Court Opinion

ID: 9945059
Source: CourtListenerOpinion
Date Created: 2024-02-26 22:03:43.506575+00
Date Added: 2024-06-11T14:25:21.415734
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

STEWART N. GOLDSTEIN, M.D., individually and           )
on behalf of all others similarly situated,            )
                                                       )
             Plaintiff,                                )
                                                       )
       v.                                              )      C.A. No. 2020-1061-JTL
                                                       )
ALEXANDER J. DENNER, SARISSA CAPITAL                   )
MANAGEMENT, L.P., SARISSA CAPITAL                      )
DOMESTIC FUND LP, SARISSA CAPITAL                      )
OFFSHORE MASTER FUND LP, and SARISSA                   )
CAPITAL MANAGEMENT GP LLC,                             )
                                                       )
             Defendants.                               )

                 MEMORANDUM OPINION DENYING
             CERTIFICATION OF INTERLOCUTORY APPEAL

                          Date Submitted: February 15, 2024
                           Date Decided: February 26, 2024

Kevin H. Davenport, John G. Day, Jason W. Rigby, Kirsten M. Valania, PRICKETT,
JONES & ELLIOTT, P.A., Wilmington, Delaware; R. Bruce McNew, COOCH &
TAYLOR P.A., Wilmington, Delaware; Christopher H. Lyons, ROBBINS GELLER
RUDMAN & DOWD LLP, Wilmington, Delaware; Randall J. Baron, Rick T. Atwood,
ROBBINS GELLER RUDMAN & DOWD LLP, San Diego, California; Brett
Middleton, JOHNSON FISTEL, LLP, San Diego, California; Attorneys for Plaintiff.

Stephen E. Jenkins, Richard D. Heins, ASHBY & GEDDES, P.A., Wilmington,
Delaware; Tariq Mundiya, Sameer Advani, Richard Li, M. Annie Houghton-Larsen,
WILLKIE FARR & GALLAGHER LLP, New York, New York; Attorneys for
Defendants Alexander J. Denner, Sarissa Capital Management L.P., Sarissa Capital
Domestic Fund LP, Sarissa Capital Offshore Master Fund LP, and Sarissa Capital
Management GP LLC.

LASTER, V.C.
       Defendant Alexander Denner is the principal of Sarissa Capital, an activist

hedge fund.1 In 2017, he was also a director of Bioverativ, Inc., a publicly traded

biopharmaceutical company. The plaintiff contends that Denner and Sarissa engaged

in insider trading after Sanofi S.A. approached Denner about acquiring Bioverativ.

       After the close of discovery, the plaintiff moved for sanctions (the “Sanctions

Motion”). The Sanctions Motion invoked Court of Chancery Rule 37(e) and argued

that the defendants failed to preserve electronically stored information (“ESI”).

       The defendants did not dispute the operative facts:

•      None of the Sarissa custodians had any responsive texts.

•      Denner does not know when he lost his texts. He thinks he may have lost them
       when he upgraded his phone in October 2021, after the plaintiff served his
       document requests in this action.

•      Mark DiPaolo, Sarissa’s general counsel, also does not know when he lost his
       texts. He thinks he may have lost them when he had his phone repaired in
       October 2020, after dropping it into a swimming pool.

•      In 2018, Denner received two litigation holds instructing him to take
       affirmative steps to preserve his texts.

•      In 2019, the SEC served Denner’s hedge fund with two subpoenas that
       encompassed the events now at issue in this action.

•      In response to the SEC subpoenas, DiPaolo issued a litigation hold instructing
       hedge fund personnel, including Denner, to take affirmative steps to preserve
       their texts.

•      Denner and DiPaolo did not take affirmative steps to preserve their texts.

       1 Four entities in the Sarissa fund complex are defendants. This decision refers to

them collectively as “Sarissa.”
•     Other hedge fund personnel did not take affirmative steps to preserve their
      texts.

•     Sarissa’s outside counsel asked Denner to consult with them before replacing
      his phone.

•     Denner replaced his phone in October 2021 without consulting with outside
      counsel.

•     In 2022, other parties produced texts that Denner sent between 2017 and 2018.

      By opinion dated January 26, 2024, the court granted the Sanctions Motion

(the “Opinion”).2 The Opinion found that ESI had been lost. The Opinion found that

the defendants had not taken any affirmative steps to preserve their texts in response

to the litigation holds. No one collected the defendants’ texts. No one backed up their

texts. Denner and DiPaolo did not preserve their phones. No one imaged any devices

to preserve the data.

      The Opinion found that the failure to preserve the texts caused prejudice to

the plaintiff. The texts that other parties produced showed that Denner texted about

Bioverativ during the relevant time period. That made it probable that Denner texted

about other Bioverativ-related events, such as Sanofi’s approach and Sarissa’s

trading. The failure to preserve the texts meant the plaintiff could not use them

affirmatively. The plaintiff also could not use them defensively to impeach the

testimony of Sarissa’s witnesses.

      2 Goldstein v. Denner, --- A.3d ---, 2024 WL 303638 (Del. Ch. Jan. 26, 2024).

                                             2
      As sanctions, the plaintiff asked the court to:

•     presume that when Denner and Sarissa purchased stock, they were motivated
      by Sanofi’s initial expression of interest;

•     preclude the defendants from offering any fact or expert testimony that would
      disavow scienter;

•     preclude the defendants from offering any fact or expert testimony about
      alternative reasons for Sarissa’s trades, such as a preexisting plan;

•     presume that the destroyed texts would have supported the plaintiff’s
      argument that the sale process fell outside the range of reasonableness because
      Denner maneuvered to secure a near-term sale that would lock in the profits
      from his insider trading.

Under Rule 37(e), those sanctions required either a finding of intentional non-

preservation or recklessness.

      The Opinion held that the defendants had acted recklessly. Denner and

DiPaolo submitted affidavits in which they claimed they had not acted recklessly, but

those assertions only reflected their subjective beliefs. The three litigation holds

established that they knew about their preservation obligations, yet they did nothing

to preserve their texts. Outside counsel told Denner to consult with them before

replacing his phone, but he did not do that.

      The Opinion did not grant all of the sanctions that the plaintiff requested. The

Opinion granted the two adverse inferences that the plaintiff sought. The court did

not grant either of the requested preclusion orders. Instead, the Opinion increased

the defendants’ burden of proof by one level, from a preponderance of the evidence to

clear and convincing evidence.

      The defendants have asked the court to certify an interlocutory appeal (the

“Application”). The Application badly mischaracterizes the Opinion. In their zeal to

                                          3
appeal, the defendants “emulate[] populist pundits from the extremes of the political

spectrum who score points with their base by misleadingly reducing meaningful

issues to simplistic sound bites.”3

      This memorandum opinion denies the Application. It is lengthy because, as

Chief Justice Strine observed while serving on this court, “it is more time-consuming

to clean up the pizza thrown at the wall than it is to throw it.” 4 The Application

splatters a lot of accusations across the wall that need cleaning up.

      At bottom, the Opinion does not meet the substantial issue requirement. The

Opinion also does not warrant appellate review now. Trial is scheduled to begin in

April 2024, just two months from now. The defendants could prevail at trial, which

would render the current dispute about the Sanctions Opinion moot. The proper time

for appellate review is after a final order has been entered.

                         I.     FACTUAL BACKGROUND

      The facts are drawn from the Opinion, which drew on the record presented in

connection with the Sanctions Motion. Just as some understanding of the underlying

case was necessary for the ruling on the Sanctions Motion, some understanding of

the underlying case is necessary for the ruling on the Application.

      In their effort to portray the Opinion as an outlier that warrants immediate

reversal, the defendants repeatedly assert that the court made erroneous findings of

      3 Klig v. Deloitte LLP, 2010 WL 3489735, at *4 (Del. Ch. Sept. 7, 2010).

      4 Auriga Cap. Corp. v. Gatz Props., LLC, 40 A.3d 839, 882 n. 184 (Del. Ch. 2012).

                                            4
fact.5 That is not true. A discovery ruling does not make findings of fact. It describes

the record as it exists for purposes of the discovery motion.6 The Opinion did not make

any findings on the merits that could be law of the case for trial.

       Based on their misunderstanding that the Opinion made findings of fact, the

defendants attack the Opinion for failing to recognize that they should win on the

merits. They insist that,

       Defendants filed documentary evidence flatly contradicting any insider
       trading allegations: Defendants received an email from Bioverativ’s
       chairman that the Sanofi matter was “closed,” confirmed that fact with
       Bioverativ’s outside counsel, pre-cleared their trades with Bioverativ’s

       5 See, e.g., App. ¶ 2 (“The Court granted sweeping adverse inferences based on . . .

erroneous ‘facts.’”); id. (“The tone of the Opinion makes clear that, even without testimony,
the Court has concluded that Defendants were lying, thus rendering trial moot.”); id. at ¶ 5
(“[T]he Opinion . . . got facts wrong . . . .”).

       6 See, e.g., Hyde Park Venture P’rs Fund III, L.P. v. FairXchange, LLC, 292 A.3d 178,

184–85 (Del. Ch. 2023) (“The facts are drawn from the parties’ submissions in connection
with the motion to compel. Given the procedural posture, this decision does not make formal
findings of fact. Instead, the following summary reflects how the record appears at this stage
of the proceedings for purposes of the discovery ruling.”); In re Cellular Tel. P’ship Litig., 2021
WL 4438046, at *43 (Del. Ch. Sept. 28, 2021) (“A court’s factual assessments in a discovery
ruling do not constitute factual findings that remain dispositive at later stages of the case. A
court’s factual assessments in a discovery ruling rather reflect how the evidence appears at
that earlier stage of the case for purposes of informing the court’s rulings on discovery.”);
Terramar Retail Ctrs., LLC v. Marion #2-Seaport Tr. U/A/D June 21, 2002, 2018 WL
6331622, at *1 (Del. Ch. Dec. 4, 2018) (“Because this is a discovery ruling, the description of
events provided in this section does not constitute formal findings of fact. It only represents
how the record appears at this preliminary stage.”); In re Activision Blizzard, Inc., 86 A.3d
531, 533 (Del. Ch. 2014) (“What follows are not formal factual findings, but rather how the
court views the record for purposes of a discovery ruling.”); In re Info. Mgmt. Servs., Inc.
Deriv. Litig., 81 A.3d 278, 282 (Del. Ch. 2013) (“The facts for purposes of the motion to compel
are drawn from the allegations in the pleadings and the exhibits and affidavits submitted in
connection with the briefing on the motion. What follows are not formal factual findings, but
rather how the court views the record for purposes of a discovery ruling. At this stage of the
case, the court cannot resolve conflicting factual contentions.”).

                                                5
      inside counsel, and then disclosed those trades publicly through
      contemporaneous Form 4s.7

      The defendants then proceed to criticize the Opinion for not accepting their

assertions. But the plaintiff has responses to each point, and the issues remain

contested. While the defendants may ultimately prevail, the Opinion was not deciding

the merits. It was deciding the Sanctions Motion. A court does not decide a discovery

motion based on who will win at trial. A court decides a discovery motion based on

what happened during discovery.

      The defendants’ factual attacks on the Opinion are thus generally misplaced.

The following account includes more specific responses to those attacks.

A.    Sanofi’s Approach

      In May 2017, Sanofi approached Denner and Brian S. Posner, another director

of Bioverativ. Sanofi expressed interest in acquiring Bioverativ for $90 per share.

Bioverativ’s stock closed that day at $54.86 per share, so the proposal represented a

64% premium to market. Denner and Posner told Sanofi that the time was not right

for an acquisition. No one disputes this.

      There are factual disputes about what happened next. The record for the

Sanctions Motion indicated that Posner reported to the Board about Sanofi’s interest.

But the record did not include any contemporaneous documents evidencing that he

shared the price. The deposition testimony that the parties submitted showed that

      7 App. ¶ 1.

                                            6
except for Posner and Denner, none of the Bioverativ directors recalled knowing the

price. The plaintiff contends that Posner did not share the price.

       The Opinion described the record as it existed for purposes of the Sanctions

Motion. It stated:

       Denner and Posner told Sanofi that the time was not right for an
       acquisition. The discovery record to date indicates that Posner reported
       Sanofi’s interest to Bioverativ’s other directors, but did not mention the
       price. There are no contemporaneous documents evidencing board
       consideration or acknowledgement of the offer, and there was no board
       vote on a response. All of the Bioverativ directors testified that they
       knew about Sanofi’s approach. Except for Posner and Denner, none
       recalled knowing the price. A contemporaneous email from Posner to
       outside counsel references the Sanofi approach without mentioning the
       price.8

That was an accurate description. The evidence at trial may show something

different.

B.     Sarissa Buys Stock.

       Just days after Denner’s meeting with Sanofi, Sarissa’s head trader began

purchasing Bioverativ stock.

•      On May 24, 2017, Sarissa purchased 340,000 shares.

•      On May 25, 2017, Sarissa purchased 130,000 shares.

•      On May 26, 2017, Sarissa purchased 450,000 shares.

•      On May 30, 2017, Sarissa purchased 90,000 shares.

       8 Op. at *2.

                                           7
Before those purchases, Sarissa only owned 155,000 shares. Within a week after

Denner’s meeting with Sanofi, Sarissa had purchased 1,010,000 shares for $56.3

million. Bioverativ went from being 3.3% of Sarissa’s portfolio to 27.7%.

      No one disputes this. Instead, the critical issue in the case is whether by

engaging in those trades, Denner breached his fiduciary duties to Bioverativ and its

stockholders. Not surprisingly, there are factual disputes about what various

participants knew or believed when Denner and Sarissa made those trades.

      1.     The Dispute Over DiFabio’s Pre-Clearance Of The Trades

      One of the defendants’ arguments on the merits is that DiPaolo asked Andrea

DiFabio, the general counsel of Bioverativ, whether Sarissa could trade and that

DiFabio gave Sarissa the go-ahead. The defendants contend that the Opinion “omits

crucial discussions where DiFabio (who will testify at trial) consulted Posner and

outside counsel before responding to DiPaolo.”9

      In the Sanctions Motion, the plaintiff argued that DiPaolo did not mention

Sanofi’s $90 per share offer in the email he sent to DiFabio, and DiFabio testified that

she did not know about it.10 Thus, while it is true that DiFabio told DiPaolo that she

did not know of anything that would bar Sarissa from trading, it is not clear that she

was in a position to clear Sarissa’s trades.

      9 App. ¶ 20.

      10 Dkt. 204 ¶ 5.

                                           8
      The Opinion described the record as it existed for purposes of the Sanctions

Motion. It stated:

      Before Sarissa’s first purchase, its general counsel (Mark DiPaolo)
      emailed Bioverativ’s general counsel (Andrea DiFabio) to ask if she was
      aware of any material non-public information that could limit Sarissa’s
      ability to trade. DiPaolo did not mention Sanofi’s $90 per share offer,
      and DiFabio testified that she did not know about it. She therefore told
      DiPaolo that she did not know of anything.11

That was an accurate description of what the record showed. The evidence at trial

may show something different.

      2.       Factual Disputes Related To Sarissa’s Intent

      One of the issues at trial will be whether Denner and Sarissa acted with

scienter by trading based on what they knew about Sanofi’s approach. There are

several disputes of fact that are relevant to a finding of intent. The Opinion did not

resolve any of them.

               a.     Whether There Was A Pre-Existing Plan

      One issue pertinent to intent is whether Denner and Sarissa had already

planned to rapidly accumulate a massive position in Bioverativ stock such that

Sanofi’s approach had nothing to do with it. The Opinion stated: “There is no

contemporaneous evidence of any prior plan to rapidly acquire such a large

position.”12 That is what the record on the Sanctions Motion showed.

      11 Op. at *3.

      12 Id.

                                          9
      The defendants now complain that the court made this observation “even

though Defendants’ business model includes acquiring shares during open trading

windows . . . .”13 A business model may well be relevant to whether the defendants

had such a plan, but it is not contemporaneous evidence of such a plan.

      The defendants also complain that “contemporaneous evidence shows that

Paglia and Posner (who will testify at trial) were aware of Defendants’ desire to

increase their position.”14 One of the documents the defendants cite is a joking email

sent three months before Sanofi’s approach. Denner said he was ill and Paglia

responds, “You are sick because BIVV keeps rising and you cannot buy it!! Feel

better.”15 The other exhibits relate to the trading that Sarissa engaged in. None

reflect a prior plan to rapidly acquire Bioverativ stock.

      The Opinion thus correctly described the record for purposes of the Sanctions

Motion. There was no contemporaneous evidence of a plan to buy such a large block

of Bioverativ stock. The record also did not include any internal Sarissa

communications about such a plan. The one exception was an email in which Denner

told the head trader to “Keep going.”16 The defendants now say that they “produced

numerous emails relating to the trades—which would have been part of the trial

      13 App. ¶ 20.

      14 Id.

      15 Id. Ex. E.1.

      16 Op. at *3.

                                          10
record.”17 Thirteen of the twenty-one were not included with the Sanctions Motion.18

Most are external communications with Bioverativ or internal communications

within Bioverativ. Only three are internal communications within Sarissa.19 Two are

“FYI” emails about communications with Bioverativ.20 None contain instructions to

start buying. None express or allude to a rationale for buying. None set parameters

for the purchases. None provide a rationale for the size of the individual or total

purchases. None contain instructions to stop buying.

      The Opinion thus correctly stated: “There is no contemporaneous evidence of

any prior plan to rapidly acquire such a large position.”21 The defendants may well

prove otherwise at trial, but that is what the record on the Sanctions Motion showed.

             b.       Whether Sanofi Was Likely To Come Back

      Another fact pertinent to intent is whether Sanofi was likely to come back. If

not, then it becomes less likely that Sanofi’s approach motived Denner and Sarissa’s

trading.

      In the Application the defendants twice observe that Posner circulated an

email in which he reported that he had spoken with Sanofi’s Chairman and that the

      17 App. ¶ 20 (citing Exs. E.1–20).

      18 See App. Exs. E.6–13, E.16–20.

      19 See App. Exs. E.7, E.13 & E.19.

      20 See App. Exs. E.13 & E.19.

      21 Op. at *3.

                                           11
Chairman said he viewed the discussions as “closed.”22 They complain that the

Opinion did not focus on this exchange.

      Posner’s email supports the defendants’ position. But the record shows that

Sanofi did not act like the discussions were closed and did in fact come back.

Moreover, what matters is not what Posner said (although that is relevant evidence),

but what Denner knew. The Opinion did not make any factual findings on those

points. They remain disputed issues for trial.

             c.        Who Else Traded

      A third intent-related fact is whether anyone else traded after Sanofi’s

approach. If the only individuals who knew about the price were Denner and Posner,

and if they behaved differently than the other directors, then that could support an

inference of intent.

      The Opinion stated: “Posner was the only other Bioverativ director who knew

about the price. He bought 2,000 shares for approximately $53.80 per share,

representing a total investment of $107,600. No one has suggested that the other

Bioverativ directors suddenly purchased shares.”23

      On this point, the Opinion was mistaken. Paglia also purchased 2,000 shares

during the trading window for approximately $57.76 per share.

      22 App. ¶¶ 1, 12.

      23 Op. *3.

                                          12
      That error did not affect the outcome in the Opinion. The defendants are free

to emphasize Paglia’s trading at trial. If they wish, they can remind the court that

the Opinion got that point wrong. After trial, when determining whether the

defendants acted with scienter, the court will take into account Paglia’s trading.

             d.      The Fact That The Defendants’ Disclosed Their Trades

      In the Application, the defendants stress that they disclosed their trades on

Form 4s.24 They made similar points in response to the Sanctions Motion.25 They

seem to think that the filings are relevant to their lack of intent.

      At some point, the defendants will have to explain how disclosure of their

trades fits into their theory of the case. The federal securities laws required that the

defendants disclose their trades. If they had not disclosed their trades, they would

have had another legal problem, in addition to the legal problem that the plaintiff

contends they had. This case is not about whether they disclosed their trades. This

case is about what they knew when they made their trades.

      This is another issue that the defendants can address at trial. It had no bearing

on the Opinion.

             e.      The Dispute Over The Role Of Section 16

      A final intent-related issue is the role of potential liability for short-swing

profits under Section 16 of the federal securities laws. One of the defendants’

      24 See App. ¶¶ 1, 12.

      25 See. Dkt. 199, ¶¶ 1, 21.

                                           13
arguments on the merits is that the timing of Bioverativ’s re-engagement with Sanofi,

just over six months after Sanofi first approached Denner, had nothing to do with the

short-swing profit period under Section 16. The plaintiff, by contrast, has contended

from the outset that Section 16 applies and affected the timing Bioverativ’s re-

engagement.26

      The Opinion described this issue as follows:

      Sarissa stood to make massive profits if Sanofi acquired Bioverativ, but
      Section 16(b) of the Securities Exchange Act of 1934 loomed as an
      impediment. That statute requires that an insider disgorge short-swing
      profits from any sale that takes place less than six months after the
      purchase. Denner’s solution was to delay any engagement with Sanofi
      so that the sale would take place after the short-swing period closed.

      When Sanofi reapproached in June 2017 and again in September 2017,
      Denner responded that Bioverativ was not for sale. The discovery record
      indicates that he did not report those contacts to the board. See PX 11.

      By October 2017, the short-swing period was about to expire. This time,
      when Sanofi came calling, Denner proposed a single-bidder process. The
      board knew nothing about that inquiry.

      Several weeks later, in late November 2017, Sanofi offered to acquire
      Bioverativ for $98.50 per share. Bioverativ’s management team and its
      financial advisors valued the company at more than $150 per share.
      After receiving Sanofi’s offer, the directors asked for a higher bid, and
      Sanofi increased its offer to $101.50. At that point, the directors
      countered at $105 per share, almost one-third below the standalone
      valuation. Sanofi accepted.27

      26 See, e.g., Dkt. 1 ¶¶ 5, 105; Dkt. 195 ¶ 2.

      27 Op. at *3 (heading omitted).

                                              14
No one disputes the timing or substance of these events. No one disputes that “Sarissa

stood to make massive profits if Sanofi acquired Bioverativ.”28

      To attack the Opinion, the defendants say that Section 16 “does not apply to

the Sanofi transaction as a matter of law.”29 The Opinion did not rule on a motion for

summary judgment. It ruled on the Sanctions Motion. The defendants are free to

raise what they seem to think is a case-dispositive legal argument in their post-trial

briefing.

      The defendants also attack the Opinion by contending that “[t]here is zero

evidence showing that the Denner [sic] was motivated by the Section 16 short-swing

period . . . .”30 Circumstantial evidence is evidence, and the timing and substance of

how events transpired is circumstantial evidence.

      Regardless, the Opinion did not make a factual finding about Denner’s intent.

The defendants are free to present their evidence at trial on that issue.

C.    The Negotiations

      The record on the Sanctions Motion indicated that Denner led the negotiations

for Bioverativ. His counterpart for Sanofi was Stephen Sands, a Lazard banker.

Denner and Sands had known each other professionally for over a decade. No one

disputes this.

      28 Id.

      29 App. ¶ 20 (citing SEC No Action Letter, 1999 WL 11540 (Jan. 12, 1999)).

      30 Id.

                                           15
      The record on the Sanctions Motion showed that Denner and Sands texted

during the negotiations. As the Opinion stated: “None of those texts exist.”31

      Now, the defendants claim otherwise, but in a way that confirms the point.

They say: “Sands testified that he copies his substantive texts into his emails, which

included a text with Denner.”32 In other words, none of the texts exist as texts, but

the substance of one text has survived as an email. Even non-substantive texts are

important for establishing timelines and revealing when communications occurred.

The Opinion correctly observed that, “[n]one of those texts exist.”33

D.    The Three Litigation Holds

      Now comes the part of the factual story where the defendants have no

responses. Over the next two years, Denner and Sarissa received three litigation

holds that instructed them to preserve their texts. No one disputes this.

      1.     The Bioverativ Hold

      On January 21, 2018, Bioverativ and Sanofi announced their transaction. On

February 8, 2018, Bioverativ filed its proxy statement.

      Stockholders filed putative class actions challenging the sufficiency of the

proxy statement. On February 21, 2018, Bioverativ’s general counsel circulated a

litigation hold (the “Bioverativ Hold”). The Bioverativ Hold instructed recipients to

      31 Op. at *3.

      32 App. ¶ 20.

      33 Op. at *3.

                                          16
take steps to preserve ESI. The Bioverativ Hold expressly extended to text messages.

No one disputes this.

      Denner received the Bioverativ Hold. When briefing the Sanctions Motion,

Sarissa did not submit any evidence suggesting that Denner took any action in

response to the Bioverativ Hold. They did not submit any evidence suggesting that

Sarissa took any action, either. The Opinion noted both facts and observed that if

they had taken any action, then the lost text messages would have been preserved.34

      2.       The Sanofi Hold

      On March 15, 2018, Sanofi issued a litigation hold (the “Sanofi Hold”). The

Sanofi Hold specifically called out text messages on smart phones. It also specifically

identified the need to take affirmative steps to preserve ESI. No one disputes this.

      Denner received the Sanofi Hold. When briefing the Sanctions Motion, the

defendants did not submit any evidence suggesting that Denner took any action in

response to the Sanofi Hold. They did not submit any evidence suggesting that

Sarissa took any action, either. The Opinion noted both facts and observed that if

they had taken any action, then the lost text messages would have been preserved.35

      3.       The Sarissa Hold

      On September 4, 2019, the SEC served subpoenas on Denner and Sarissa. They

sought: “All Documents Concerning [Bioverativ] or trading in the securities of

      34 Id. at *4.

      35 Id.

                                          17
[Bioverativ],” “All Communications with Sanofi,” and “All Communications with

Denner Concerning Sanofi, [Bioverativ], or trading in the securities of [Bioverativ].”36

On September 5, 2019, DiPaolo circulated a litigation hold (the “Sarissa Hold”) to “All

staff.”37

       The Sarissa Hold instructed all staff to “preserve any and all documents and/or

communications with, concerning, relating to, or in any way discussing or mentioning

Bioverativ, Inc. or Sanofi S.A.”38 It continued: “Until otherwise notified, do not

discard, delete, alter or destroy any such materials in your possession or

under your control even if such documents would otherwise be routinely

discarded or destroyed in the ordinary course of your business.”39 The

Sarissa Hold expressly encompassed texts on personal devices. No one disputes this.

       After circulating the Sarissa Hold, DiPaolo consulted with outside counsel

about how to implement it. Outside counsel asked DiPaolo about texts. DiPaolo

responded that he did not text for business and that he did not believe Denner did

either, but he would verify that. DiPaolo and outside counsel decided not to collect

texts at that time, but outside counsel asked that Sarissa’s users preserve texts and

check with counsel before buying a new phone and transferring data to a new device.

       36 Id. (citation omitted).

       37 Id.

       38 Id. at *5.

       39 Id.

                                          18
      DiPaolo averred in an affidavit that he personally went through Denner’s

phone looking for text messages relating to “Sarissa’s purchases of Bioverativ

securities.”40 The Opinion noted that the scope of the SEC subpoenas was much

broader: It sought “[a]ll Communications with Denner Concerning Sanofi,

[Bioverativ], or trading in the securities of [Bioverativ].”41

      DiPaolo claims he did not find any responsive text messages. In this action,

other parties have produced text messages from Denner relating to Bioverativ. There

are also emails referring to text messages from Denner relating to Bioverativ.

      At a follow-up meeting with outside counsel, DiPaolo reported that Sarissa’s

policies prohibited texting for business purposes. He reiterated that he had no

recollection of texting himself. He said that he had reviewed Denner’s texts and found

nothing.

      Based on DiPaolo’s representations, outside counsel agreed to “table any

collection of mobile data/text messages at this time but asked [Denner] to preserve

this data.”42 Outside counsel asked Denner to contact counsel “for guidance should he

want to buy a new device or discard the current device.”43

      40 Id.

      41 Id.

      42 Id.

      43 Id.

                                            19
      When briefing the Sanctions Motion, the defendants did not submit any

evidence suggesting that Denner took any action to preserve his data. There was also

no evidence that Denner contacted anyone for guidance before replacing his phone.

The Opinion stated: “There is no evidence that any steps were taken to preserve

Denner’s data. There is no evidence that Denner contacted anyone for guidance before

replacing his phone.”44 No one disputes this.

      DiPaolo sent the Sarissa Hold, so he necessarily knew about it. When briefing

the Sanctions Motion, the defendants did not submit any evidence indicating that he

did anything to preserve his data.45 No one disputes this.

E.    The Pool Incident

      After the conclusion of briefing on the Sanctions Motion, and after an oral

argument in which the defendants’ counsel could not answer basic questions about

their collection efforts, the court asked the defendants to provide additional

documentation regarding what they did to preserve and collect documents. At that

point, DiPaolo submitted an affidavit in which he described for the first time how he

thought he lost his texts. He averred that he was personally cleaning his swimming

pool when he accidentally dropped his phone into the water. He has a receipt showing

he had the phone repaired on September 28, 2020.46

      44 Id. at *6.

      45 Id.

      46 Id.

                                         20
      DiPaolo’s affidavit did not suggest that he lost other data, such as pictures,

applications, or contacts. The Opinion noted that he did not seem to have suffered a

traumatic event involving the loss of treasured photos or the hassle of restoring data

from other sources. Instead, DiPaolo barely remembered the incident.47 The

defendants now take umbrage at these observations, which the Application describes

as “scathing remarks.”48 In the Application, the defendants now say that a family

member has since reminded DiPaolo that he had indeed lost photos of his deceased

brother.49 That is the type of information that the defendants should have provided

in connection with the Sanctions Motion. They did not, but they can present that

evidence at trial. It is relevant to whether DiPaolo acted intentionally, and the court

will consider it for that purpose. It is not relevant to whether he recklessly failed to

preserve his texts.

      The Opinion also observed that DiPaolo believed he lost his texts as a result of

the repair, yet the missing text messages are not tied to September 28, 2020.50 He

has no text messages from before October 9, 2020. The Opinion noted that it would

      47 Id.

      48 App. ¶ 14.

      49 Id.

      50 Op. at *6.

                                          21
be strange for a repair to cause the loss of text messages sent during the twelve days

after the repair took place.51 The Application does not address that discontinuity.

F.    This Lawsuit

      On December 15, 2020, the plaintiff filed this lawsuit. Based on Sarissa’s stock

purchases, the plaintiff asserts a claim against Denner for breach of fiduciary duty,

plus a claim against Sarissa for aiding and abetting Denner’s breaches. In substance,

the plaintiff asserts that Denner and Sarissa engaged in insider trading. The plaintiff

also contended that Denner and the other directors breached their fiduciary duties

by engaging in a sale process for Bioverativ that fell outside the range of

reasonableness.

      Denner and Sarissa moved to dismiss the claims against them under Rule

12(b)(6). After completing briefing, the plaintiff served document requests in

September 2021. The defendants responded by moving to stay discovery. On

November 18, 2021, the court denied the defendants’ motion for a stay.52

      It was only after the court’s order that defense counsel began thinking about

what sources of evidence would be responsive and should be identified, preserved,

collected, reviewed, and potentially produced. The Opinion observed, “[t]hat was too

      51 Id.

      52 Dkt. 55.

                                          22
late.”53 A duty to preserve evidence attaches when a party reasonably anticipates

litigation. No one disputes that.

      The Opinion noted that defense counsel was too late in another, more specific

sense, because a second incident had occurred involving lost ESI:

      To repeat, the plaintiff served document requests in September 2021.
      Soon after, for reasons that no one has been able to explain, Denner lost
      all of his texts from before an as-yet unidentified date in October 2021.
      Denner recalls upgrading his iPhone to a new model, and he thinks the
      upgrade caused the loss. That would be bizarre, because Apple
      facilitates upgrades by transferring data to the new iPhone from the
      cloud. No one on the defendants’ side has been able to explain why
      Denner’s iPhone upgrade could have caused the loss of his texts.

      There is no evidence that Denner consulted with anyone before
      replacing his iPhone. The litigation holds told him to do that. Outside
      counsel asked him to do that.54

The Opinion observed that like DiPaolo, Denner has not suggested that he lost other

data, such as pictures, applications, or contacts. Like DiPaolo, Denner barely

remembered. Based on the record presented in connection with the Sanctions Motion,

both DiPaolo’s pool mishap and Denner’s atypical iPhone upgrade seemed to have

affected their text messages and nothing else.

G.    The Rulings On The Motions To Dismiss

      In May 2022, the court issued a decision that denied the defendants motion to

dismiss the sale process claims (the “Sale Process Decision”).55 In June, the court

      53 Op. at *7.

      54 Id.

      55 See Goldstein v. Denner, 2022 WL 1671006 (Del. Ch. May 26, 2022).

                                          23
issued a decision that denied the defendants’ motion to dismiss the insider trading

claims (the “Insider Trading Decision”).56

      The Application takes gratuitous shots at the Insider Trading Decision. It

asserts that “Plaintiff’s Brophy claim never should have survived dismissal [because]

Plaintiff lacks post-closing derivative standing under Morris v. Spectra Energy

Partners, 246 A.3d 121, 134 (Del. 2021),” and it claims that the Insider Trading

Decision “created a new test conferring standing on Plaintiff . . . .”57

      That is not correct. As the Insider Trading Decision explained, the Delaware

Supreme Court held in Parnes58 that a plaintiff has standing to challenge the fairness

of a merger if it is reasonably conceivable that the pending derivative claim (or the

conduct that otherwise would support a derivative claim) affected either (i) the

fairness of the merger price or (ii) the fairness of the process that led to the merger.59

The Insider Trading Decision noted that “the weight of Delaware authority has

interpreted Parnes as recognizing that a stockholder can assert a direct claim

challenging a merger based on process challenges alone.”60 In other words, “standing

      56 See Goldstein v. Denner, 2022 WL 1797224 (Del. Ch. June 2, 2022).

      57 App. ¶ 4.

      58 Parnes v. Bally Ent. Corp., 722 A.2d 1243 (Del. 1999).

      59 See Insider Trading Decision, 2022 WL 1797224, at *11.

      60 Id. at *12 & n.9 (collecting cases).

                                                24
exists to assert a direct claim when a plaintiff alleges breaches of fiduciary duty that

resulted in either an unfair price or an unfair process.”61

      The Morris decision that the defendants cite formalized the test for the first

Parnes path; it did not rule out the second.62 The Insider Trading Decision found it

reasonably conceivable that the second path gave the plaintiff standing to challenge

the merger.63 That was not a “new test” that conflicted with Morris. It was an

application of Parnes that Morris left open.

      As the defendants concede, the Application does not seek to appeal the Insider

Trading Decision.64 The defendants’ passing shot at the Insider Trading Decision is

part of the pizza sauce splattered on the wall.

H.    The Defendants Fail To Produce Any Texts.

      After the denial of the motions to dismiss, the parties proceeded with discovery.

Denner and Sarissa’s production did not contain any texts. Other parties produced

texts from Denner. Two directors produced forty-five texts, including texts sent

during board meetings in which Denner complained about management’s opposition

to the Sanofi transaction.

      61 Id. at *12.

      62 Morris, 246 A.3d at 136.

      63 See Insider Trading Decision, 2022 WL 1797224, at *12.

      64 See App. ¶ 4.

                                          25
      The defendants assert that “[n]one of the texts produced in the litigation are

‘favorable’ to Plaintiff.”65 In a strict sense, that’s true. But they show that Denner

texted about Bioverativ during the negotiations with Sanofi, contrary to Denner and

DiPaolo’s assertions. No one will ever know what other texts might have shown or

how helpful they could have been, because the defendants did not preserve them. As

the defendants correctly point out, “there is no evidence that any missing texts would

have helped Plaintiff.”66 That is unfortunately correct, and it is only correct because

the defendants did not preserve any of their texts.

      On June 14, 2022, the plaintiff informed defense counsel that Denner appeared

to have texted for business purposes. The plaintiff asked defense counsel to add

DiPaolo to the search protocol. They also asked to add Sarissa’s Chief Compliance

Officer (Patrice Bonfiglio), Sarissa’s head trader (Pat Garofalo), and Denner’s

assistant.

      At this point, defense counsel finally had one of its lawyers inspect Denner’s

devices. The inspection confirmed that Denner did not have any texts from before

October 2021. Counsel checked Denner’s iPad and saw texts from March 2020, but

not earlier. Denner reported that he had not intentionally deleted any texts relevant

to this action and said he did not understand why his text messages from the 2017–

2018 time period were missing. Denner suggested that he had upgraded his iPhone

      65 Id. ¶ 12.

      66 Id.

                                          26
and then provided his old phone to one of his sons. Later that month, DiPaolo reported

that Denner’s sons had newer devices that were not in existence at the time of the

Bioverativ-Sanofi transaction.

      Defense counsel discussed the issue of texts with DiPaolo and Bonfiglio, but

did not conduct any formal custodian interviews. DiPaolo and Bonfiglio each

represented that they had adhered to Sarissa’s policy of not texting for business.

Defense counsel accepted that representation and decided again against imaging

Denner and Bonfiglio’s phones or taking any other action to preserve text messages.

      In    October   2022,    defense    counsel    finally   answered   the   plaintiff’s

interrogatories, which included a question about whether the defendants had

preserved potentially responsive information. Seven months after learning that

Denner had no texts from before October 2021, defense counsel served the following

response:

      [O]n or around October 2021, Alex Denner replaced his iPhone solely for
      the purposes of upgrading the device, a process which the Sarissa
      Defendants believe inadvertently caused his text messages prior to that
      date to no longer be accessible or retrievable from his current device. By
      way of further response, the Sarissa Defendants state that, in the
      Sarissa Capital Management LP Compliance Manual and Code of
      Ethics, Sarissa employees are not permitted to use text messages for
      official business correspondence (see SAR-BIVVID00000183). The
      Sarissa Defendants have sought to obtain iCloud backups, have
      contacted Verizon, have conducted searches of Denner’s current iPhone
      and iPad devices for backup phone data (including with the assistance
      of Sarissa’s outside counsel . . .), and have been unable to identify any
      means of recovering any text messages during the relevant time period
      agreed-to by the parties.67

      67 Dkt. 195, Ex. 17 at Interrogatory No. 27.

                                            27
      The defendants thus asserted that Denner lost his text messages on some

unidentified date in October 2021, one year before. That was after Denner had

received three litigation hold notices, after this litigation began, after the plaintiff

served discovery requests seeking texts, and just before the defendants moved to stay

discovery.

      The plaintiff understandably viewed Denner’s upgrade story as inherently

suspicious. During an upgrade, data is transferred to the new iPhone. Denner and

Sarissa thus offered an explanation for his lost texts that made no sense.

      Equally important, the defendants’ response was misleadingly incomplete. The

response said nothing about DiPaolo’s prior loss of all of his texts due to the post-

swimming-pool-incident repair.

I.    More Issues With Texts

      On December 7, 2022, during deposition preparation, Sarissa’s head trader

(Garofalo) informed defense counsel that he recalled using texts to communicate with

Denner. But he said he had no recollection of any texts relating to Bioverativ.

      Based on this disclosure, defense counsel finally reviewed DiPaolo, Bonfiglio,

and Garofalo’s phones.

•     DiPaolo’s phone had no texts from before October 9, 2020. He claimed not to
      know why at that time.

•     Garofalo’s phone had no texts. It was set to delete texts automatically after
      thirty days.

•     Bonfiglio’s device contained 116,868 texts. The earliest text was dated January
      30, 2014. None of the search terms hit on any texts. In addition, defense
      counsel reviewed all of the texts and determined that none are responsive.

In short, none of the additional custodians had responsive texts.

                                          28
      In February 2023, the plaintiff pushed for more information about the

defendants’ failure to produce texts. Defense counsel responded with a letter plus a

declaration from Denner. In both documents, they stuck to Denner’s story about

losing his texts when he upgraded his iPhone. At the same time, they seemed to know

that the story did not make sense. The defendants also reported for the first time that

DiPaolo, Garofalo, and Bonfiglio did not possess any responsive text.

J.    The Sanctions Motion

      On November 14, 2023, the plaintiff filed the Sanctions Motion. The parties

briefed it, and the court held a hearing on January 4, 2024. During the hearing,

defense counsel could not answer basic questions about the collection process. To

ensure that the defendants had the opportunity to document what they had done, the

court directed the defendants to file an affidavit describing their preservation and

collection plan and how they carried it out.

      The defendants filed two affidavits. Defense counsel submitted an affidavit

detailing their collection efforts. DiPaolo submitted a separate affidavit in which,

among other things, he described the swimming pool incident for the first time.

      DiPaolo did not address in his affidavit whether any of his data was backed up

to the cloud or whether counsel had made any efforts to check his other devices. The

court directed defense counsel to file a supplemental affidavit “explaining whether

                                          29
any efforts were made to examine DiPaolo’s other devices, the cloud, or other sources

for text messages after the . . . swimming pool incident.”68

      Defense counsel reported that no data was backed up to the cloud or available

from other devices. Defense counsel did not say what they did, or when, to make those

determinations. The Opinion observed that defense counsel’s silence suggested “that

they only took those steps after the court asked.”69 The court regarded “the failure to

provide any detail beyond a clipped response [as] a further example of defense

counsel’s lack of transparency and parsimony regarding the release of information.

That approach has undermined their credibility on the spoliation issues.”70

K.    The Opinion

      On January 26, 2024, the court issued the Opinion. The court found that the

defendants had failed to preserve ESI in the form of their texts, that the texts were

irretrievably lost, and that failure to preserve ESI caused prejudice to the plaintiff.71

The court also found that the failure to preserve texts had been reckless.72 The court

deferred ruling on intentionality until after trial.73

      68 Dkt. 213.

      69 Op. at *11.

      70 Id.

      71 Id. at *26–28.

      72 Id. at *30.

      73 Id. at *31–32.

                                           30
       As a curative sanction, the court held that it would presume at trial that

Sarissa traded on the basis of Sanofi’s approach.74 The court also held that it would

presume that the hedge fund’s trading caused the sale process to fall outside the

range of reasonableness.75 Presumptions are inherently rebuttable.76 Nevertheless,

the court emphasized that both presumptions can be rebutted.77 Because the

defendants’ spoliation deprived the plaintiff of evidence that they could use to

impeach the defendants’ testimony, the court held that the rebuttal of the

presumptions would need to be by clear and convincing evidence.

       On February 5, 2024, the defendants filed the Application.

                                II.    LEGAL ANALYSIS

       Supreme Court Rule 42 governs the certification of an interlocutory appeal.

“[T]he purpose of Rule 42 is to prevent wasteful piecemeal litigation from

overwhelming the docket of the Supreme Court.”78

       Rule 42 cautions that “[i]nterlocutory appeals should be exceptional, not

routine, because they disrupt the normal procession of litigation, cause delay, and

       74 Id. at *28.

       75 Id.

       76 D.R.E. 301(a) (“In a civil case, unless a statute or these Rules provide otherwise, the

party against whom a presumption is directed has the burden of proving that the
nonexistence of the presumed fact is more probable than the existence of the presumed fact.”).

       77 Op. at *28.

       78 Stein v. Blankfein, 2019 WL 3311227, at *1 (Del. Ch. July 23, 2019).

                                              31
can threaten to exhaust scarce party and judicial resources.” 79 Certification is

“generally not favored.”80 Thus, an application for interlocutory appeal “requires a

strict analysis by the trial court.”81

       Rule 42 states that “[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.”82 If the

“substantial issue” requirement is met, then the trial court will analyze whether

“there are substantial benefits that will outweigh the certain costs that accompany

an interlocutory appeal.”83 The rule identifies eight factors relevant to the

assessment.84

A.     Whether The Opinion Decided A Substantial Issue Of Material
       Importance

       The first requirement for interlocutory review is the existence of a decision that

decided a substantial issue of material importance. The Opinion does not meet that

standard.

       79 Supr. Ct. R. 42(b)(ii).

       80 Id. cmt.

       81 Chemours Co. v. DowDuPont Inc., 2019 WL 2404817, at *1 (Del. Ch. June 7, 2019).

       82 Supr. Ct. R. 42(b)(i).

       83 Supr. Ct. R. 42(b)(ii).

       84 Supr. Ct. R. 42(b)(iii)(A)–(H).

                                            32
       1.     The Opinion Is A Discovery Ruling.

       “The ‘substantial issue’ requirement is met when an interlocutory order

decides a main question of law which relates to the merits of the case, and not to

collateral matters.”85 Under this standard, discovery rulings are generally not

suitable for interlocutory appeal.86 Discovery is entrusted to the trial court’s

discretion, and the Supreme Court “will not disturb a trial court’s decision regarding

sanctions imposed for discovery violations absent an abuse of that discretion.”87

       The Opinion is a discovery ruling. It did not decide a main question of law

which relates to the merits of the case. It therefore did not decide a substantial issue.

       2.     The Defendants’ Due Process Argument

       The defendants do not argue directly that the Opinion decided a substantial

issue. There is no section in the Application that expressly addresses the substantial

issue test. But the defendants do assert that the substantial issue requirement is met

when “an interlocutory order raises due process concerns affecting trial,” and they

assert that “[d]iscovery issues may constitute a substantial issue.”88 The Application

       85 Sprint Nextel Corp. v. iPCS, Inc., 2008 WL 2861717, at *1 (Del. Ch. July 22, 2008);

accord Castaldo v. Pittsburgh–Des Moines Steel Co., 301 A.2d 87, 87 (Del. 1973).

       86 Crowhorn v. Nationwide Mut. Ins. Co., 804 A.2d 1065 (Del. 2002) (TABLE); McCann

v. Emgee, Inc., 637 A.2d 827 (Del. 1993) (TABLE); American Centennial Ins. Co. v. Monsanto
Co., 582 A.2d 934 (Del. 1990) (TABLE); Huang v. Rochen, 550 A.2d 35 (Del. 1988) (TABLE);
Levinson v. Conlon, 385 A.2d 717, 720 (Del. 1978); Castaldo, 301 A.2d at 87; Lummus Co. v.
Air Prods. & Chems., Inc., 243 A.2d 718, 719 (Del. 1968).

       87 In re Rinehardt, 575 A.2d 1079, 1082 (Del. 1990).

       88 App. ¶ 6.

                                             33
then jumps to arguing about the eight factors that can support certification, albeit

under a heading titled, “The Opinion Deprives Defendants Of Due Process.”89 Read

charitably, the Application contends that the Opinion decided a substantial issue

because it raises due process concerns affecting trial.90

               a.      The Defendants’ Two Precedents

       The defendants are undoubtedly correct that a sufficiently significant

discovery ruling could constitute a ruling on a substantial issue suitable for

interlocutory appeal. But the defendants have not identified any support for the

notion that the Opinion is the type of discovery ruling that clears the bar. The two

decisions that the Application cites during its terse discussion of the substantial issue

requirement—Forescout91 and Pepsico92—involved quite different issues. And in

Pepsico, the Delaware Supreme Court rejected the interlocutory appeal.

       In Forescout, during the early days of the COVID-19 pandemic, the defendants

sought interlocutory appeal on three issues: (1) whether a witness could appear at

trial virtually, (2) whether a witness could be compelled to testify live during the

       89 Id. at 4 (emphasis removed).

       90  Confusingly, the Application argues separately that the court deprived the
defendants of due process when issuing the Opinion. But the defendants do not seem to view
that alleged error as giving rise to a substantial issue. Rather, the defendants seem to think
that issue (i) raises an issue of first impression and (ii) creates a conflict with other trial court
decisions. This decision therefore does not address that version of the defendants’ due process
argument under the substantial-issue heading.

       91 Forescout Tech. v. Ferrari Gp. Hldgs., 2020 WL 3971012 (Del. Ch. July 14, 2020).

       92 Pepsico, Inc. v Pepsi-Cola Bottling Co., 261 A.2d 520 (Del. 1969).

                                                 34
pandemic, and (3) the whether the court erred by denying the defendants’ motion to

continue trial in light of the pandemic.93 The court certified the first two issues

because the defendants had “raised due process concerns regarding the right to live

cross-examination, because [the witness] is a key Plaintiff witness, and because the

overarching issue presented—whether a decision to take trial testimony remotely is

consistent with due process and within the trial court’s discretion—is one of first

impression . . . .”94 The court did not certify the third issue.95

       The defendants act as if Forescout gives litigants license to seek interlocutory

appeal whenever a ruling could affect how trial will proceed, but Forescout is far

narrower. Forescout involved novel issues presented by the COVID-19 pandemic that

restricted the use of live testimony at trial. The Opinion is a discovery-related

sanctions ruling that does not limit the defendants’ ability to introduce evidence at

trial. It does not limit any defendant’s ability to testify at trial. It does not affect the

defendants’ ability to issue trial subpoenas for witnesses to appear at trial. The

Opinion only addresses the allocation of the burden of proof (because the

presumptions shift the burden to the defendants on two issues) and the standard of

proof that the defendants must meet (clear and convincing rather than a

       93 Forescout, 2020 WL 3971012, at *2–3.

       94 Id. at *3.

       95 Id.

                                            35
preponderance of the evidence). Those are issues that the Delaware Supreme Court

can review after a final judgment.96

       In Pepsico, the Delaware Supreme Court acknowledged that interlocutory

review might be warranted for “a discovery order involving matters such as privilege,

self-incrimination, privacy, or trade secrets” or when the discovery ordered was “so

burdensome as to be ruinous to the party, and so disproportionate to the amount in

controversy as to amount to deprivation of due process, thus involving substantive

rights and issues.”97 None of those scenarios apply here. The Opinion did not order

any discovery. It drew adverse inferences on two issues and increased the defendants’

burden of proof by one level. Again, those are issues that the Delaware Supreme

Court can review after a final judgment.

       The defendants’ only two authorities thus do not support their implied

assertion that the Opinion decided a substantial issue. That is because the Opinion

is a discovery ruling that does not warrant interlocutory review.

       96  See, e.g., Am. Mining Corp. v. Theriault, 51 A.3d 1213, 1218–19 (Del. 2012)
(affirming post-trial decision where defendants contended that “the Court of Chancery
committed reversible error by failing to determine which party bore the burden of proof before
trial. They further claim the Court of Chancery erred by ultimately allocating the burden to
the Defendants, because, they submit, the Special Committee was independent, well-
functioning, and did not rely on the controlling shareholder for the information that formed
the basis for its recommendation.”); Kahn v. Tremont Corp., 694 A.2d 422 (Del. 1997)
(reversing post-trial decision where plaintiff contended “that the court erred in its burden of
proof allocation regarding the entire fairness of the transaction” and holding that “under the
circumstances the Special Committee did not operate in an independent or informed manner
and therefore, the Court of Chancery erred in shifting the burden of persuasion to
[plaintiff].”); Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1167 (Del. 1995) (considering
“the precise standard of proof required” for “director interest materiality test”).

       97 Pepsico, 261 A.2d at 521.

                                               36
              b.      The Defendants’ Due Process Argument

      Moving beyond their citations to Forescout and Pepsico, the defendants appear

to argue that the Opinion decided a substantial issue because they think the

sanctions the court imposed “guaranteed that Defendants will be deprived of a full

and fair trial.”98 They also say that “[t]he tone of the Opinion makes clear that, even

without testimony, the Court has concluded that Defendants were lying, thus

rendering trial moot.”99

      Neither is true. The defendants will have a full and fair opportunity to present

evidence at trial. The whole point of the Opinion was to ensure a fair trial despite the

defendants’ spoliation.

      The Opinion did not make findings about credibility, nor did the Opinion make

any findings on any issue touching on the merits of the case. Whether the defendants

acted recklessly in failing to preserve texts is a different issue than whether they

acted with scienter when trading in Bioverativ stock. The court has not addressed the

latter issue, nor has the court reached any conclusions about it. The Opinion was not

about the merits, and the trial is not moot.

      Yes, the Opinion questioned the iPhone-upgrade explanation and the post-

pool-incident-repair explanation. Those explanations had serious problems. An

iPhone upgrade does not cause the loss of texts, the timing coincided with the

      98 App. ¶ 31.

      99 Id. ¶ 2.

                                          37
plaintiff’s document requests, and Denner had not consulted with outside counsel

before the upgrade, as they had instructed him to do. DiPaolo’s pool incident was

disclosed belatedly, after full briefing and argument on the Sanctions Motion. It also

involved a temporal disconnect: the repair ostensibly happened around September

28, 2020, yet he has no texts from before October 9, 2020. As the Opinion noted, it

would be strange for a repair to cause the loss of text messages sent during the twelve

days after the repair took place.100 Finally, neither Denner nor DiPaolo suggested at

that time that any other data had been lost. Losing all your data, contacts, and

pictures is a hassle, yet they barely remembered the incidents.101 Those are all fair

criticisms.

       Ultimately, the problems with Denner and DiPaolo’s stories did not drive the

outcome of the Opinion. The court reached only the issue of recklessness, not

intentionality. For recklessness, the key fact was that Denner and DiPaolo lost their

texts and did not know how. The reality-plagued explanations they offered were after-

the-fact efforts to reconstruct what might have happened, and the plaintiff poked

holes in those explanations. For purposes of recklessness, knowledge of their duty to

preserve texts coupled with the loss of texts and the lack of any explanation was

dispositive.102

       100 Op. at *6.

       101 Id. at *1, *6–7, *31.

       102 Relatedly, the Application claims that the Opinion is inconsistent because it (i)

recognizes that an iPhone upgrade does not result in the loss of data but (ii) finds that Denner

                                              38
       The sanctions that the Opinion imposed also do not deny defendants of a fair

trial. The Opinion granted the plaintiff’s requests for rebuttable presumptions but

rejected their requests for preclusion orders. Instead, the court increased the

standard of proof that the defendants must meet to rebut those presumptions. At

trial, the Court will “consider the testimony of Sarissa witnesses and give it the

weight due . . . .”103 If the defendants’ witnesses are credible, they will win.

       Finally, the defendants claim that the Opinion “radically expand[ed] trial” by

requiring the defendants “to prove that the sale fell within a range of reasonableness,

even though those Revlon claims were settled and released.”104 That is only

partially true. The true part is that the plaintiff released the sale process claims when

they settled Counts I and II, and released all of the defendants, including Sarissa and

Denner. But the reasonableness of the sale remained in the case because of the basis

for the plaintiff’s standing.105 The Opinion did not alter what the trial would address.

was reckless when he lost texts by upgrading his iPhone. App. ¶ 15. The first point is correct;
the second isn’t. Denner was reckless because he took no action to preserve his texts despite
receiving three litigation holds and being told by outside counsel to consult with them before
replacing his phone. No one really thinks that Denner lost his texts in the iPhone upgrade.
Even defense counsel doubts that happened. See Dkt. 195, Ex. 19 at 2–3. Ultimately, the
defendants admit that Denner does not know how he lost his texts. App. ¶ 11. He simply
floated that story as a speculative possibility.

       103 Op. at *29.

       104 Appl ¶ 31.

       105 See Insider Trading Decision, 2022 WL 1797224, at *11 (“standing exists to assert

a direct claim when a plaintiff alleges breaches of fiduciary duty that resulted in either an
unfair price or an unfair process.”).

                                              39
       3.     No Substantial Issue

       The substantial issue requirement is therefore not satisfied. The court could

deny the Application on that basis alone. But because the Supreme Court, not this

court, has the final say on whether to accept the defendants’ interlocutory appeal, the

court will address the other aspects of the Rule 42 inquiry.

B.     Whether The Opinion Merits Appellate Review Before A Final
       Judgment

       A ruling addressing a substantial issue is a necessary but not sufficient

condition for the certification of an interlocutory appeal. The trial court’s ruling also

must “merit[] appellate review before a final judgment.”106 When analyzing that

issue, Rule 42(b)(iii) instructs trial courts to consider eight factors. The defendants

rely on three.

       1.     Whether Decisions Of The Trial Courts Conflict

       As their lead argument, the defendants seem to rely on factor (B), which

supports certification when “[t]he decisions of the trial courts are conflicting upon the

question of law.”107 Technically the defendants do not frame their argument in those

terms. Instead, they assert that the Opinion “conflicts with Delaware law.”108 They

advance three reasons why that is supposedly so. None establish an actual conflict.

       106 Supr. Ct. R. 42(b)(i).

       107 Supr. Ct. R. 42(b)(iii)(B).

       108 App. ¶ 8 (“[A]warding adverse inferences without a full record conflicts with
Delaware law . . . .”); see id. ¶ 7 (“Interlocutory appeal is appropriate because the Opinion is
inconsistent with Delaware law . . . .”); id. ¶ 16 (“Delaware law does not support making such
findings of recklessness on an ipse dixit basis, without live testimony.”).

                                              40
               a.      The Supposed Requirement To Hear Live Testimony

       The defendants argue that “awarding adverse inferences without a full record

conflicts with Delaware law . . . .” 109 By that, they mean that before ruling on a

sanctions motion seeking adverse inferences, a Delaware court must hear live

testimony from the parties accused of spoliation, either by (i) deferring the motion

until after trial, or (ii) holding an evidentiary hearing at which the accused spoliators

testify. No such requirement exists.

       Neither Rule 37 generally nor Rule 37(e) specifically requires an evidentiary

hearing on discovery motions. Yet according to the defendants, the Court of Chancery

“has previously only adjudicated motions for adverse inferences for spoliation with a

full record or an evidentiary hearing.”110 In support of that proposition, they cite cases

where the court has followed that course. But that does not mean that the court must

follow that course. Contrary to the defendants’ assertion, Delaware courts have

previously imposed adverse inferences before trial and without an evidentiary

hearing.111

       109 App. ¶ 8.

       110 Id. ¶ 10.

       111 E.g., Beard Rsch., Inc. v. Kates, 981 A.2d 1175, 1185 (Del. Ch. 2009) (“During the

pretrial conference on March 4, 2009, I advised the parties that I would be denying the Motion
to the extent it sought entry of a default judgment, but would grant an adverse inference to
a limited extent and award Plaintiff their attorneys’ fees and expenses in connection with the
Motion.”); Fortis Advisors, LLC v. Dematic Corp., 2021 WL 2259398, at *2–3 (Del. Super.
June 3, 2021) (ORDER) (denying certification of interlocutory appeal of pre-trial imposition
of sanctions, including adverse inferences, for failure to produce evidence).

                                             41
       The defendants also claim that “[f]ederal courts are in accord, and hold

evidentiary hearings when credibility is disputed.” 112 In support of that proposition,

they cite three decisions. One of them—Wakefield—rejected a spoliation motion on

timeliness grounds, without holding a hearing.113 That leaves two.

       The second case—Gold King—shows that an evidentiary hearing may be

required for complex spoliation issues. The plaintiff in that case sought sanctions

against the federal government based on wide-ranging failures to preserve

documents.114 After reviewing over 400 pages of briefing, the court asked for still more

briefing.115 Then, when the federal government moved to establish a briefing

schedule, the court denied the motion and decided to hold an evidentiary hearing,

citing the complexity of the alleged spoliation and the need “to evaluate the credibility

of the witnesses.”116 The case supports holding an evidentiary hearing when

warranted, but not much else.

       The third case is similar. In Bernholt, the court scheduled an evidentiary

hearing where the parties were “at loggerheads as to [the] nature of any documents

       112 App. ¶ 10 (citing In re Gold King Mine Release, 2022 WL 741882, at *4 (D.N.M.

Feb. 1, 2022); Bernholt v. Allen, 2021 WL 2823409, at *4 (D. Neb. 2021); Wakefield v. ViSalus,
Inc., 2019 WL 1411127, at *4 (D. Or. March 27, 2019)).

       113 Wakefield, 2019 WL 1411127, at *1.

       114 Gold King, 2022 WL 741882, at *1–2.

       115 Id. at *1.

       116 Id. at *4

                                             42
destroyed” and had submitted conflicting declarations about what happened. 117 On

those facts, scheduling a hearing made sense. In this case, no one disputed the critical

facts.

         In contrast to the defendants’ sparse and terse authorities, a host of federal

decisions state expressly that a trial court has discretion regarding whether to hold

         117 2021 WL 2823409, at*4.

                                           43
an evidentiary hearing before imposing sanctions for spoliation, even when intent is

at issue.118 That is what the Opinion said too.119

       The Opinion then explained how different considerations could affect how a

court proceeded regarding a Rule 37(e) motion:

       When to address a spoliation issue depends on a variety of factors,
       including the nature of the issue, the stage of the case, the court’s ability
       to provide case-specific relief, and any scheduling order that might

       118 See Gypsum Res., LLC v. Clark Cty., 2022 WL 16951250, at *3 (D. Nev. Nov. 15,

2022) (noting that a district court “has discretion, but is not required, to hold an evidentiary
hearing prior to imposing sanctions” for spoliation); Off. Comm. of Unsecured Creditors of
Exeter Hldgs. Ltd. v. Haltman, 2016 WL 128154, at *3 (E.D.N.Y. Jan. 12, 2016) (“the decision
to hold an evidentiary hearing is discretionary.”); In re Dynex Cap., Inc. Sec. Litig., 2011 WL
2581755, at *3 (S.D.N.Y. Apr. 29, 2011) (“[I]t is within the Court’s discretion to hold an
evidentiary hearing on a sanctions motion, although no such hearing is required.”), report
and recommendation adopted, 2011 WL 2471267 (S.D.N.Y. June 21, 2011); Stoian v. Colvin,
2015 WL 13918816, at *3 (C.D. Cal. Nov. 19, 2015) (“In this case, the Court concludes that
an evidentiary hearing is not necessary, because the overwhelming evidence demonstrates
that Plaintiff willfully, and in bad faith, falsified and fabricated evidence. Moreover, based
on this record, even if the Court were to hold an evidentiary hearing, the Court would reject
Plaintiff’s testimony as not credible.”); Innis Arden Golf Club v. Pitney Bowes, Inc., 257 F.R.D.
334, 341 (D. Conn. 2009) (“Therefore, the Court concludes that the undisputed evidence
shows that Innis Arden breached its duty to preserve its sampling evidence and associated
data. Consequently, no evidentiary hearing on Pitney Bowes’s state of mind and failure to
act, as requested by Innis Arden, is necessary. Given this conclusion, the next question is
what sanction, if any, should follow.”); see also Whitten v. Johnson, 2022 WL 885773, at *6
(W.D. Va. Mar. 25, 2022) (“[I]f necessary, the court will conduct a pretrial evidentiary hearing
to determine whether spoliation of video evidence occurred and, if it did, whether a spoliation
sanction is warranted.”); Echavarria v. Am. Valet Parking Mgmt., Inc., 2015 WL 12746112,
at *3 (S.D. Fla. June 17, 2015) (“An evidentiary hearing on whether spoliation sanctions are
appropriate will be set at a later date, if necessary.”); Botell v. United States, 2013 WL
2106033, at *1 (E.D. Cal. May 14, 2013) (“The court will notify the parties whether an
evidentiary hearing regarding the spoliation of evidence as it relates to defendant’s
discretionary function defense is necessary.”) (ORDER). Cf. Pac. Harbor Cap., Inc. v.
Carnival Air Lines, Inc., 210 F.3d 1112, 1118 (9th Cir. 2000) (holding when determining
whether an attorney has acted in bad faith, due process “does not require an oral or
evidentiary hearing on the issue” and that “[t]he opportunity to brief the issue fully satisfies
due process requirements.”); Resol. Tr. Corp. v. Dabney, 73 F.3d 262, 268 (10th Cir. 1995)
(same).

       119 Op. at *14.

                                               44
       apply. If a party seeks an order compelling the defendants to provide
       additional discovery or to pay for the movant to conduct additional
       discovery, then it would be foolish to defer the motion until trial. If a
       ruling on the motion will help the parties prepare for trial or limit the
       issues to be addressed at trial, then it often will make sense to address
       the motion before trial. If the motion turns on evidentiary issues that
       the court will evaluate at trial, then it will make sense to defer the
       motion until trial. Ultimately, the decision rests in the discretion of the
       court based on the facts of each case.120

The Opinion also cited two federal decisions that identified similar considerations.121

       After considering these factors, the Opinion concluded that ruling on the

Sanctions Motion was warranted because the outcome would affect “how the parties

plan for trial and present evidence.”122 If the court had waited and imposed similar

sanctions after trial, the defendants likely would have argued that their due process

rights were violated because they did not have advance notice that the court would

draw adverse inferences or impose a heightened evidentiary burden.

       120 Id. (footnote omitted).

       121 Id. at *14 n.10 (first citing Gruenstein v. Browning, 2022 WL 3213261, at *3 (N.D.

Ill. June 21, 2022); then citing GMS Indus. Supply, Inc. v. G&S Supply, LLC, 2022 WL
853626, at *4 (E.D. Va. Mar. 22, 2022)).

        The Opinion observed in passing that a review of federal decisions suggests that the
principal problem federal courts face involve parties raising spoliation issues too late, rather
than too early. Op. at *14 & n.9 (citing GMS Indus., 2022 WL 853626, at *4 (analyzing
whether motion was filed late); McEachron v. Glans, 1999 WL 33601543, at *2 (N.D.N.Y.
June 8, 1999) (collecting authorities); Steves & Sons, Inc. v. JELD-WEN, Inc., 327 F.R.D. 96,
108 (E.D. Va. 2018)). The defendants say that those cases “discuss how a party moving for
spoliation may impermissibly prejudice the alleged spoliator by moving after discovery
closes . . . .” App. ¶ 25. That is not a response. The federal decisions show that a post-trial
adjudication of a spoliation issue can be problematic.

       122 Op. at *14.

                                              45
       The defendants denigrate the discretionary considerations inherent in

determining how to proceed on a sanctions motion. They assert boldly that the

requirement to hold an evidentiary hearing “is not a matter of ‘timing.’ It is a matter

of due process.”123 Not so.

       Federal courts of appeals have specifically addressed this question and rejected

the defendants’ position. One stated:

       When necessary, the district court may hold an evidentiary hearing on
       a motion for sanctions. Hence, the district court has the discretion, but
       is not required, to hold an evidentiary hearing prior to imposing
       sanctions on a party. Indeed, in cases in which the sanctioned party
       argued that it was deprived of due process because the district court
       failed to conduct an evidentiary hearing, . . . we have held that the
       opportunity to brief the issue fully satisfies due process requirements.124

Another explained:

       The opportunity to be heard does not necessarily entitle the subject of a
       motion for sanctions to an evidentiary hearing. An evidentiary hearing
       serves as a forum for finding facts; as such, its need can be obviated
       when there is no disputed question of fact or when sanctions are based
       entirely on an established record.125

       123 App. ¶ 24.

       124 Lambright v. Ryan, 698 F.3d 808, 825–26 (9th Cir. 2012) (cleaned up); see Anderson

v. BNSF Railway Co., --- F.Supp.3d ---, 2023 WL 4418221, at *3–4, *11 (S.D. Iowa July 6,
2023) (rejecting request for evidentiary hearing on sanctions motion, deciding motion without
oral argument, and imposing sanctions).

       125 In re Reed, 888 F.3d 930, 938 (8th Cir. 2018) (quoting Schlaifer Nance & Co. v. Est.

of Warhol, 194 F.3d 323, 335 (2d Cir. 1999) (internal citation omitted)).

                                             46
       That reasoning comports with “the fundamental requirement of due process,”

which is “the opportunity to be heard at a meaningful time and in a meaningful

manner . . . .”126

       Here, the plaintiff filed the Sanctions Motion on November 14, 2023.127 That

motion put the defendants on notice of what they faced. On November 29, the

defendants submitted a 2,998-word opposition, supported by a transmittal affidavit

that attached thirty-six exhibits covering 309 pages.128 After the plaintiff filed their

reply, the court held a hearing at which two lawyers presented argument for the

defendants.129 When defense counsel could not answer basic questions about their

document collection process, the court instructed the defendants to submit an

affidavit so that they “had the opportunity to document what they had done.”130 In

total, the defendants submitted three post-hearing affidavits, a letter, and two more

exhibits.131 After receiving and considering those documents, the court issued the

Opinion. That is not a lack of due process. That is a lot of due process.

       When making their due process pitch, the defendants turn to a transcript

ruling and a letter ruling to argue that Delaware law always requires an evidentiary

       126 Kahn v. U.S., 753 F.2d 1208, 1218 (3rd Cir. 1985).

       127 Dkt. 195.

       128 Dkt. 199.

       129 Dkt. 231.

       130 Op. at *10.

       131 Dkts. 212 & 215.

                                             47
hearing on pain of a due process violation. In the transcript ruling, Vice Chancellor

Will stated that as to one party charged with spoliation, “I can’t possibly make

credibility determinations or assess his state of mind on the record that I have before

me right now.”132 That was a case-specific ruling, not a quasi-legislative

determination that an evidentiary hearing is always required. Confirming that, she

noted that “our courts often make spoliation findings just before or after trial, on a

better-developed evidentiary record, or at least at an evidentiary hearing.”133 Often.

Not always.

       The defendants also rely on one of Chancellor McCormick’s many letter rulings

in the highly expedited Twitter case. In their seventh discovery motion, the plaintiff

sought an adverse inference that Elon Musk had recklessly or intentionally withheld

damaging text messages.134 Based on the paper record that the parties submitted, the

Chancellor found it “likely that Defendants’ custodians permitted the automatic

deletion of responsive Signal communications between them and possibly others, and

that those communications are irretrievably lost.”135 But she could not determine

whether the defendants were under a duty to preserve evidence at that point. She

held that “[i]f Defendants deleted documents after they were under a duty to

       132 Fortis Advisors, LLC v. Johnson & Johnson, C.A. No. 2020-0881-LWW, at 132 (Del.

Ch. June 5, 2023).

       133 Id. (emphasis added).

       134 Twitter v. Musk, 2022 WL 5078278, at *1 (Del. Ch. Oct. 5, 2022).

       135 Id. at *5.

                                             48
preserve, some remedy is appropriate, but the appropriate remedy is unclear to me

at this stage. I will reserve my ruling regarding Plaintiff’s request for sanctions,

including adverse inferences, pending post-trial briefing, when I have a fuller

understanding of the record.”136

       If the Chancellor had been able to determine from the paper record whether a

duty to preserve existed, and if she had been confident in the appropriate remedy,

then her ruling indicates that she would have imposed one based on the paper record.

The undisputed facts of this case enabled the Opinion to do just that.

       As further support for its mandatory-evidentiary-hearing argument, the

Application states incorrectly that “[t]he sole case the Court cites for finding

recklessness was issued after trial.”137 For starters, that was not the sole case on

which the Opinion relied when finding recklessness; the Opinion cited at least six

others.138 And while it is true that Triton was a post-trial decision, the court’s finding

of recklessness turned on the fact that the spoliator “presented no evidence that he

       136 Id.

       137 App. ¶ 16 (referring to Triton Const. v. E. Elect. Servs., 2009 WL 1387115 (Del. Ch.

May 18, 2009)).

       138 When stating the standard for recklessness, the court cited Beard Research, Inc. v.

Kates, 981 A.2d 1175, 1192 (Del. Ch. 2009). Op. at *29–30. For the proposition that a court
can rely on either direct or circumstantial evidence to find recklessness, the court cited In re
Skanska USA Civil Southeast, Inc., 340 F.R.D. 180, 188 (N.D. Fla. 2021), E*Trade Sec., LLC
v. Deutsche Bank AG, 230 F.R.D. 582, 590 (D. Minn. 2005), and Paisley Park Enterprises v.
Boxill, 330 F.R.D. 226, 236 (D. Minn. 2019). Op. at *30. As an example of a Delaware decision
finding recklessness, the court cited Kan-Di-Ki, LLC v. Suer, 2015 WL 4503210, at *29 (Del.
Ch. July 22, 2015). Op. at *30. The court also cited Gener8 LLC v. Castanon, 2023 WL 638163,
at *15 (Del. Ch. Sept. 29, 2023)). Op. at *32.

                                              49
took any steps to preserve the thumb drive or home computer[, but rather] effectively

threw up his hands in bewilderment as to what happened to them.”139 That is what

Denner and DiPaolo did. They did not know how they lost their texts, and the

explanations they offered did not make sense.

      The weight of authority thus establishes that an evidentiary hearing is not

required as a matter of law, on pain of a due process violation. But doubtless a court

could abuse its discretion by not holding an evidentiary hearing when one was plainly

required.

      On the facts of this case, holding an evidentiary hearing was not required.

True, “Defendants submitted sworn attestations that they did not act intentionally

or recklessly.”140 But the Opinion did not hold that Denner and DiPaolo intentionally

deleted texts. The court deferred that issue to trial, just as the defendants wanted.

      The Opinion instead held that Denner and DiPaolo acted recklessly by not

preserving their texts. On that issue, if Denner or DiPaolo had been in a position to

testify about what they did to preserve their texts and how they nevertheless lost

them, then an evidentiary hearing might have been warranted. But it was undisputed

that Denner had no texts from before October 2021, that he took no action to preserve

them, and that that he does not know how or why his texts were lost. It was also

      139 Triton, 2009 WL 1387115, at *8.

      140 App. ¶ 11.

                                            50
undisputed that DiPaolo had no texts from before October 2020, that he took no action

to preserve them, and that he does not know how or why his texts were lost.

        The defendants stress in the Application that DiPaolo thinks that “it is possible

that he lost [his texts] before this litigation began.”141 That is true. It is also

irrelevant. What matters is whether DiPaolo lost them after he had an obligation to

preserve them, which he did.142 And what matters for purposes of recklessness is

whether DiPaolo knew he was obligated to preserve them and consciously ignored

that obligation.143 He plainly knew he was obligated to preserve them, because he

sent the Sarissa Hold. He then did nothing to comply with the obligation he knew he

owed.

        Finally, the Application asserts that “DiPaolo is an attorney who respectfully

requested the opportunity to testify fully in a sworn affidavit, and the Court should

have heard his testimony before discrediting him out of hand.”144 Justice should not

vary depending on who a person is or what professional qualifications they have. A

person’s status as an attorney does not excuse them from submitting evidence to

support their positions. On the issue of recklessness, DiPaolo did nothing to preserve

his texts and had no idea how he lost them. He could only speculate about the

        141 Id.

        142 See Twitter, 2022 WL 5078278, at *5.

        143 See Beard Rsch., 981 A.2d at 1192.

        144 Id. ¶ 14.

                                             51
swimming pool incident, yet the dates for explanation did not match up. The court

did not “discredit[] him out of hand.” The court carefully considered the evidence that

the parties submitted.145

       The question at hand is whether the Opinion conflicts with other decisions

from the trial courts such that an interlocutory appeal is warranted under factor (B)

of Rule 42. There is no conflict as to the court’s discretionary determination that an

evidentiary hearing was not required.

               b.       The Supposed Conflict Over A “Helpfulness” Requirement

       In a second effort to create a conflict among trial court decisions, the

defendants argue that the court should have analyzed whether any missing

documents would have been helpful to the plaintiff.146 They claim that the Opinion’s

analysis conflicts with TR Investors, LLC v. Genger, which stated that the aggrieved

party “must show a reasonable possibility, based on concrete evidence rather than a

fertile imagination that access to the lost material would have produced evidence

favorable to his cause.”147

       145 See Op. at *29–32. Along the same lines, the defendants argue that “Delaware law

does not support making such findings of recklessness on an ipse dixit basis . . . .” App. ¶ 16.
The court did not make ipse dixit findings. The court carefully examined the record. See Op.
at *29–32. The only ipse dixit assertions were Denner and DiPaolo’s naked contentions that
they were not reckless.

       146 App. ¶ 17.

       147 2009 WL 4696062, *18 n.73 (Del. Ch. Dec. 9, 2009) (cleaned up), aff’d, 26 A.3d 180

(Del. 2011).

                                              52
       The defendants did not argue this point in their opposition to the Sanctions

Motion. Their only citation to Genger appeared in the midst of a footnoted string cite,

where they described the case as “granting sanctions for authorizing an agent to

destroy evidence identified by his own counsel as responsive.”148 Their opposition to

the Sanctions Motion also did not cite Happy Child, a decision that quoted Genger.149

       The court engaged with this issue because Rule 37(e) now requires a finding of

prejudice. The Genger decision was issued before the adoption of Rule 37(e). The

Happy Child ruling post-dated the adoption of Rule 37(e), but its brief discussion of

why no spoliation had occurred did not touch on Rule 37(e).

       When addressing the element of prejudice, the Opinion held that “when

showing prejudice from spoliation, the requesting party must provide some minimal

explanation as to why the lost ESI could have been relevant and either admissible in

its own right or reasonably likely to lead to the discovery of admissible evidence.” 150

If the movant meets this standard, then the party that failed to preserve the ESI

“must convince the court that the lost material could not have been relevant, would

not have been admissible or potentially have led to the discovery of admissible

       148 Dkt. 199 ¶ 31 n.6.

       149 See App. ¶ 9 (citing In re Happy Child World, 2020 WL 5793156, *9 (Del. Ch. Sept.

29, 2020)).

       150 Op. at *27.

                                            53
evidence, or otherwise could not have been used by the requesting party to its

advantage.”151

      That standard is functionally the same as the Genger case. Setting aside the

Genger court’s reference to a “fertile imagination,” both Genger and the Opinion

contemplate that the party seeking sanctions must initially come forward with some

reason why the lost ESI would have been helpful. If the movant makes that showing,

then the respondent must show otherwise. The main semantic distinction is that the

Opinion used the phrase “minimal explanation,” whereas Genger says, “reasonable

possibility.” That is not a meaningful divergence. An unreasonable possibility would

not rise to the level of a minimal explanation. Nor would an explanation based on

impossibility. A minimal explanation requires a reasonable possibility.

      Here, the plaintiff pointed to ESI that was specifically known to exist. Based

on texts that other parties produced, the plaintiff established that Denner texted

about the Bioverativ-Sanofi deal process. There is also no dispute that the texts were

lost. The plaintiff provided a reasonable explanation that Denner’s texts would have

shown what he was doing and when during the critical time period after Sanofi’s

initial approach and through the trading window when Sarissa accumulated its block

of shares.

      Nothing more is required. Precisely because the texts were lost, the plaintiff

can’t point to the specific wording of a specific text sent on a specific day. If the

      151 Id.

                                         54
plaintiff had that information, then that text would not have been lost for purposes

of Rule 37(e).

      Once again, the question at hand is whether the Opinion conflicts with other

decisions from the trial courts such that an interlocutory appeal is warranted under

factor (B) of Rule 42. There is no conflict as to the test that the Opinion articulated.

              c.       The Supposed Conflict Over The Sanctions Imposed

      In their third effort to create a conflict between trial court decisions, the

defendants argue that “the sanctions are disproportionate.”152 A discretionary

decision to impose sanctions on the facts of one case does not create a conflict with a

discretionary decision to impose different sanctions on the facts of a different case.

      As the foundation of their disproportionate sanctions argument, the

defendants claim that the court “has issued the most severe sanctions available short

of a default judgment.”153 That is demonstrably incorrect. The court could have issued

evidentiary preclusion orders, which Rule 37(b)(2)(B) contemplates and the plaintiff

requested. The court could have found facts contrary to the defendants’ position, as

Rule 37(b)(2)(A) permits. The court could have stricken defenses, as Rule 37(b)(2)(C)

allows.

      Instead, the court granted the rebuttable inferences that the plaintiff

requested. In lieu of granting the evidence preclusion orders that the plaintiff sought,

      152 App. ¶ 21.

      153 Id. ¶ 31.

                                           55
the court elevated the defendants’ burden of proof by one level. Now, rather than

having to rebut the inferences by a mere preponderance of the evidence, the

defendants will have to offer clear and convincing evidence.

      The defendants say that the Opinion “applies the same sanctions as Genger.”154

That is also demonstrably incorrect. The Genger court imposed two additional

sanctions. The court held that “because Genger has diminished the evidence base that

would otherwise be available to the Trump Group, . . . he must produce relevant

documents to which he may have otherwise made a claim of privilege.”155 The Opinion

did not do that.

      The Genger court also required corroborating evidence for any testimony by

the sanctioned party, holding that

      because Genger’s conduct leaves me with severe doubts about his
      credibility, Genger will be unable to prevail on any material factual
      issue if the only evidence in support of his position is his own testimony.
      Absent corroborating testimony or documents, his mere word will be
      insufficient to meet his burden of persuasion.156

The Opinion did not do that either.

      Contrary to the defendants’ assertion, the Opinion imposed lesser sanctions

than Genger, as warranted by the case’s different facts. The sanctions are reasonable

and proportionate in light of the defendants’ loss of their texts. The defendants intend

      154 App. at ¶ 21.

      155 Genger, 2009 WL 4696062, at *19.

      156 Id.

                                             56
to rely extensively at trial on witness testimony; there are very few contemporaneous

documents. In that setting, placing the burden on the defendants to rebut two

inferences and elevating their standard of proof by one level is a moderate

consequence. The case is likely to come down to witness credibility. If the defendants’

witnesses testify credibly, then they will win.

              d.     No Conflict Among Trial Court Decisions

      As noted, the defendants ground their principal argument for interlocutory

review on the supposed existence of a conflict between the Opinion and other trial

court rulings. There is no conflict. Factor (B) does not provide a basis for certification.

      2.      Whether The Opinion Involves A Question Of First Impression

      The defendants next turn to factor (A) of Rule 42, which asks whether the

“[i]interlocutory order involves a question of law resolved for the first time in this

State.”157 The defendants contend that “awarding adverse inferences without a full

record . . . presents a question of first impression.”158 They also contend that the

Opinion adopted a “new discovery rule” that “warrants interlocutory review.”159

      The argument about adverse inferences without a full record is a rehash of the

defendants’ first argument under factor (A). There is no need to repeat that

      157 Supr. Ct. R. 42(b)(iii)(A).

      158 App. ¶ 8; see id. ¶¶ 22–25.

      159Id. ¶ 26.

                                            57
discussion, except to note again that the Opinion is not the first decision to have done

it.160

         The contention that the Opinion adopted a new discovery rule is equally

misguided. The defendants set up a strawman by mispresenting the Opinion. They

claim that,

         [t]he Opinion imposed new, difficult-to-impossible discovery standards,
         and penalized Defendants for not satisfying them. The Court held that
         Defendants acted recklessly by not imaging employee phones upon
         receipt of a litigation hold in February 2018—almost three years before
         this action commenced. The Opinion requires every potential litigant
         in Delaware to undergo the costly and invasive process of creating full
         forensic images of every potential custodian’s phones every time they
         anticipate litigation. To do otherwise constitutes recklessness
         warranting adverse inferences.161

That is not a fair characterization.

         Nothing about the Opinion was new. The court applied Court of Chancery Rule

37(e), which is an existing rule governing preservation of ESI.162 The common law

principles against spoliation date back over seven decades.163 The Delaware Supreme

Court held that recklessness was sufficient to support adverse inferences in 2006.164

         160 See n.111, supra.

         161 App. ¶ 3.

         162 Op. at *1–2, *11, *14–32.

         163 See Equitable Tr. Co. v. Gallagher, 102 A.2d 538 (Del. 1954).

         164 See Sears, Roebuck & Co. v. Midcap, 893 A.2d 542 (Del. 2006)

                                               58
       The Opinion did not announce a blanket rule that “every potential litigant in

Delaware [must] undergo the costly and invasive process of creating full forensic

images of every potential custodian’s phones every time they anticipate litigation.”165

The Opinion reiterated the longstanding rule that (i) a party who anticipates

litigation has a duty to preserve potentially relevant information—including text

messages—and (ii) reckless noncompliance with that duty can lead to sanctions. As

the Opinion explained, a party meets this duty by acting “reasonably to preserve the

information that it knows, or reasonably should know, could be relevant to the

litigation, including what an opposing party is likely to request.”166

       Contrary to the defendants’ alarmist framing, the Opinion did not hold that

everyone who might be a custodian in a Delaware action must image their phones

immediately after receiving a litigation hold. Yes, the Opinion states that the

defendants, “should have taken steps to preserve ESI, including by imaging phones

or backing up their data. . . . In a world where people primarily communicate using

personal devices, it will almost always be necessary to image or backup data from

phones.”167 But the defendants seem not to understand the disjunctive conjunction

       165 App. ¶ 3; accord id. ¶ 27 (“Now everyone must image their phones—at the latest—

upon receiving a litigation hold.”); id. ¶ 28 (“[T]he Court has mandated forensic imaging every
time anyone might anticipate litigation in Delaware.”).

       166 Op, at *18 & n.19 (collecting cases).

       167 Op, at *21.

                                               59
“or.” The sentence that the defendants pick out spoke of either making an image or

backing up data.168

       168 The defendants also do not seem to understand the cases they cite. They assert

that “[f]ederal authority disfavors imaging because it is incredibly invasive.” App. ¶ 28. But
the cases they cite address whether courts should issue orders compelling parties to produce
forensic images to their opponents. Those cases do not address the use of imaging as a data
preservation technique in which a client’s own lawyer or data security consultant makes and
retains the image. Those are very different things. See J.B. v. v. Goetz, 531 F.3d 448, 459 (6th
Cir. 2008) (discussing the power to compel forensic imaging; noting that “forensic imaging is
not uncommon in the course of civil discovery” and that “[a] party may choose on its own to
preserve information through forensic imaging,” but cautioning that “compelled forensic
imaging is not appropriate in all cases, and courts must consider the significant interests
implicated by forensic imaging before ordering such procedures.”); Corum v. Wensley, 2023
WL 6192728, at *4 (E.D. Tenn. July 19, 2023) (denying motion to compel forensic image of
phone without prejudice where plaintiff failed to file a reply in support of the motion and the
defendant offered the less intrusive method of a subpoena to Facebook to obtain his Facebook
messages); Wright v. Rio Tinto Am., 2021 WL 5417037, at *3 (D. Utah Nov. 19, 2021) (denying
motion to compel forensic image of phone while ordering production of text messages); FCA
US LLC v. Bullock, 329 F.R.D. 563, 569 (E.D. Mich. 2019) (denying motion to compel
production of a mirror image of defendant’s personal devices but requiring the defendant to
produce deleted files); Hardy v. UPS Ground Freight, 2019 WL 3290346, at *3 (D. Mass. July
22, 2019) (denying motion to compel production of a full forensic image of plaintiff’s phone
where there were less intrusive methods to obtain information); Cross by & Through Steele
v. XPO Express, Inc., 2016 WL 11519221, at *7 (D.S.C. May 3, 2016) (denying motion to
compel production of forensic image but ordering defendant to “conduct a search of his laptop
to determine whether it contains any responsive documents” and “to confer with Plaintiff as
to his search methodology and agree to a specific ESI protocol.”). Not only that, but in one of
the cases the defendants cite, the court compelled the creation and production of a forensic
image of a phone. See France v. Chippewa Cty., 2021 WL 11431784, at *3 (W.D. Mich. Nov.
22, 2021) (“France’s motion to compel the forensic imaging of Savoie and German’s cellular
devices is hereby GRANTED.”). Doubtless there are other decisions that have granted that
relief.

       The defendants also refer to the Advisory Committee’s notes to the Federal Rules of
Civil Procedure, which they say “cautions against” making “forensic examination the
default.” App. ¶ 28. The operative rule is Rule 37(e), and it was adopted in 2015. The
defendants rely on two cases from 2009 that cite the Advisory Committee notes to the 2006
version of Rule 34. Id. at ¶ 28 n.6 (first citing Covad Commc’ns v. Revonet, 258 F.R.D. 5, 11–
12 (D.D.C. 2009); then citing White v. Graceland Coll. Ctr., 2009 WL 722056, *7–8 (D.Kan.
2009)). That set of Advisory Committee’s notes addressed the ability of an adverse party to
obtain “direct access to a party’s electronic information system.” Fed. R. Civ. P. 34(a)(1),
advisory committee’s notes to 2006 amendment. It does not deal with how a party fulfills its
preservation obligations. The two cases the defendants cite contain the quotation from the

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       The Opinion did not establish a rigid checklist or bright line rule. It reiterated

that parties must take reasonable steps to preserve evidence in a world where texts

are often a source of evidence. A party can image or back-up a device to ensure there

is no data loss. Or a party could turn off auto-delete features and let the texts

accumulate. Or a party could just collect the text messages.

       Nothing about that is novel. In holding that the duty to preserve evidence

extends to texts, the court cited a rage of authorities dating back two decades to the

seminal decision commonly known as Zubulake IV.169 The Opinion explained how

parties and their counsel can meet the reasonableness standard by following the well-

understood steps of a document discovery process: (1) identification, (2) preservation,

(3) collection, (4) review, and (5) production.170

       In this case, the defendants blew it on the first two steps. They did not identify

key custodians, and they did not take reasonable steps to preserve evidence. Despite

receiving three litigation holds, they did not take any concrete steps to identify

sources, preserve ESI, or collect text messages until one year into the case. Defense

Advisory Committee notes that the defendants like, but the cases actually grant relief to the
party seeking direct access to an opposing party’s electronic information system. The Covad
decision ordered a party to make forensic images to preserve the data on particular servers,
then also ordered full forensic searches of the servers. 258 F.R.D. at 10, 13. The White decision
denied a plaintiff’s request for a full forensic image, but held that the plaintiff had “shown
sufficient circumstances to allow some type of direct access to the [defendants’] computer
hard drives . . . .” 2009 WL 722056, at *7–9. Like the Advisory Committee notes, those
authorities are not talking about how a party fulfills its own obligation to preserve evidence.

       169 Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003).

       170 Op. at *19–21.

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counsel did not conduct custodian interviews of potential custodians. Denner and

DiPaolo did not take steps to back up the data on their phones. Denner switched

phones without consulting counsel, despite counsel’s instruction to the contrary.

Another custodian never turned off his auto-delete setting. And counsel failed to

timely investigate whether any of the defendants’ custodians had relevant texts.

      The defendants close with a nice rhetorical flourish that they tie to their due

process theme. They say:

      To make matters worse, the Court applied its new rule as proof of
      Defendants’ recklessness. But Defendants did not know in 2018 that the
      Court would decree—six years later—that failure to image phones was
      reckless. The Court’s retroactive application of its new discovery rule
      violates Defendants’ due process [sic].171

This criticism rests on a false premise. The Opinion did not adopt a new rule, much

less the rule that the defendants posit.

      The Opinion did not decide a question of first impression. It applied existing

law to the facts. Factor (A) does not apply.

      3.     Whether Review Would Serve Considerations Of Justice

      As their final basis for interlocutory appeal, the defendants invoke factor (H),

which asks whether “[r]eview of the interlocutory order may serve considerations of

justice.”172 That factor does not apply either.

      171 App. ¶ 29.

      172 Supr. Ct. R. 42(b)(iii)(H).

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      Under this heading, the defendants reprise their other arguments. They

reiterate their incorrect claim that the Opinion “issued the most severe sanctions

available short of a default judgment.”173 For the reasons already discussed, the

Opinion did not do that. They also reiterate their claim that the court prejudged the

defendants’ credibility and “essentially guaranteed that Defendants will be deprived

of a full and fair trial.”174 For the reasons already discussed, the Opinion did not do

that either. And they reiterate their assertion that the court expanded the scope of

trial by granting an inference on the reasonableness of the sale process.175 As

discussed previously, that issue remains relevant for purposes of the plaintiff’s

standing. The defendants do not face any liability on a sale process claim. If they are

content not to contest the plaintiff’s standing, they can ignore the sale process.

      The defendants even reprise their contentions about a failure of due process.

This time, however, they introduce a new case: Rogal v. American Broadcast

Companies.176 That decision does not help them.

      In Rogal, the United States Court of Appeals for the Third Circuit reversed an

order imposing monetary sanctions on the plaintiff for testifying falsely at trial

because the district court did not hold a separate evidentiary hearing on the

      173 App. ¶ 31 (citing Genger, 2009 WL 4696062, at *18).

      174 Id.

      175 Id.

      176 74 F.3d 40 (3d Cir. 1996).

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defendants’ sanctions motion.177 The trial court did not believe an additional hearing

was necessary because the judge had witnessed the false testimony first hand and

the parties went through two rounds of briefing.178 The appellate court reaffirmed the

absence of “any rigid rule” as to whether an evidentiary hearing is required.179 The

appellate court nevertheless held that on the facts of the case, an evidentiary hearing

was necessary because the plaintiff “did not have the same incentive at trial to try to

clear up all of the apparent contradictions and inconsistencies in his testimony or to

try to show his good faith as he would have had at an evidentiary hearing on the

question of sanctions.”180 The appellate court emphasized that its “holding [was] a

narrow one and depend[ed] heavily on the specific nature of [the plaintiff’s] alleged

misrepresentations and the relationship of each instance of contradictory or

inconsistent testimony to the central issues of the litigation.”181

       In this case, the question of sanctions was not bound up with a trial on the

merits; it was the only issue the defendants needed to address. And the defendants

had ample opportunity. The plaintiff filed the Sanctions Motion, which spelled out

the conduct and identified the sanctions sought. The defendants opposed the

       177 Id. at 44.

       178 Id. at 42–45.

       179 Id. at 44 (quoting Jones v. Pittsburgh Nat. Corp., 899 F.2d 1350, 1358 (3d Cir. 1990)

(internal quotation marks omitted)).

       180 Id. at 45.

       181 Id.

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Sanctions Motion and submitted documentary evidence. The court held a hearing and

asked questions of counsel, then gave counsel the opportunity to submit affidavits.

The defendants submitted three post-hearing affidavits, a letter, and two additional

exhibits. The defendants had every incentive to justify their conduct and clear up any

apparent contradictions and inconsistencies. Instead, they kept digging themselves

deeper. The Rogal decision does not suggest that an evidentiary hearing was

necessary.

      The defendants’ arguments do not fare any better when repeated under factor

(H). Considerations of justice will not be served by certifying an interlocutory appeal.

The catchall factor does not apply.

C.    The Balancing

      As a final step, Rule 42 directs the trial court to engage in balancing:

      After considering [the eight] factors and its own assessment of the most
      efficient and just schedule to resolve the case, 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.182

There must be “substantial benefits that will outweigh the certain costs that

accompany an interlocutory appeal.”183

      Recognizing that the decision is ultimately up to the Delaware Supreme Court,

the court does not see any benefit to an interlocutory appeal at this stage. A five-day

      182 Supr. Ct. R. 42(b)(iii).

      183 Supr. Ct. R. 42(b)(ii).

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trial is set for April 29, 2024 through May 3, 2024, just two months away. It seems

unlikely that an interlocutory appeal could be resolved in the roughly two months

before the start of trial without significant burden on the Delaware Supreme Court.

Granting an interlocutory appeal would likely result in a postponement of trial.

      Not only that, but the defendants may well prevail at trial. Although the lead

defense lawyer now seems to have lost confidence in his case, he previously argued

that “I think you will find Mr. DiPaolo a very credible witness.”184 He also stressed

that the defendants would present evidence from Denner and Scott Barshay, a

partner at Paul Weiss. If the court finds their testimony credible, then the defendants

will win. If that happens, then the current dispute over adverse inferences and an

increased standard of proof will be moot.

      By contrast, if the plaintiff wins at trial, then the defendants can appeal on a

complete record, and they can raise all of their points of error at once. This is not a

case where an interlocutory appeal will result in a trial of different claims or the

presentation of different evidence.

      On balance, the probable costs of an interlocutory appeal outweigh its potential

benefits. While it is always helpful to have the Delaware Supreme Court’s view on

any issue, this is not a situation where interlocutory review is warranted.

      184 Dkt. 231 at 34.

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                               III.   CONCLUSION

      Ultimately, whether to permit an interlocutory appeal lies in the discretion of

the Delaware Supreme Court. The justices’ views, not the trial court’s, determine

whether the defendants’ request will be granted. This court’s role under Rule 42 is to

make a recommendation. In this case, that recommendation is for the Delaware

Supreme Court to refuse the interlocutory appeal.

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