IN THE SUPREME COURT OF THE STATE OF DELAWARE
JOHN BETTS, § § Defendant Below, § No. 440, 2022 Appellant, § § Court Below—Court of Chancery and § of the State of Delaware § NOBLE TALENTS LLC, § C.A. No. 2020-0455 § Nominal Defendant Below, § Appellant, § § v. § § ELUTIONS CAPITAL VENTURES § S.A.R.L., NBL FUND I, LP, and § HAMSHINE LLC, § § Plaintiffs Below, § Appellees. §
Submitted: November 23, 2022 Decided: January 12, 2023
Before SEITZ, Chief Justice; VAUGHN and TRAYNOR, Justices.
ORDER
After consideration of the notice of appeal from an interlocutory order and its
exhibits, it appears to the Court that:
(1) Nominal defendant-appellant Noble Talents LLC (the “Company”) is a
Delaware limited liability company. The plaintiffs-appellees, Elutions Capital
Ventures S.A.R.L., NBL Fund I, LP, and Hamshine LLC (the “Plaintiffs”), are holders of Series A Preferred Units in the Company. They filed a derivative action
in the Court of Chancery alleging that defendant-appellant John Betts breached his
fiduciary duties to the Company by engaging in self-dealing and by interfering with
and ultimately scuttling a sale of the Company’s wholly owned subsidiary, Noble
International Bank, LLC (“Noble Bank”), to Alpha Global Fintech LLC because
Betts was unable to extract personal benefits from the sale. The Plaintiffs also
asserted a claim for tortious interference based on Betts’s alleged interference with
the prospective sale. On March 30, 2021, Betts filed an answer and counterclaims
asserting claims for breach of fiduciary duty, breach of contract, misappropriation
of trade secrets, and tortious interference.1
(2) In April 2021, Betts moved to dismiss the complaint for failure to
adequately plead demand futility under Court of Chancery Rule 23.12 and moved for
judgment on the pleadings, and the Plaintiffs moved to dismiss the counterclaims.
In June 2021, while briefing on the parties’ motions was proceeding, Betts issued
1 The pleading asserted the counterclaim for breach of fiduciary duty on behalf of both Betts and the Company. For simplicity, this order refers only to Betts as asserting, and opposing dismissal of, the counterclaims and as the appellant here. 2 See DEL. CT. CH. R. 23.1 (providing that in a derivative action the complaint must “allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and the reasons for the plaintiff’s failure to obtain the action or for not making the effort”); see also 6 Del. C. § 18-1001 (“A member or an assignee of a limited liability company interest may bring an action in the Court of Chancery in the right of a limited liability company to recover a judgment in its favor if managers or members with authority to do have refused to bring the action or if an effort to cause those managers or members to bring the action is not likely to succeed.”).
2 numerous subpoenas, including to the custodian of the Company’s electronic
records.3 The custodian produced documents during the first week of October 2021
(the “October Records”). The court heard argument on the motions to dismiss and
for judgment on the pleadings on November 8, 2021. Betts did not refer to the
October Records during the hearing or at any time between the hearing and when
the court ruled on the motions.
(3) On February 2, 2022, the Court of Chancery denied Betts’s motion to
dismiss under Rule 23.1, concluding that demand was excused as futile because
Betts was the sole member of the board of managers when the complaint was filed
and the Plaintiffs had pleaded with particularity that Betts received or attempted to
receive material personal benefits from the misconduct alleged in the complaint.4
The Court of Chancery also denied Betts’s motion for judgment on the pleadings,
concluding that the allegations in the complaint supported reasonable inferences that
Betts breached fiduciary duties that he owed to the Company during the relevant
3 Elutions Capital Ventures S.A.R.L. v. Betts, C.A. No. 2020-0455, Docket Entry No. 135, Transcript of Oct. 24, 2022 Bench Ruling, at 4-5 (Del. Ch.) [hereinafter Interlocutory Bench Ruling]; see also Elutions Capital Ventures S.A.R.L. v. Betts, 2022 WL 17075692, at *1 (Del. Ch. Nov. 18, 2022). 4 Elutions Capital Ventures S.A.R.L. v. Betts, C.A. No. 2020-0455, Docket Entry No. 78, Transcript of Feb. 2, 2022 Bench Ruling, at 20-21 (Del. Ch.) (quoting three-part test for demand futility adopted in United Food & Commercial Workers Union & Participating Food Industry Employers Tri-State Pension Fund v. Zuckerberg, 262 A.3d 1034, 1058 (Del. 2021)).
3 time periods and that he tortiously interfered with the prospective sale of Noble Bank
to Alpha Global.5
(4) As for the Plaintiffs’ motion to dismiss Betts’s counterclaims, the court
held that Betts failed to state a claim for breach of fiduciary duty because he did not
adequately plead that the Plaintiffs owed the Company fiduciary duties, either by
controlling the Company generally or by exercising control with regard to the Alpha
Global deal.6 The court held that Betts failed to state a claim for breach of contract
because he did not allege that the Plaintiffs were parties to any of the contracts at
issue.7 The court held that Betts failed to state a claim for misappropriation of trade
secrets because he did not adequately plead, even under a notice pleading standard,
what trade secrets the Plaintiffs allegedly misappropriated.8 Finally, the court held
that Betts failed to state a claim that the Plaintiffs tortiously interfered with contracts
between the Company and Betts or with the prospective sale of Noble Bank.9 The
court therefore dismissed all of the counterclaims.10
(5) On February 9, 2022, Betts moved for reargument. He also sought
leave to amend his counterclaims, stating that he could further clarify the facts
5 Id. at 21-29. 6 Id. at 29-32. 7 Id. at 32-33. 8 Id. at 33-36. 9 Id. at 36-39. 10 Id. 39.
4 alleged and indicating that he had received information from a former Company
executive to support his counterclaims. He still did not refer to the October Records.
On March 1, 2022, the Court of Chancery denied reargument and the request for
leave to amend.
(6) On July 1, 2022, Betts again moved for leave to amend the answer and
to add six counterclaims—two that would reassert two of the dismissed
counterclaims and four that were purportedly new. For the first time, Betts pointed
to the October Records, arguing that they contained “new evidence” that supported
the counterclaims that he was seeking to assert. The Plaintiffs opposed the motion
on the grounds that the proposed counterclaims were barred by Court of Chancery
Rule 15(aaa) and that amendment would be futile under Rule 15(a).
(7) The court denied the motion to add the previously dismissed
counterclaims, holding that the court had previously dismissed those claims with
prejudice and that Betts’s failure to bring the October Records to the court’s attention
earlier barred him from relying on those records in an effort to revive those claims.11
The court also denied the motion to add the purportedly new counterclaims,
concluding that because those claims simply repackaged the dismissed
counterclaims, Rule 15(aaa) barred the amendment.12 The court granted the motion
11 Interlocutory Bench Ruling, supra note 3, at 7-11. 12 Id. at 11-15.
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IN THE SUPREME COURT OF THE STATE OF DELAWARE
JOHN BETTS, § § Defendant Below, § No. 440, 2022 Appellant, § § Court Below—Court of Chancery and § of the State of Delaware § NOBLE TALENTS LLC, § C.A. No. 2020-0455 § Nominal Defendant Below, § Appellant, § § v. § § ELUTIONS CAPITAL VENTURES § S.A.R.L., NBL FUND I, LP, and § HAMSHINE LLC, § § Plaintiffs Below, § Appellees. §
Submitted: November 23, 2022 Decided: January 12, 2023
Before SEITZ, Chief Justice; VAUGHN and TRAYNOR, Justices.
ORDER
After consideration of the notice of appeal from an interlocutory order and its
exhibits, it appears to the Court that:
(1) Nominal defendant-appellant Noble Talents LLC (the “Company”) is a
Delaware limited liability company. The plaintiffs-appellees, Elutions Capital
Ventures S.A.R.L., NBL Fund I, LP, and Hamshine LLC (the “Plaintiffs”), are holders of Series A Preferred Units in the Company. They filed a derivative action
in the Court of Chancery alleging that defendant-appellant John Betts breached his
fiduciary duties to the Company by engaging in self-dealing and by interfering with
and ultimately scuttling a sale of the Company’s wholly owned subsidiary, Noble
International Bank, LLC (“Noble Bank”), to Alpha Global Fintech LLC because
Betts was unable to extract personal benefits from the sale. The Plaintiffs also
asserted a claim for tortious interference based on Betts’s alleged interference with
the prospective sale. On March 30, 2021, Betts filed an answer and counterclaims
asserting claims for breach of fiduciary duty, breach of contract, misappropriation
of trade secrets, and tortious interference.1
(2) In April 2021, Betts moved to dismiss the complaint for failure to
adequately plead demand futility under Court of Chancery Rule 23.12 and moved for
judgment on the pleadings, and the Plaintiffs moved to dismiss the counterclaims.
In June 2021, while briefing on the parties’ motions was proceeding, Betts issued
1 The pleading asserted the counterclaim for breach of fiduciary duty on behalf of both Betts and the Company. For simplicity, this order refers only to Betts as asserting, and opposing dismissal of, the counterclaims and as the appellant here. 2 See DEL. CT. CH. R. 23.1 (providing that in a derivative action the complaint must “allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and the reasons for the plaintiff’s failure to obtain the action or for not making the effort”); see also 6 Del. C. § 18-1001 (“A member or an assignee of a limited liability company interest may bring an action in the Court of Chancery in the right of a limited liability company to recover a judgment in its favor if managers or members with authority to do have refused to bring the action or if an effort to cause those managers or members to bring the action is not likely to succeed.”).
2 numerous subpoenas, including to the custodian of the Company’s electronic
records.3 The custodian produced documents during the first week of October 2021
(the “October Records”). The court heard argument on the motions to dismiss and
for judgment on the pleadings on November 8, 2021. Betts did not refer to the
October Records during the hearing or at any time between the hearing and when
the court ruled on the motions.
(3) On February 2, 2022, the Court of Chancery denied Betts’s motion to
dismiss under Rule 23.1, concluding that demand was excused as futile because
Betts was the sole member of the board of managers when the complaint was filed
and the Plaintiffs had pleaded with particularity that Betts received or attempted to
receive material personal benefits from the misconduct alleged in the complaint.4
The Court of Chancery also denied Betts’s motion for judgment on the pleadings,
concluding that the allegations in the complaint supported reasonable inferences that
Betts breached fiduciary duties that he owed to the Company during the relevant
3 Elutions Capital Ventures S.A.R.L. v. Betts, C.A. No. 2020-0455, Docket Entry No. 135, Transcript of Oct. 24, 2022 Bench Ruling, at 4-5 (Del. Ch.) [hereinafter Interlocutory Bench Ruling]; see also Elutions Capital Ventures S.A.R.L. v. Betts, 2022 WL 17075692, at *1 (Del. Ch. Nov. 18, 2022). 4 Elutions Capital Ventures S.A.R.L. v. Betts, C.A. No. 2020-0455, Docket Entry No. 78, Transcript of Feb. 2, 2022 Bench Ruling, at 20-21 (Del. Ch.) (quoting three-part test for demand futility adopted in United Food & Commercial Workers Union & Participating Food Industry Employers Tri-State Pension Fund v. Zuckerberg, 262 A.3d 1034, 1058 (Del. 2021)).
3 time periods and that he tortiously interfered with the prospective sale of Noble Bank
to Alpha Global.5
(4) As for the Plaintiffs’ motion to dismiss Betts’s counterclaims, the court
held that Betts failed to state a claim for breach of fiduciary duty because he did not
adequately plead that the Plaintiffs owed the Company fiduciary duties, either by
controlling the Company generally or by exercising control with regard to the Alpha
Global deal.6 The court held that Betts failed to state a claim for breach of contract
because he did not allege that the Plaintiffs were parties to any of the contracts at
issue.7 The court held that Betts failed to state a claim for misappropriation of trade
secrets because he did not adequately plead, even under a notice pleading standard,
what trade secrets the Plaintiffs allegedly misappropriated.8 Finally, the court held
that Betts failed to state a claim that the Plaintiffs tortiously interfered with contracts
between the Company and Betts or with the prospective sale of Noble Bank.9 The
court therefore dismissed all of the counterclaims.10
(5) On February 9, 2022, Betts moved for reargument. He also sought
leave to amend his counterclaims, stating that he could further clarify the facts
5 Id. at 21-29. 6 Id. at 29-32. 7 Id. at 32-33. 8 Id. at 33-36. 9 Id. at 36-39. 10 Id. 39.
4 alleged and indicating that he had received information from a former Company
executive to support his counterclaims. He still did not refer to the October Records.
On March 1, 2022, the Court of Chancery denied reargument and the request for
leave to amend.
(6) On July 1, 2022, Betts again moved for leave to amend the answer and
to add six counterclaims—two that would reassert two of the dismissed
counterclaims and four that were purportedly new. For the first time, Betts pointed
to the October Records, arguing that they contained “new evidence” that supported
the counterclaims that he was seeking to assert. The Plaintiffs opposed the motion
on the grounds that the proposed counterclaims were barred by Court of Chancery
Rule 15(aaa) and that amendment would be futile under Rule 15(a).
(7) The court denied the motion to add the previously dismissed
counterclaims, holding that the court had previously dismissed those claims with
prejudice and that Betts’s failure to bring the October Records to the court’s attention
earlier barred him from relying on those records in an effort to revive those claims.11
The court also denied the motion to add the purportedly new counterclaims,
concluding that because those claims simply repackaged the dismissed
counterclaims, Rule 15(aaa) barred the amendment.12 The court granted the motion
11 Interlocutory Bench Ruling, supra note 3, at 7-11. 12 Id. at 11-15.
5 to amend the answer because the Plaintiffs did not argue that the amendments would
be prejudicial and the court therefore was “‘required to exercise discretion in favor
of granting leave to amend.’”13
(8) Betts then asked the Court of Chancery to certify an interlocutory
appeal under Supreme Court Rule 42. He argued that the Court of Chancery should
not have applied Rule 15(aaa) to deny the motion to add the counterclaims because
two of them were based on newly discovered evidence that was not available at the
time of the original answer and counterclaims, and the other four contained
additional elements that were not the subject of the original motion to dismiss. Betts
argued that the court’s order decided a substantial issue of material importance
because it “alter[ed] the balance of procedural rights between plaintiffs and
defendants” in the Court of Chancery.14 Addressing the Rule 42(b)(iii) factors, Betts
argued that (i) the order involves a question of first impression;15 (ii) the order “is in
tension with” governing law;16 and (iii) interlocutory review would serve
considerations of justice.17
13 Id. at 15-16 (quoting Mullen v. Alarmguard of Delmarva, Inc., 625 A.2d 258, 263 (Del. 1993)). 14 Application for Certification of Interlocutory Appeal at 6. 15 DEL. SUPR. CT. R. 42(b)(iii)(A). 16 Application for Certification of Interlocutory Appeal at 13. Cf. DEL. SUPR. CT. R. 42(b)(iii)(B) (stating that the trial court should consider whether the “decisions of the trial courts are conflicting upon the question of law” presented by the interlocutory order). 17 DEL. SUPR. CT. R. 42(b)(iii)(H).
6 (9) The Court of Chancery denied the application for certification. The
court determined that the order did not decide a substantial issue of material
importance because a “decision granting or denying leave to amend is not part of a
merits determination” but rather “collateral to a merits determination.”18 The court
also concluded that the Rule 42(b)(iii) factors do not support interlocutory review.
First, the court determined that the order at issue did not resolve a novel question of
law but rather “applied settled Rule 15(aaa) precedent to a tattered procedural history
involving parties who repeatedly tried to revive counterclaims that were dismissed
with prejudice.”19 The court similarly determined that the order did not conflict with
governing law, but rather applied settled law to the circumstances of the case.20
Finally, the court concluded that interlocutory review would not serve considerations
of justice, particularly because Betts waited so long to argue that the October
Records supported his claims.21
(10) We agree with the Court of Chancery that interlocutory review is not
warranted in this case. Applications for interlocutory review are addressed to the
sound discretion of this Court.22 In the exercise of its discretion and giving great
18 Elutions Capital Ventures S.A.R.L. v. Betts, 2022 WL 17075692, at *4 (Del. Ch. Nov. 18, 2022); see also id. (“A decision holding otherwise would endorse immediate appeals from any adverse outcome on a Rule 12(b)(6) motion that does not result in a final judgment.”). 19 Id. at *5. 20 Id. at *5-7. 21 Id. at *7. 22 DEL. SUPR. CT. R. 42(d)(v).
7 weight to the trial court’s view, this Court has concluded that the application for
interlocutory review does not meet the strict standards for certification under
Supreme Court Rule 42(b). Exceptional circumstances that would merit
interlocutory review of the decision of the Court of Chancery do not exist in this
case,23 and the potential benefits of interlocutory review do not outweigh the
inefficiency, disruption, and probable costs caused by an interlocutory appeal. Betts
did not bring the October Records to the Court of Chancery’s attention at the hearing
on the motion to dismiss; in the three months between that hearing and the court’s
decision on the motion; or when he sought reargument and leave to amend his
counterclaims following that decision. Interlocutory review of the results of that
strategy is not warranted.
NOW, THEREFORE, IT IS ORDERED that the interlocutory appeal is
REFUSED.
BY THE COURT:
/s/ Gary F. Traynor Justice
23 Id. R. 42(b)(ii).