Opinion ID: 1996638
Heading Depth: 1
Heading Rank: 9

Heading: Plaintiffs' Claims of Newly Discovered Evidence

Text: In Grobow II, the first two questions enumerated above raise related issues. Therefore, we will take up both questions. They are: (1) whether the Court of Chancery erred in granting the plaintiffs leave to file a second amended complaint; and (2) if not, whether the court erred in confining its demand futility analysis of the Grobow Second Amended Complaint to plaintiffs' claims based on newly discovered evidence. Defendants assert that the Court of Chancery erred in granting plaintiffs leave to file a second amended complaint. Plaintiffs assert that the trial court erred in limiting its Rule 23.1 demand analysis to plaintiffs' newly discovered evidence claims. Both claims of error arise from the trial court's interlocutory order granting plaintiffs relief under Rule 60(b) and leave to file a second amended complaint based on plaintiffs' claim of newly discovered evidence. As previously noted, on May 16, 1988, two months after this Court's decision in Grobow I, plaintiffs filed motions in the Court of Chancery both to vacate the judgment in Grobow I dismissing plaintiffs' suits and for leave to file a second amended complaint. Plaintiffs' motions were filed under Court of Chancery Rules 60(b)(2) and Rule 15(a). Plaintiffs' newly discovered evidence consisted of: (1) the deposition testimony of two of GM's outside directors, James H. Evans and Thomas H. Wyman, obtained by the Grobow plaintiffs in May or June 1987, which was taken by other litigants in a related New York State court action; [1] and (2) disclosures of important and relevant facts contained in a book titled Call Me Roger, published in early 1988. [2] In seeking Rule 60(b) relief, plaintiffs argued that the newly discovered evidence constituted material evidence that would satisfy the pleading requirements of Rule 23.1 for demand futility. That evidence was that GM's outside directors were misled about key provisions and consequences of the Perot buy-out and that the GM Board's approval of the buy-out was obtained in a hasty and ill-informed, and therefore grossly negligent, manner. Plaintiffs so alleged in a proposed Second Amended Complaint, which also restated all of plaintiffs' original claims which had been pleaded in Grobow I. On November 25, 1988, the trial court, over defendants' objections, granted plaintiffs relief under Rule 60(b) and leave to file the Second Amended Complaint. A dispute then arose between the parties over whether the court's order should simply open the Grobow I judgment, as defendants contended, or should vacate the judgment, as plaintiffs contended; and the court concluded that the prudent course was to leave the issue undecided for the present, yet allow the litigation to proceed. [3] Defendants contend that the Court of Chancery erred in granting plaintiffs leave to file the Second Amended Complaint. They base their argument for reversal primarily upon plaintiffs' concession that they had knowledge of the newly discovered evidence while they prosecuted their appeal of Grobow I before this Court. It appears to be undisputed that plaintiffs were in possession of most, if not all, of this evidence: at least one month before plaintiffs filed their opening brief on appeal in Grobow I; at least six months before oral argument before this Court in Grobow I; and at least nine months before this Court issued its decision in Grobow I on March 15, 1988. Defendants argue that plaintiffs' withholding of this evidence obviously reflected a tactical decision to await the outcome of Grobow I, and that plaintiffs' pursuit of their Grobow I appeal, without disclosing either to this Court or to the Court of Chancery this newly discovered evidence, should bar plaintiffs' claim for Rule 60(b) relief. The trial court rejected defendants' contention that plaintiffs' Rule 60(b) application was untimely because deliberately delayed to await the outcome of this Court's decision in Grobow I. The court reasoned: If plaintiffs['] appeal had fully succeeded, then no Rule 60(b) motion would be required. Even if the appeal were unsuccessful, an affirming opinion might provide useful guidance in any further proceedings in this case, as well as in future, cases. To hold that the plaintiffs were equitably compelled to forego their right to prosecute a Rule 60(b) motion as a condition to preserving their appellate remedy in this case, where the complaint had been dismissed at the very threshold and without discovery, would, in my opinion, be unreasonable and unfair. Delaware law on standards governing the grant or denial of a Rule 60(b)(2) motion is well settled. An applicant seeking relief from a final judgment, order or proceeding [on the grounds of] newly discovered evidence must show that: the newly discovered evidence has come to his knowledge since the trial; that it could not, in the exercise of reasonable diligence, have been discovered for use at the trial; that it is so material and relevant that it will probably change the result if a new trial is granted; that it is not merely cumulative or impeaching in character; and that it is reasonably possible that the evidence will be produced at the trial. In re Missouri-Kansas Pipe Line Co., Del. Supr., 2 A.2d 273, 278 (1938) (citations omitted). These standards have long been the law of Delaware. See, e.g., Poole v. N.V. Deli Maatschappij, Del.Ch., 257 A.2d 241, 243 (1969); Kennedy v. Emerald Coal & Coke Co., Del.Supr., 42 A.2d 398, 404 (1944) (both cases quoting In re Missouri ). But cf. Bachtle v. Bachtle, Del.Supr., 494 A.2d 1253, 1255-56 (1985) (holding that in order to qualify as newly discovered evidence, the evidence must have been in existence and hidden at the time of judgment) (quoting Ryan v. United States Lines Co., 303 F.2d 430, 434 (2d Cir.1962)). In granting plaintiffs relief from the judgment, the trial court ruled: On the basis of the limited record before me, I cannot conclude as a matter of law that the new evidence, as reflected in the proposed amended pleading, would not change the outcome on a renewed motion to dismiss under Rule 23.1. Defendants' cross-appeal of the ruling is not for error of law in applying the standards, but for abuse of discretion in not finding the relief time barred. Defendants assert that plaintiffs' tactical delay in presenting their new evidence to the trial court, or to this court while the appeal of Grobow I was pending, should bar recourse to Rule 60(b). We disagree with the trial court's finding that plaintiffs acted appropriately in awaiting the outcome of this Court's decision in Grobow I before seeking Rule 60(b) relief. Plaintiffs' delay in seeking relief deviated from federal practice governing the disclosure of material evidence discovered pending an appeal. An appellant seeking relief from a judgment on the basis of newly discovered evidence should promptly apply for relief to the court which entered the judgment. If the [trial] court indicates that it will allow the motion the [appellate court] should then be requested to remand the cause. Egger v. Phillips, 710 F.2d 292, 329 (7th Cir.1983) (quoting Binks Mfg. Co. v. Ransburg Electro-Coating Corp., 281 F.2d 252, 260 (7th Cir.1960), cert. dismissed, 366 U.S. 211, 81 S.Ct. 1091, 6 L.Ed.2d 239 (1961)), cert. denied, 464 U.S. 918, 104 S.Ct. 284, 78 L.Ed.2d 262 (1983). See also 11 C. Wright & A. Miller, Federal Practice and Procedure § 2873, at 263-66 (1973 & Supp.1990). While Delaware precedent is less well developed, it is no different. Star Pub. Co. v. Martin, Del. Supr., 95 A.2d 465, 468-69 (1953) (If [the appellate court] reaches the conclusion that the judgment would probably be reversed in the lower court because of these newly found facts, the appellate court will remand.). See Schmeusser v. Schmeusser, Del.Supr., 559 A.2d 1294, 1296 (1989) (appeal stayed pending remand to trial court for determination of an issue not previously heard). The likely result of a party's failure to promptly invoke a Rule 60(b) claim while an appeal is pending is that the appellate court may render an advisory opinion or decide an issue that is arguably moot or upon an outdated factual record. Stroud v. Milliken Enterprises, Inc., Del.Supr., 552 A.2d 476, 480 (1989). Whenever a court examines a matter where facts are not fully developed, it runs the risk not only of granting an incorrect judgment, but also of taking an inappropriate or premature step in the development of the law. Id. at 480. Judicial resources may not be squandered for academic exercises. See id. at 479-480. While there is no time limit on the filing of a Rule 60(b) motion, Swann v. Carey, Del.Supr., 272 A.2d 711, 712 (1970), plaintiffs were under an obligation to act without unreasonable delay. Schremp v. Marvel, Del.Supr., 405 A.2d 119, 120 (1979). The question becomes whether plaintiffs' apparent decision to await the outcome of Grobow I before seeking relief from the judgment below was so unreasonable as to foreclose relief. The court found plaintiffs to have pursued their appeal in good faith and not to have behaved inequitably. Our standard of review of the question presented and the court's findings is not whether we would have reached the same result as the trial court, but whether the court's ruling is based on conscience and reason as opposed to capriciousness or arbitrariness. Chavin v. Cope, Del.Supr., 243 A.2d 694, 695 (1968); Pitts v. White, Del. Supr., 109 A.2d 786, 788 (1954). Applying this standard, we decline to find the trial court to have abused its discretion in granting plaintiffs leave to file a Second Amended Complaint. We turn to plaintiffs' assertion that the trial court erred in confining its demand futility analysis of the Grobow Second Amended Complaint to plaintiffs' claims based on newly discovered evidence. Plaintiffs contend that the court erred as a matter of law and abused its discretion in refusing to reconsider their newly developed allegations of waste, self-interest and entrenchment as well as plaintiffs' newly stated claims that the GM outside directors failed to exercise due care. The premise for their contention is their construction of the record that the trial court's grant to plaintiffs of relief under Rule 60(b) for the purpose of filing a Second Amended Complaint was unconditional. Therefore, plaintiffs argue, their Second Amended Complaint had the legal effect of superseding and rendering null and void all prior pleadings, including the Rule 23.1 rulings of the trial court in Grobow I, and presumably of this Court as well. The Court of Chancery's asserted error was in failing to treat the entire Second Amended Complaint as a tabula rasa, which would require it to reapply its demand futility analysis under Rule 23.1 to all repleaded claims. A court has broad authority, as well as discretion, in fashioning the terms of an order granting relief from judgment under Rule 60(b). 7 J. Moore & J. Lucas, Moore's Federal Practice ¶ 60.19, at 60-166 (2d ed. 1990). Plaintiffs do not dispute this proposition. Instead, they contend that because the trial court's Rule 60(b) order granting plaintiffs relief and leave to file their amended complaint failed to include any conditions, they were entitled as a matter of law under the liberal precepts of Rule 15(a) to start afresh in amending their complaint. We find plaintiffs' argument for converting a clearly discretionary matter into a claim of error of law specious and disingenuous. A court's broad discretionary authority to determine the scope of relief to be granted under Rule 60(b) clearly extends to the framing of the issues to be relitigated. The standard of abuse of discretion controls both a review of the trial court's grant of Rule 60(b) relief and the extent of the relief granted. The record also rebuts plaintiffs' claim of surprise at the trial court's imposition of retroactive conditions on their new complaint by limiting the renewed issues of demand futility to the newly discovered evidence. The dispute over whether a case for grant of Rule 60(b) relief had been stated, as well as the breadth of the relief to be granted, extended over an eight month period. The record is also clear that the focus of the Rule 60 claim was the issues raised by the newly discovered evidence. That is patently clear from the court's November 25, 1988 decision: The defendants first argue that the plaintiffs' new evidence does not constitute `newly discovered evidence,' because it is not `... so material and relevant that it would probably change the result,' as required by Chancery Rule 60(b)(2).       On the basis of the limited record before me, I cannot conclude as a matter of law that the new evidence, as reflected in the proposed amended pleading, would not change the outcome on a renewed motion to dismiss under Rule 23.1. The deposition testimony of the two outside GM directors was taken in the Hart actions in May and June, 1987, i.e., after this litigation had been dismissed. That testimony forms the basis of new allegations  not pleaded in the prior (dismissed) complaint  that GM's outside directors were misled about certain key provisions and consequences of the Perot buy out, and that GM's Board approved the buyout in a hasty, ill-informed, and therefore grossly negligent manner. Plaintiffs' claim of surprise also cannot be squared with the parties' ensuing dispute over the appropriate form of order to be entered on the trial court's decision. Plaintiffs contended that the Grobow I judgment should be vacated; defendants argued that the judgment should, at most, be opened. The court's decision to enter a form of order which left that issue undecided for the present belies plaintiffs' claim of surprise, unfairness and retroactivity in the court's ultimate decision to limit its demand futility analysis to the newly discovered evidence claims. The court's failure to resolve the issue a year earlier was, admittedly, a mistake. The court saw its mistake when plaintiffs first asserted their tabula rasa argument. The court then explicitly disavowed any earlier intent: to allow the plaintiffs to replead and reargue legal theories and arguments previously advanced, or to plead variants of those theories that could have been, but were not, previously alleged and argued, in connection with the earlier Rule 23.1 dismissal motion. Manifestly the plaintiffs could not have achieved that result if they had filed a new action, because they would have been barred by the doctrine of res judicata.       Essentially the Court here granted the plaintiffs leave to file a new complaint, subject to the condition that only those claims that were based upon newly discovered evidence  the only rationale for granting Rule 60(b) relief at all  would be cognizable. To allow the plaintiffs to convert their newly amended complaint into a vehicle to reallege and reargue earlier pleaded claims or theories (or to assert theories or claims that could have been, but were not, alleged and argued at that earlier stage), would run counter to that rationale and defeat the very purpose for granting the Rule 60(b) remedy. On this record the trial court cannot be fairly charged with imposing retroactive conditions on its grant of Rule 60(b) relief. We also find no merit to plaintiffs' contentions that the Court of Chancery abused its discretion in limiting its second demand futility analysis to plaintiffs' claims based on newly discovered evidence. Any other ruling would have been untenable, as it would have rendered two courts' reviews of plaintiffs' prior claims of demand futility, based on director self-interest, entrenchment and claims of waste, academic exercises, and rendered plaintiffs' efforts an abuse of the derivative process and Rule 60(b).