Court Opinion

ID: 4441457
Source: CourtListenerOpinion
Date Created: 2019-09-25 19:05:29.107016+00
Date Added: 2024-06-11T13:28:08.031875
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

MS. MARY GIDDINGS WENSKE,                        )
INDIVIDUALLY AND AS TRUSTEE OF                   )
THE THOMAS HUNTER GIDDINGS, JR.                  )
TRUST U/W/O THOMAS H. GIDDINGS                   )
DATED 5/23/2000,                                 )
                                                 )
                          Plaintiffs,            )
                                                 )
                    v.                           )       C.A. No. 2017-0699-JRS
                                                 )
BLUE BELL CREAMERIES, INC., BLUE                 )
BELL CREAMERIES, U.S.A., INC.,                   )
PAUL W. KRUSE, JIM E. KRUSE,                     )
HOWARD W. KRUSE, GREG BRIDGES,                   )
RICHARD DICKSON, WILLIAM J.                      )
RANKIN, DIANA MARKWARDT,                         )
JOHN W. BARNHILL, JR., PAUL A.                   )
EHLERT, DOROTHY MCLEOD                           )
MACINERNEY, PATRICIA RYAN,                       )
                                                 )
                          Defendants,            )
                                                 )
                         and                     )
                                                 )
BLUE BELL CREAMERIES, L.P.,                      )
                                                 )
                          Nominal Defendant.     )

            ORDER GRANTING APPLICATION TO CERTIFY
                   INTERLOCUTORY APPEAL

      WHEREAS,           the   newly-created   Special     Litigation   Committee

(the “Committee”) of Nominal Defendant Blue Bell Creameries, L.P. (“Blue Bell”)

intervened in this action for the limited purpose of moving to stay the litigation
pending the results of its investigation of the derivative claims asserted here

(D.I. 102, 103);

         WHEREAS, Plaintiffs opposed the Committee’s Motion to Stay (D.I. 128);

         WHEREAS, by Opinion dated August 30, 2019 (D.I. 150), the Court denied

the Committee’s Motion to Stay upon concluding the Committee had not been

properly formed, as a matter of the law, because the Court had already determined

that the sole appointing authority, Blue Bell’s general partner, Blue Bell Creameries,

Inc. (“BBGP”), was unfit to consider a demand to pursue the derivative claims

(the “Opinion”)1;

         WHEREAS, on September 9, 2019, the Committee timely filed an application

for certification of an interlocutory appeal of the Opinion (the “Application”)

(D.I. 151);

         WHEREAS, the Application asserts three grounds for interlocutory appeal

under Supreme Court Rule 42: (1) “The question of whether a sole general partner

of a limited partnership (deemed to have a disabling conflict of interest for purposes

of demand futility) is stripped of the power and authority to act through a special

committee of its board of directors comprised of disinterested and independent

directors to utilize the process created by Zapata is an important question of

1
    Wenske v. Blue Bell Creameries, Inc., 2019 WL 4051007 (Del. Ch. Aug. 28, 2019).

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Delaware law that the Supreme Court promptly should resolve”—presumably

relying upon Supreme Court Rule 42(b)(iii)(A) and perhaps, although unclear,

Rule 42(b)(iii)(B)2; (2) the question of law decided by the Opinion “relates to the

construction or application of a statute of this State”—6 Del. C. § 17-403(c)—that

should be settled by the Supreme Court promptly—presumably relying upon

Supreme Court Rule 42(b)(iii)(C)3; and (3) “the review of the interlocutory order

may terminate the litigation” if the Supreme Court were to reverse the Opinion and

hold that the Committee was properly formed, and if the Committee were then to

determine that the claims asserted in this litigation should not be prosecuted—

presumably relying upon Supreme Court Rule 42(b)(iii)(G)4;

          WHEREAS, on September 18, 2019, Plaintiffs opposed the Application

(the “Opposition”) (D.I. 157); and

          WHEREAS, the Court has carefully considered the Application, the

Opposition and the criteria set forth in Supreme Court Rule 42,

2
  Application ¶ 8. I say “presumably” because the Committee did not tie its arguments
to the specific provisions of Supreme Court Rule 42 to which the argument(s) relate.
3
    Application ¶ 7.
4
    Id.

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          IT IS HEREBY ORDERED, this             25th   day of September, 2019, that:

          1.    Supreme Court Rule 42(b)(i) provides, “[n]o interlocutory appeal will

be certified by the trial court or accepted by this Court unless the order of the trial

court decides a substantial issue of material importance that merits appellate review

before a final judgment.”5 Rule 42(b)(ii) provides that instances where the trial

court certifies an interlocutory appeal “should be exceptional, not routine, because

[interlocutory appeals] disrupt the normal procession of litigation, cause delay, and

can threaten to exhaust scarce party and judicial resources.” 6         For this reason,

“parties should only ask for the right to seek interlocutory review if they believe in

good faith that there are substantial benefits that will outweigh the certain costs that

accompany an interlocutory appeal.”7

          2.    When certifying an interlocutory appeal, “the trial court should identify

whether and why the likely benefits of interlocutory review outweigh the probable

costs, such that interlocutory review is in the interests of justice. If the balance is

uncertain, the trial court should refuse to certify the interlocutory appeal.”8

5
    Supr. Ct. R. 42(b)(i).
6
    Supr. Ct. R. 42(b)(ii).
7
    Id.
8
    Supr. Ct. R. 42(b)(iii).

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          3.     After careful review, I am satisfied the Opinion “decide[d] a substantial

issue of material importance that merits appellate review before a final judgment,”9

that “the likely benefits of interlocutory review outweigh the probable costs,”10 and

that “[t]he interlocutory order involves a question of law resolved for the first time

in this State.”11

          4.     First, the Opinion decided a substantial issue in that it decided an issue

that “relate[s] to the merits of the case,” albeit somewhat remotely.12 Specifically,

the Opinion determined that BBGP, as Blue Bell’s sole general partner, had to be

free from conflict before it could delegate its management of the litigation asset to a

special litigation committee.       Because the Court already has determined BBGP

could not have objectively considered a limited partner’s demand that it pursue the

derivative claims at issue here, it follows that BBGP, as an entity, cannot delegate

the authority to determine whether to prosecute the derivative claims to a committee

of its board of directors or to agents appointed by any such committee. 13             This

9
     Supr. Ct. R.42(b)(i).
10
     Supr. Ct. R. 42(b)(iii).
11
     Supr. Ct. R. 42(b)(iii)(A).
12
  Castaldo v. Pittsburgh-Des Moines Steel Co., Inc., 301 A.2d 87, 87 (Del. 1973)
(“Generally speaking, the substantive element of the appealability of an interlocutory order
must relate to the merits of the case . . . .”).
13
     Wenske, 2019 WL 4051007, at *4, *6.

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determination restricted, if not eliminated, an important aspect of BBGP’s right to

manage Blue Bell. 14         And, while I acknowledge Plaintiffs’ argument that the

Opinion addressed a motion to stay, and therefore does not relate directly to

“the merits of the case,” the practical effect of the Opinion is that the Committee will

have no say in the management of the litigation asset. This, in turn, means the

Committee will have no right or ability to terminate the litigation if that is the

outcome it would have deemed justified after it completed its investigation. Thus,

while the Opinion did not adjudicate the merits of the case, it did “relate to the

merits.”15

         5.     Second, the Opinion “involved a question of law resolved for the first

time in this State” 16 —that is, the authority (or not) of a lone, conflicted general

partner to delegate its management of a litigation asset to a special litigation

committee. While the matter is settled in the corporate context, where the outcome

14
   See generally 6 Del. C. § 17-403 (“Except as provided in this chapter or in the
partnership agreement, a general partner of a limited partnership has the rights and powers
and is subject to the restrictions of a partner in a partnership that is governed by the
Delaware Uniform Partnership Law in effect on July 11, 1999 (6 Del. C. § 1501 et seq.)”).
15
     Castaldo, 301 A.2d at 87.
16
     Supr. Ct. R. 42(b)(iii)(A).

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here would have been different,17 the question has not been decided in the limited

partnership/alternative entity context.18

         6.     Third, while the Opinion did not directly construe a statute, the

Committee is correct that the Opinion did implicate a Delaware statute—6 Del. C.

§ 17-403(c)—to the extent that the Opinion could be interpreted, in a stretched

reading, to limit the general partner’s statutory right to delegate management

authority to “1 or more persons,” including to “agents, officers or employees of the

general partner. . . .”       In this sense, it is possible the Application satisfies

Rule 42(b)(iii)(C).19

         7.     Fourth,     interlocutory   review    may     terminate    the    litigation.

As previously noted, if the Supreme Court reverses the Opinion, then the Committee

will be permitted to conduct its investigation and may determine that the litigation

17
    Specifically, as acknowledged in the Opinion, the seminal Zapata decision makes clear
that conflicted members of a corporate board of directors may delegate the management of
a litigation asset to a special litigation committee of the board comprised of disinterested,
independent board members. In the limited partnership context, however, conflict is
assessed at the entity level, not by counting heads among the individuals comprising the
governing body of the general partner. Accordingly, since the authority of the special
litigation committee flows from the general partner that appointed it, that general partner,
as an entity, must be free from conflict in order for the committee to be a duly authorized
decision maker for the limited partnership. Wenske, 2019 WL 4051007, at *3 (citing to
Zapata Corp. v. Maldonado, 430 A.2d 779, 786 (Del. 1981)).
18
   Id. at *6 (observing that, in the corporate context, BBGP’s actions “likely would be
effective.”).
19
     Supr. Ct. R. 42(b)(iii)(C).

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should be dismissed.      If this Court were to conclude the Committee was well

functioning, and that its recommendation otherwise complies with Delaware law,

then the action would be dismissed.20 On the other hand, if appellate review is not

available now, then the Committee will never have the right to manage the litigation

asset or, at least, not in real time. While I am satisfied the Committee has no such

right under the circumstances presented here, I am also satisfied it should have the

opportunity to make its contrary arguments to the Supreme Court before Plaintiffs’

derivative claims are finally adjudicated on the merits.

       8.     For the foregoing reasons, the Application is GRANTED.

                                                 /s/ Joseph R. Slights III
                                                      Vice Chancellor

20
   Kaplan v. Wyatt, 484 A.2d 501, 519–20 (Del. Ch. 1984) (granting a motion to dismiss
after finding that a special litigation committee’s motion was made in “good faith” after a
“reasonable and thorough investigation.”).

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