Court Opinion

ID: 9956252
Source: CourtListenerOpinion
Date Created: 2024-04-01 17:02:30.199473+00
Date Added: 2024-06-11T08:15:06.719335
License: Public Domain

COURT OF CHANCERY
                                     OF THE
                               STATE OF DELAWARE
 LORI W. WILL                                                 LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR                                                  500 N. KING STREET, SUITE 11400
                                                                WILMINGTON, DELAWARE 19801-3734
                           Date Submitted: February 5, 2024
                             Date Decided: April 1, 2024

 Stephen C. Norman, Esquire                     Kurt M. Heyman, Esquire
 Matthew F. Davis, Esquire                      Aaron M. Nelson, Esquire
 Tyler J. Leavengood, Esquire                   Heyman Enerio Gattuso & Hirzel LLP
 Potter Anderson & Corroon LLP                  300 Delaware Avenue, Suite 200
 1313 North Market Street                       Wilmington, Delaware 19801
 Wilmington, Delaware 19801

 Gregory P. Williams, Esquire
 Rudolf Koch, Esquire
 Robert L. Burns, Esquire
 Matthew D. Perri, Esquire
 Edmond S. Kim, Esquire
 Richards, Layton & Finger, P.A.
 920 North King Street
 Wilmington, Delaware 19801

       RE:      ITG Brands, LLC v. Reynolds American Inc., et al.,
                C.A. No. 2017-0129-LWW

Dear Counsel:

       This letter resolves Philip Morris USA Inc.’s motion to intervene. Philip

Morris seeks to assert an unjust enrichment claim against the parties.                  But

intervention could have been sought long ago and comes on the cusp of trial. The

motion is denied as untimely.

I.     BACKGROUND

       The background of this action is described in memorandum opinions by this

court dated September 30, 2022 (the “2022 Opinion”) and October 2, 2023 (“2023
C.A. No. 2017-0129-LWW
April 1, 2024
Page 2 of 7

Opinion”).1 Capitalized terms used below have the same meanings given in the

2023 Opinion.

          In the 2022 Opinion, I held that the Florida Judgment Liability was an

Assumed Liability that ITG was responsible for under the APA.2 In the 2023

Opinion, I held that Reynolds was entitled to indemnification for the Losses

associated with the Florida Judgment Liability based on ITG’s sales of Acquired

Brand cigarettes.3 The amount of Reynolds’ damages will be determined after trial

this July.      The issues for trial include the potential application of a Profit

Adjustment allocation, which ITG avers may reduce the amount of indemnification

available to Reynolds.4

          The Profit Adjustment relates to annual payments to Florida, based on the

volume of ITG’s sales of the Acquired Brands, in connection with a settlement

agreement among Florida, Reynolds, and Philip Morris. The Profit Adjustment

formula has been in place since the Florida Judgment in 1998, and a separate

agreement between the Settling Defendants dictates allocation of the Profit

1
  ITG Brands, LLC v. Reynolds Am., Inc., 2022 WL 4678868 (Del. Ch. Sept. 30, 2022)
(“2022 Op.”); ITG Brands, LLC v. Reynolds Am., Inc., 2023 WL 6383240 (Del. Ch. Oct.
2, 2023) (“2023 Op.”).
2
    2022 Op. at *20.
3
    2023 Op. at *23.
4
    Id.
C.A. No. 2017-0129-LWW
April 1, 2024
Page 3 of 7

Adjustment among them.5 In general, the Profit Adjustment “applies if the Settling

Defendants’ aggregate net operating profits from domestic sales of cigarettes in the

current year exceed aggregate inflation-adjusted ‘base year’ profits from a 1997

base year.”6 It is intended to “ensure[] that if the Settling Defendants’ post-

settlement shipment volumes decrease but their profits increase, settlement

payments increase as well.”7

          In Philip Morris’s view, assessment of the Profit Adjustment at trial

implicates its own interests.        On October 31, 2023, Philip Morris moved to

intervene in this action so that it could advance an unjust enrichment claim against

ITG and Reynolds.8 It argues that since the “aggregate portion of the Profit

Adjustment payment allocated to Reynolds was reduced (because ITG did not join

the Florida Settlement), the portion allocated to Philip Morris was increased by the

exact same amount.”9

5
  ITG Brands, LLC’s Combined Opening Br. in Supp. of Mot. for Summ. J. on Remedies
and Answering Br. in Opp’n to Reynolds’ Mot. for Summ. J. (Dkt. 343) Ex. 5 at App. A;
Id. Ex. 8.
6
    2023 Op. at *3.
7
    Id.
8
    Id.; see Philip Morris USA, Inc.’s [Proposed] Compl. in Intervention (Dkt. 396).
9
    Philip Morris USA, Inc.’s Mot. to Intervene (Dkt. 396) (“Mot.”) ¶ 13.
 C.A. No. 2017-0129-LWW
 April 1, 2024
 Page 4 of 7

          After Reynolds and ITG opposed the motion,10 Philip Morris filed a reply,11

 and oral argument was held on February 5, 2024.12

II.       ANALYSIS

          Court of Chancery Rule 24 allows intervention by right or by permissive

 intervention.13 Rule 24(a)(2) requires the court to permit intervention when the

 movant “claims an interest relating to the property or transaction” at issue and “is

 so situated that disposing of the action may as a practical matter impair or impede

 the movant’s ability to protect its interest, unless existing parties adequately

 represent that interest.”14 Rule 24(b)(1)(b) permits intervention as a matter of the

 court’s discretion when the movant “has a claim or defense that shares with the

 main action a common question of law or fact.”15 Philip Morris argues that either

 provision provides a means for it to intervene.

 10
   Reynold’s Opp’n to Philip Morris USA Inc.’s Mot. to Intervene (Dkt. 401); ITG
 Brands, LLC’s Opp’n to Philip Morris USA Inc.’s Mot. to Intervene (Dkt. 403).
 11
      Dkt. 409.
 12
   Dkt. 410; see Tr. Of Oral Arg. on Philip Morris USA Inc.’s Mot. to Intervene (Dkt.
 411) (“Hr’g Tr.”).
 13
      Ct. Ch. R. 24.
 14
      Ct. Ch. R. 24(a)(2).
 15
      Ct. Ch. R. 24(b)(1)(b).
C.A. No. 2017-0129-LWW
April 1, 2024
Page 5 of 7

           Intervention of right and permissive intervention require a “timely

motion.”16 “Timeliness is a flexible concept, requiring consideration of all the

circumstances of a particular case.”17 A timeliness determination is fact specific

and discretionary.18          The court’s analysis is driven by two factors: “the

inexcusableness of the delay and the prejudice to existing parties.” 19 Neither

supports granting Philip Morris’s motion.

           First, Philip Morris’s delay is inexcusable. “[C]ourts have generally been

reluctant to allow intervention when the applicant appears to have been aware of

the litigation but has delayed unduly in seeking to intervene.”20 Philip Morris

could have sought intervention long before now and offers no reason for its failure

to do so.21

16
     Ct. Ch. R. 24(a), (b).
17
     Dugan v. Dineen, 1990 WL 82719, at *5 (Del. Ch. June 12, 1990).
18
   GMF ELCM Fund L.P. v. ELCM HCRE GP LLC, 2021 WL 4313430, at *10 (Del. Ch.
Sept. 22, 2021) (quoting Great Am. Leasing Corp. v. Republic Bank, 2003 WL 22389464,
at *1 (Del. Ch. Oct. 3, 2003)).
19
     Id.
20
  Great Am. Leasing, 2003 WL 22389464, at *1 (quoting 7C Charles Alan Wright,
Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1916 (2d ed.
1986)).
21
    See In re Reinz Wisconsin Gasket, LLC, 2023 WL 4986411, at *4 (Del. Ch. Aug. 3,
2023) (denying intervention where the movant “was aware of its interest in [the]
litigation and the steps needed to directly protect those interests” but offered “no
justification for its delay”).
C.A. No. 2017-0129-LWW
April 1, 2024
Page 6 of 7

         Philip Morris’s delay is measured in years. It entered its appearance in this

action in February 2017, in connection with the first motion hearing before

Chancellor Bouchard.22 The thrust of its present motion is that it has been wrongly

losing funds under the Profit Adjustment allocation since the Florida Judgment was

entered in 2018.23 Nothing prevented Philip Morris from arguing—in Florida or

Delaware—that ITG inequitably retained funds belonging to Philip Morris due to

the Profit Adjustment. At the most generous, Philip Morris could have intervened

after ITG was found liable to Reynolds in my 2022 Opinion.24 Yet Philip Morris

waited until the following October to seek intervention.

         Second, Philip Morris’s delay is compounded by the prejudice intervention

would inflict on the parties.25 Prejudice may arise when intervention would “delay

the termination of the litigation.”26 The parties have been litigating this action for

nearly seven years.         Liability and threshold remedy issues were resolved on

22
     Dkt. 15.
23
     Mot. ¶¶ 5, 17, 19, 38, 46.
24
   Dkt. 328; see Hr’g Tr. at 37 (Philip Morris’s counsel acknowledging that it could have
attempted to bring its claim in “October of 2022”).
25
   Great Am. Leasing, 2003 WL 22389464, at *1 (“The most important consideration in
deciding whether a motion for intervention is untimely is whether the delay in moving for
intervention will prejudice the existing parties to the case.” (quoting Wright et al., supra
note 20)).
26
  7C Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and
Procedure § 1916 (3d ed. 1998), Westlaw (database updated Sept. 2023).
C.A. No. 2017-0129-LWW
April 1, 2024
Page 7 of 7

summary judgment, and a two-day trial on damages begins in several months.

Adding Philip Morris’s unjust enrichment claim would inject new issues into and

risk postponing the conclusion of this long-pending matter.27

III.   CONCLUSION

       Philip Morris’s inexcusable delay and the potential disruption to this action

are grounds to reject intervention. The motion to intervene is denied. IT IS SO

ORDERED.

                                               Sincerely yours,

                                               /s/ Lori W. Will

                                               Lori W. Will
                                               Vice Chancellor

27
   See State v. MERSCORP, Inc., 2012 WL 1949867, at *1 (Del. Ch. May 23, 2012)
(denying intervention where proposed claims “could give rise to complicated issues of
fact and law that would not otherwise be implicated”); CAPM Corp. Advisors AB v.
Protegrity, Inc., 2001 WL 1360122, at *12 (Del. Ch. Oct. 30, 2001) (denying
intervention where it would require “further discovery” in a “dispute of narrow focus”);
Great Am. Leasing, 2003 WL 22389464, at *1 (“Courts routinely deny intervention when
‘trial has begun or is about to begin.’” (quoting Wright et al., supra note 20)).