners ’ request for fee shifting, however, does not require additional time for
compliance

. The Company shall pay the requested fees imme di ately

.
A cco rdingly, the motion for contempt agains t the C om pany is granted

.

S incerely
,
/ s / Ka thaleen St. J. Mc Corm ick
Kathaleen St. Judg e McCormick Cha n cello r