Court Opinion

ID: 4579688
Source: CourtListenerOpinion
Date Created: 2020-10-22 17:02:49.661541+00
Date Added: 2024-06-11T09:28:14.246914
License: Public Domain

COURT OF CHANCERY
                                     OF THE
                               STATE OF DELAWARE
MORGAN T. ZURN                                                   LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR                                                     500 N. KING STREET, SUITE 11400
                                                                   WILMINGTON, DELAWARE 19801-3734

                                     October 22, 2020

    Kevin R. Shannon, Esquire                       Martin S. Lessner, Esquire
    Jaclyn C. Levy, Esquire                         M. Paige Valeski, Esquire
    Callan R. Jackson, Esquire                      Alberto E. Chávez, Esquire
    Potter Anderson & Corroon LLP                   Young Conaway Stargatt & Taylor, LLP
    1313 North Market Street, 6th Floor             1000 North King Street
    Wilmington, DE 19801                            Wilmington, DE 19801

         RE: POSCO Energy Co., Ltd. v. FuelCell Energy, Inc.,
             Civil Action No. 2020-0713-MTZ

Dear Counsel,

         In this books and records action, I write to address the motion for leave to file

an amended and supplemental complaint filed by plaintiff POSCO Energy Co., Ltd.

(“POSCO”) under Court of Chancery Rule 15(d). Under that Rule, the Court may

allow a party to serve a “supplemental pleading setting forth transactions or

occurrences or events which have happened since the date of the pleading sought to

be supplemented.”1 Leave to supplement is liberally granted, unless, in a narrowly

construed exception, there is inexcusable delay and prejudice to the defendant.2

1
    Ct. Ch. R. 15(d).
2
    Parnes v. Bally Ent. Corp., 2000 WL 193112, at *2 (Del. Ch. Feb. 8, 2000).
POSCO Energy Co. Ltd. v. FuelCell Energy, Inc.,
Civil Action No. 2020-0713-MTZ
October 22, 2020
Page 2 of 7

Here, POSCO did not delay, and the defendant suffered no prejudice; the defendant

does not contend otherwise. The motion for leave is granted.

         Defendant FuelCell Energy, Inc. (“FuelCell” or “the Company”) asks that

under Lillis v. AT&T Corp.,3 POSCO’s leave to amend be conditioned on POSCO

paying a portion of FuelCell’s fees and costs incurred in investigating and moving

to dismiss POSCO’s first complaint. For the reasons that follow, that request is

denied.

         POSCO’s first demand to inspect books and records, and its first complaint

dated September 1, 2020, alleged POSCO had standing to seek FuelCell’s books and

records under 8 Del. C. § 220(a)(1) because it was a record stockholder.4 On

September 14, FuelCell’s counsel wrote POSCO’s counsel to assert that POSCO

was not a record stockholder and that POSCO knew this when it submitted the first

demand and complaint.5           According to FuelCell, POSCO then attempted to

demonstrate to FuelCell’s counsel that POSCO was a record stockholder using “false

evidence”6 while pressing forward on its motion to expedite before this Court.

3
    896 A.2d 871, 879 (Del. Ch. 2005).
4
    See Docket Item (“D.I.”) 1 ¶ 6.
5
    D.I. 5, Ex. A at 2.
6
    D.I. 27 at 3.
POSCO Energy Co. Ltd. v. FuelCell Energy, Inc.,
Civil Action No. 2020-0713-MTZ
October 22, 2020
Page 3 of 7

          After much correspondence between counsel,7 on September 21, POSCO

informed FuelCell’s counsel that it had “determined that POSCO is now a beneficial

owner of its FuelCell stock,” and that POSCO intended to serve a new demand.8

POSCO’s counsel also agreed that, in light of the new demand, FuelCell “need not

respond to the original complaint.”9 Later that day, FuelCell nevertheless moved to

dismiss that complaint for lack of standing as a record stockholder.10

         The next day, POSCO sent FuelCell’s counsel a “courtesy copy” of a new

demand providing it is a beneficial owner, rather than a record owner, of FuelCell

shares.11       That distinction motivates POSCO’s amended complaint as well.12

FuelCell asks that POSCO’s leave to amend be conditioned on paying FuelCell’s

fees and costs incurred in investigating whether POSCO was a record stockholder,

investigating whether POSCO is a beneficial stockholder, and moving to dismiss

POSCO’s first complaint alleging POSCO was a record stockholder.13

7
    E.g., D.I. 14, Ex. E.
8
Id. at 4.
9
Id. at 1.
10
     D.I. 12. September 21 was FuelCell’s deadline for responding to the first complaint.
11
     D.I. 19.
12
     D.I. 24, Ex. B ¶¶ 6, 19–20.
13
     D.I. 27 ¶ 1.
POSCO Energy Co. Ltd. v. FuelCell Energy, Inc.,
Civil Action No. 2020-0713-MTZ
October 22, 2020
Page 4 of 7

        Leave to amend and a conditional allowance are both discretionary.

        “A conditional allowance is within the court’s discretion under Rule 15”
        for a reason. That option permits the court to balance the interest in
        deciding a case on its merits with the costs incurred when parties do not
        timely comply with pleading requirements.14

Under that balancing, this Court has declined to condition amendment on fees when

“the plaintiffs’ amendments represent good faith attempts to cure alleged pleading

defects the defendants identified,” as distinguished from Lillis, “in which the

plaintiffs sought leave to amend only after defending their pleading with full briefing

and oral argument.”15 The Court has awarded a defendant’s fees where, upon

receiving the adversary’s argument for judgment on the pleadings, the party with the

pleading burden “chose not to seek leave to amend . . . and instead stood on its

defective pleading, making a series of meritless arguments, only to beg for leave to

amend at oral argument. As a result, [the adversary] incurred substantial expense in

briefing and arguing its motion” that was wasted by the decision granting belated

leave to amend.16

14
  Cypress Assocs., LLC v. Sunnyside Cogeneration Assocs. Project, 2007 WL 148754, at
*19 (Del. Ch. Jan 17, 2007) (quoting Lillis, 896 A.2d at 879).
15
     NACCO Indus., Inc. v. Applica Inc., 2008 WL 2082145, at *2–3 (Del. Ch. May 7, 2008).
16
   Cypress Assocs., 2007 WL 148754, at *19; see also Franklin Balance Sheet Inv. Fund
v. Crowley, 2006 WL 3095952, at *6 (Del. Ch. Oct. 19, 2006) (shifting fees upon granting
leave to amend where the plaintiffs were “glib” and their actions “resulted in at least some
POSCO Energy Co. Ltd. v. FuelCell Energy, Inc.,
Civil Action No. 2020-0713-MTZ
October 22, 2020
Page 5 of 7

         Here, while POSCO changed its position on record ownership in response to

FuelCell’s observations, it did what the conditional allowance cases instruct: it

sought leave to amend, rather than defending a wrongful position by opposing a

motion to dismiss through briefing and argument. And POSCO changed its position

before FuelCell filed its motion to dismiss, not after.17 “This is not a case, such as

Franklin Balance or Lillis, in which the plaintiffs sought leave to amend only after

defending their pleading with full briefing and oral argument.”18

         Indeed, FuelCell seeks a conditional allowance based not on the timing of

POSCO’s leave request, but rather on FuelCell’s theory, which POSCO disputes,

that POSCO knowingly made false allegations in its original complaint and waved

“false evidence” before FuelCell.19 FuelCell relies on cases that shifted fees under

the bad faith litigation exception, not as part of a conditional allowance.20 FuelCell’s

accusations are serious, but not properly presented.

unnecessary briefing and argument by Defendants, to say nothing of the toll on the Court’s
time and resources”).
17
     Compare D.I. 14, Ex. E at 4, with D.I. 12.
18
  NACCO Indus., Inc., 2008 WL 2082145, at *3 (citing Franklin Balance, 2006 WL
3095952, at *6, and Lillis, 896 A.2d at 879).
19
     See D.I. 27 ¶¶ 2, 21.
20
  D.I. 27 at 11 n.6 (citing Lynch v. Gonzalez, 2020 WL 5648567, at *3 (Del. Ch. Sept. 22,
2020) and In re Estate of DeGroat, 2020 WL 2078992, at *28 (Del. Ch. Apr. 30, 2020)).
POSCO Energy Co. Ltd. v. FuelCell Energy, Inc.,
Civil Action No. 2020-0713-MTZ
October 22, 2020
Page 6 of 7

         FuelCell has invoked Court of Chancery Rule 11 casually and repeatedly in

this matter.21 The Court may only determine if Rule 11(b) was violated “after notice

and a reasonable opportunity to respond,” and a litigant may only initiate those

proceedings by “[a] motion for sanctions . . . made separately from other motions or

requests.”22 Under that plain language, if FuelCell seeks sanctions for conduct it

believes violates Rule 11, it must do so in an independent motion, not in argument

opposing unconditional leave to amend.            And, in my view, it is distracting,

detrimental to the famed collegiality of the Delaware bar, and counterproductive to

the “just, speedy and inexpensive determination” of judicial proceedings to summon

Rule 11 in rhetoric.23

21
     E.g., D.I. 14, Ex. E at 2–3.
22
   Ct. Ch. R. 11(c); id. 11(c)(1)(A); see Crumplar v. Superior Ct. ex rel. New Castle Cnty.,
56 A.3d 1000, 1005 (Del. 2012) (noting Superior Court Rule 11’s identical language
“provides a trial judge with authority to impose an ‘appropriate sanction’ on attorneys who
violate Rule 11(b), but only after notice and a reasonable opportunity to respond”). “[F]or
this Court to address directly an alleged violation of the Rules, that violation must involve
prejudice to the fairness of the proceeding itself. Furthermore, such a finding must be
supported by clear and convincing evidence.” OptimisCorp. v. Waite, 2015 WL 5147038,
at *6 (Del. Ch. Aug. 26, 2015) (citation and internal quotation marks omitted).
23
  Ct. Ch. R. 1; see Coughlin v. S. Canaan Cellular Invs., LLC, 2012 WL 2903924, at *2
(Del. Ch. July 6, 2012) (“‘[L]awyers should think twice, three times, four times, perhaps
more before seeking Rule 11 sanctions or moving for fees under the bad faith exception.
These types of motions are inflammatory.’ An unwarranted motion for fee shifting under
the bad faith exception can itself justify a finding of bad faith and fee shifting.” (quoting
Katzman v. Comprehensive Care Corp., C.A. No. 5892–VCL, at 13 (Del. Ch. Dec. 28,
2010) (TRANSCRIPT)).
POSCO Energy Co. Ltd. v. FuelCell Energy, Inc.,
Civil Action No. 2020-0713-MTZ
October 22, 2020
Page 7 of 7

     Accordingly, I deny FuelCell’s request for conditional allowance based on the

timing of POSCO’s amended demand and request for leave to amend the complaint.

     IT IS SO ORDERED.

                                                    Sincerely,

                                                    /s/ Morgan T. Zurn

                                                    Vice Chancellor

MTZ/ms

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