Harry Pontone v. Milso Industries Corporation

• Court: Court of Chancery of Delaware
• Decided: September 3, 2014
• Docket: CA 7615-VCP
• Status: Published

Opinion

COURT OF CHANCERY OF THE STATE OF DELAWARE

D ONALD F. PARSONS, J . R New Castle County Courthouse VICE CHANCELLOR 500 N. King Street, Suite 11400 Wilmington, Delaware 19801-3734

Date Submitted: June 12, 2014 Date Decided: September 3, 2014

Philip A. Rovner, Esq. Brian M. Rostocki, Esq. Jonathan A. Choa, Esq. John C. Cordrey, Esq. Potter Anderson & Corroon LLP Reed Smith LLP 1313 N. Market Street 1201 N. Market St., Suite 1500 Wilmington, DE 19801 Wilmington, DE 19801

RE: Harry Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP

Dear Counsel:

On May 29, 2014, the Court issued a Memorandum Opinion (the “Opinion”)

addressing the exceptions of Defendant Milso Industries Corp. (“Milso”) to the

Second Report of the Special Master relating to corporate advancement of disputed

fees and expenses.1 The Opinion overruled most of Milso’s exceptions, but the

Court partially agreed with one of Milso’s legal interpretations and held that, for

fees and expenses relating to counterclaims to be advanceable, the counterclaim

1 Pontone v. Milso Indus. Corp., 2014 WL 2439973 (Del. Ch. May 29, 2014) [hereinafter Mem. Op.]. Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 2

must be compulsory. Applying that holding, the Opinion found two counterclaims

by Plaintiff, Harry Pontone (“Pontone”), were not compulsory and, thus, were not

advanceable. Specifically, the Opinion held that Pontone’s counterclaim for

misappropriation of name, image, and likeness and his counterclaim for abuse of

process were not subject to advancement.

Currently before the Court is Pontone’s timely-filed motion for reargument

under Court of Chancery Rule 59(f). Pontone’s motion requests a rehearing on the

Opinion’s holding concerning the legal standard applicable to advancement for

counterclaims and, regardless, seeks reconsideration of the Opinion’s holding that

the two above-mentioned counterclaims were not compulsory. In opposition,

Milso argues that the Court held correctly on each of these issues. According to

Milso, Pontone’s motion merely rehashes the same arguments the Court rejected

previously and improperly attempts to supplement the record.

For the reasons that follow, the motion for reargument is denied.

I. Legal Standard To prevail on a motion for reargument under Rule 59(f), the moving party

must demonstrate either that the court overlooked a decision or principle of law

that would have controlling effect or that the court misapprehended the facts or the Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 3

law so the outcome of the decision would be different.2 For the movant to prevail,

a misapprehension of the facts or the law must be both material and outcome

determinative of the earlier decision.3 Mere disagreement with the Court’s

resolution of a matter does not entitle a party to a rehearing, and the Court will

deny a motion for reargument that does no more than restate a party’s prior

arguments.4

The Court generally will not consider new evidence on a motion for

reargument. Reargument under Rule 59(f) “is only available to re-examine the

existing record.”5 In appropriate circumstances, however, a litigant may seek

reargument based on newly discovered evidence.6 “To succeed on such a basis, an

2 See, e.g., Preferred Invs., Inc. v. T&H Bail Bonds, 2013 WL 6123176, at *4 (Del. Ch. Nov. 21, 2013); Medek v. Medek, 2009 WL 2225994, at *1 (Del. Ch. July 27, 2009); Reserves Dev. LLC v. Severn Sav. Bank, FSB, 2007 WL 4644708, at *1 (Del. Ch. Dec. 31, 2007). 3 See, e.g., Preferred Invs., 2013 WL 6123176, at *4; Aizupitis v. Atkins, 2010 WL 318264, at *1 (Del. Ch. Jan. 27, 2010); Medek, 2009 WL 2225994, at *1. 4 See, e.g., Preferred Invs., 2013 WL 6123176, at *4; In re Mobilactive Media, LLC, 2013 WL 1900997, at *1 (Del. Ch. May 8, 2013); Brown v. Wiltbank, 2012 WL 5503832, at *1 (Del. Ch. Nov. 14, 2012). 5 Reserves Dev. LLC, 2007 WL 4644708, at *1. 6 In re Mobilactive Media, 2013 WL 1900997, at *1; Reserves Dev. LLC, 2007 WL 4644708, at *1. Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 4

applicant must show the newly discovered evidence came to his knowledge since

the trial and could not, in the exercise of reasonable diligence, have been

discovered for use at the trial.”7

II. Pontone’s Motion for Reargument Pontone dedicates a significant portion of his motion to critiquing the

Opinion’s analysis of the Delaware Supreme Court’s decision in Citadel Holding

Corp. v. Roven.8 The remainder of the motion argues that the two counterclaims

this Court found non-compulsory in fact are compulsory. These issues are

addressed in turn.

A. The Roven Standard for Advanceability of Counterclaims A key portion of the Opinion dealt with the proper legal standard under

Delaware law for advancement of fees and expenses for counterclaims.9

Resolution of the issue turned on the proper interpretation of the Delaware

Supreme Court’s holding in Roven that counterclaims must be “necessarily part of

the same dispute” as the affirmative claims asserted against the advancee and be

7 Reserves Dev. LLC, 2007 WL 4644708, at *1. 8 603 A.2d 818 (Del. 1992). 9 Mem. Op. at *3-7. Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 5

“advanced to defeat, or offset” those claims.10 Subsequent cases from the Court of

Chancery11 potentially added an interpretive gloss on the Supreme Court’s standard

and the parties vigorously contested—and in Pontone’s case continue to contest—

the proper standard. In the briefing before this Court on the exceptions to the

Second Report of the Special Master, the parties collectively devoted no fewer than

twenty-five pages solely to the proper legal standard. They also devoted another

forty pages to applying their respective interpretations seriatim to the eight Pontone

counterclaims found advanceable by the Special Master. Thus, the parties were

heard fully on this issue.

To satisfy the burden for reargument, Pontone must show an outcome-

determinative overlooking of principle or precedent or else a similarly critical

misapprehension of the law or facts. Pontone asserts that the Opinion adopts an

“unsupported” interpretation of the Roven standard and that the rationales of other

Court of Chancery cases cited in the Opinion rest upon those decisions’ authors’

10 603 A.2d at 824. 11 See, e.g., Paolino v. Mace Sec. Int’l, Inc., 985 A.2d 392 (Del. Ch. 2009); Sun-Times Media Gp., Inc. v. Black, 954 A.2d 380 (Del. Ch. 2008); Zaman v. Amedo Hldgs., Inc., 2008 WL 2168397 (May 23, 2008); Reinhard & Kreinberg v. Dow Chem. Co., 2008 WL 868108 (Mar. 28, 2008). Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 6

own “misreading of Roven.”12 Pontone’s motion fails to identify any overlooked

precedent or principle that would control the outcome here. Instead, he rehashes

arguments previously rejected by the Court, as catalogued in Milso’s opposition to

the motion.13

In the motion for reargument, for example, Pontone argues that the

“indelibly clear” holding of Roven is that “counterclaims are advanceable . . .

whether or not those counterclaims also happen to be compulsory in nature.”14

Similarly, in earlier briefing, Pontone observed that “nowhere in the decision does

the Supreme Court state that Mr. Roven’s counterclaims were compulsory or that

noncompulsory counterclaims could not qualify for advancement.”15 In an effort

to convince the Court of the soundness of his position, Pontone’s motion offers a

12 Pl.’s Mot. for Rearg. (“Pl.’s Mot.”) 9. 13 Def.’s Answer to Pl.’s Mot. for Rearg. (“Def.’s Answer”) 4-5 (quoting examples of arguments made in the briefing preceding the Opinion that Pontone repeated nearly verbatim in the motion for reargument). 14 Pl.’s Mot. 3. 15 Pl.’s Answering Br. in Opp’n to Milso’s Exceptions to the Second Report of the Special Master (“Pl.’s Exceptions Br.”) 9. Defendant Milso Industries Corp.’s Opening Brief in Support of its Exceptions to the Special Master’s Second Report and its subsequent Reply Brief are cited to similarly as “Def.’s Exceptions Br.” and “Def.’s Exceptions Reply.” Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 7

reprise of the same thorough analysis of Roven’s facts and reasoning16 that he had

provided previously.17 In a further attempt to sway the Court, Pontone now points

to the appellate briefs in the Roven case and asks the Court to take judicial notice

of those documents.18 These efforts do not satisfy Pontone’s burden.

An increasingly detailed version of an argument already rejected by a court

does not show that the court previously overlooked or misapprehended any fact or

law in an outcome-determinative way. Instead, Pontone’s briefing reveals that he

disagrees with the Court’s legal interpretation that Roven requires counterclaims to

be compulsory to be advanceable. Pontone’s proper course of action would be an

appeal to the Delaware Supreme Court at the appropriate time to try to obtain the

legal interpretation he seeks. As for the present motion, Pontone has not met the

standard required for this Court to grant reargument.

B. The Non-Compulsory Counterclaims Aside from Pontone’s disagreement with the Court’s interpretation of Roven,

Pontone further argues that the two counterclaims the Opinion found non-

advanceable are, in fact, compulsory counterclaims and therefore advanceable. On 16 Pl.’s Mot. 6-8. 17 Pl.’s Exceptions Br. 7-9. 18 Pl.’s Mot. 8 n.1. Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 8

these topics, Pontone’s motion suffers from the same flaws as noted above: the

motion merely repeats rejected arguments without pointing to some overlooked

law or facts that would have changed the outcome of the Opinion.

The Opinion found that Pontone’s counterclaims for misappropriation and

abuse of process were not compulsory. On the misappropriation counterclaim,

Pontone, in the motion for reargument, asks the Court to supplement the record—a

matter addressed below—and advances two arguments why the misappropriation

counterclaim is compulsory: (1) Defendants in this case, who are the plaintiffs in

the underlying litigation in Pennsylvania (the “Pennsylvania Plaintiffs”19),

repeatedly placed Pontone’s goodwill at issue in the Pennsylvania Action; and (2)

the Opinion “unreasonably interprets the actual scope of Federal Rule 13(a) for

compulsory counterclaims.”20

Much of the dispute here centers on the nature of the claims the

Pennsylvania Plaintiffs are asserting in that litigation. In the motion for

reargument, Pontone emphasizes the Pennsylvania Plaintiffs’ focus on Pontone’s

19 Unless otherwise noted, terms such as this, which are defined in the Opinion, have the same meaning as was ascribed to them in the Opinion. 20 Pl.’s Mot. 12. Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 9

personal goodwill.21 Milso counters by showing the strong similarities between

Pontone’s pre-Opinion briefing and his present arguments,22 and Milso continues

to maintain that Pontone’s misappropriation counterclaim is based largely on the

use of Pontone’s image on a cake in September 2011.23 Milso further contends

that references to Pontone’s goodwill in the Pennsylvania Action relate to damages

calculations pertinent to the Pennsylvania Plaintiffs’ lost profits claim.24 The Court

heard similar arguments about the nature of the claims being pursued in the

Pennsylvania Action before it issued the Opinion.25 Personal goodwill can

constitute an element of a lost profits claim tied to the sale of a business without

that goodwill being related to specific instances of misappropriation of the other

party’s image that occurred several years after the sale.

Pontone further argues that the Court adopted too narrow of an interpretation

of the meaning of the term “compulsory counterclaim.” Here, Pontone attempts to

21 Id. at 11-12. 22 Def.’s Answer 8-9. 23 Id. at 9. 24 Id. at 9-10. 25 See Pl.’s Exceptions Br. 31-32; Def.’s Exceptions Br. 32-33; Def.’s Exceptions Reply 13-14. Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 10

show that, despite the Pennsylvania Plaintiffs having asserted a trademark

infringement claim only against Scott Pontone, and not his father, Harry Pontone,

the misappropriation counterclaim in the Pennsylvania Action qualifies as

compulsory because it “arises as an offshoot of the same set of facts and

transactions that have been placed in issue by the Pennsylvania Plaintiffs.”26

In the Opinion, the Court responded to the parties’ previously-made

arguments about the Pennsylvania Action and determined that Pontone’s

misappropriation counterclaim is “legally and factually distinct from, and logically

unrelated to, the affirmative claims asserted against Pontone in the Pennsylvania

Action.”27 Pontone previously attempted, with similar arguments,28 to convince

26 Pl.’s Mot. 13. 27 Mem. Op. at *10. 28 Compare Pl.’s Exceptions Br. 31 (“In the Pennsylvania Litigation, Milso alleges that one of the ways in which Pontone breached his fiduciary duties was by, inter alia, refusing to agree to sign a new proposed employment agreement.”), with Pl.’s Mot. 13 (“The Pennsylvania Plaintiffs also claim that Pontone breached his fiduciary duties by, inter alia, refusing to agree to sign a new employment agreement, which proposed the grant of rights to use Pontone’s name and personality at trade events.”); and Pl.’s Exceptions Br. 31 (“The record in the Pennsylvania Litigation also shows that even the evidence in support of Pontone’s counterclaim comes from the same customers that Milso placed in issue and even expressly referenced in its Complaint against Pontone.”), with Pl.’s Mot. 13 (“The Pennsylvania Plaintiffs pleaded that Pontone’s alleged wrongdoing involved his failure to Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 11

the Court that the misappropriation counterclaim was sufficiently related to the

Pennsylvania Plaintiffs’ claims to qualify for advancement. But, Pontone failed to

identify any outcome-determinative overlooked or misapprehended facts or law

that would lead this Court to revisit its decision. The Court continues to view the

wrong complained of in Pontone’s misappropriation counterclaim as distinct from

and significantly narrower than the Pennsylvania Plaintiffs’ claims regarding

Pontone’s alleged breaches of his fiduciary duties or contractual obligations

relating back, at least in part, to the sale of his family’s business to Milso.

For the second counterclaim, abuse of process, Pontone advances four

separate arguments: (1) Pontone was granted leave to replead the abuse of process

claim in the Pennsylvania Action; (2) the abuse of process claim actually was ripe;

(3) Milso previously conceded that the abuse of process claim was compulsory;

and (4) abuse of process counterclaims have been found compulsory by other

courts. Addressing these arguments in turn, the Court concludes that Pontone’s

motion falls short of the showing required to support the granting of reargument.

use his name, person, and reputation to visit customers and ensure that key clients maintained their relationship with the Pennsylvania Plaintiffs.”). Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 12

First, Pontone apprised the Court before it issued its Opinion that he had

requested permission to replead the abuse of process counterclaim.29 Since the

Opinion, the Pennsylvania court has granted Pontone leave to replead the abuse of

process counterclaim. As Milso notes,30 however, the Pennsylvania court adhered

to its holding that counterclaims based on the “initiation and continuation” of the

Pennsylvania Action remain unripe.31 Instead, the Pennsylvania court ruled that

any repled counterclaims must be “based on specific factual allegations linked to

an identified kind of process asserted to have been abused” and will be severed

from the main case.32

The Opinion in this case held that a “claim for relief that is not ripe at the

time a defending party serves its responsive pleading does not qualify as a

compulsory counterclaim.”33 The Opinion also found that the principal basis for

29 Pl.’s Exceptions Br. 35 (“Milso also fails to mention that the counterclaim was dismissed without prejudice for pleading insufficiency. Promptly after dismissal, Pontone filed a motion for leave to amend this counterclaim. That motion to amend is still pending.”) (internal citations omitted). 30 Def.’s Answer 11. 31 York Gp., Inc. v. Pontone, 2014 WL 896632, at *45 (W.D. Pa. Mar. 6, 2014). 32 Id. 33 Mem. Op. at *10. Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 13

Pontone’s abuse of process counterclaim was the initiation and continuation of the

Pennsylvania Action.34 Since the Court issued the Opinion, the Pennsylvania court

explicitly has held that the defendants in the Pennsylvania Action, including

Pontone, “will not be granted leave at this time to replead claims of that nature

because the litigation is ongoing.”35 Thus, nothing has changed with regard to the

abuse of process counterclaim Pontone initially tried to plead, which was the

subject of the Opinion for which he seeks reargument.

Second, seizing on the above-quoted language from the Opinion, Pontone

now argues his counterclaim was ripe. In this regard, the Court agrees with Milso

that: “With this argument, Pontone appears to be seeking reargument not only of

this [Court’s] Opinion, but the Pennsylvania court’s prior decisions.”36 This Court

is not in the business of deciding whether a counterclaim based on Pennsylvania

law was ripe at the time it was filed in a Pennsylvania court when a Pennsylvania

judge already has held that it was not.

34 Id. 35 York Gp., Inc., 2014 WL 896632, at *45. 36 Def.’s Answer 12. Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 14

Third, Pontone argues that Milso conceded that Pontone’s counterclaim for

abuse of process was compulsory.37 Pontone previously presented an entire

paragraph on this point.38 A two-sentence recitation of an earlier rejected

argument provides no basis for a motion for reargument. Finally, Pontone asserts

that “this Court overlooked that counterclaims for abuse of process have previously

been found to be compulsory.”39 Citations to a 1987 Ninth Circuit opinion and a

1961 Third Circuit opinion follow. Whether the Third Circuit found an abuse of

process counterclaim to be compulsory in one case it decided over fifty years ago

is immaterial here; the Opinion based its holding on the findings of a particular

Pennsylvania court with regard to a particular counterclaim, which the

Pennsylvania court found to be unripe.

For the foregoing reasons, Pontone’s motion fails to meet the standard for

obtaining reargument.

C. Supplementing the Record Before concluding, I consider it useful to comment briefly on the issue of

supplementing the record on a motion for reargument. A motion for reargument 37 Pl.’s Mot. 15. 38 Pl.’s Exceptions Br. 35. 39 Pl.’s Mot. 15-16. Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 15

deals with the record as of the time of the initial determination. Motions for

reargument can involve consideration of new evidence. But, “[t]o succeed on such

a basis, an applicant must show the newly discovered evidence came to his

knowledge since the trial and could not, in the exercise of reasonable diligence,

have been discovered for use at the trial.”40 In this case, Pontone asks the Court to

supplement the record with the Pennsylvania Plaintiffs’ Expert Report on

Damages.41 This report, which was submitted in the Pennsylvania Action after the

close of briefing on Milso’s exceptions to the Special Master’s Second Report—

but before this Court issued the Opinion—generally is not the sort of evidence that

a court will permit a party to add after a motion has been decided. Most

importantly, even if the Court did consider the Expert Report, it would not change

the outcome here. For purposes of Pontone’s motion for reargument, the Expert

Report is irrelevant, because, as noted above, personal goodwill can be a factor in

determining lost profits. The misappropriation counterclaim at issue in this

advancement case is distinct from the Pennsylvania Plaintiffs’ offensive claims.

40 Reserves Dev. LLC, 2007 WL 4644708, at *1. 41 Pl.’s Mot. 11 n.4, Ex. 1. Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 16

For that and other reasons previously discussed, the Expert Report does not further

Pontone’s argument that the misappropriation counterclaim is compulsory.

Pontone also notes that the Court has discretion to supplement the record if it

“serves the interest of fairness and justice.”42 This is true, but the Court considers

several factors in determining whether to grant a motion to reopen the record, such

as:

(1) whether the evidence has come to the moving party’s knowledge since the trial; (2) whether the exercise of reasonable diligence would have caused the moving party to discover the evidence for use at trial; (3) whether the evidence is so material and relevant that it will likely change the outcome; (4) whether the evidence is material and not merely cumulative; (5) whether the moving party has made a timely motion; (6) whether undue prejudice will inure to the nonmoving party; and (7) considerations of judicial economy.43

In the circumstances of this case, the Court does not find it to be in the interests of

justice to consider the Expert Report. The report has little, if any, relevance to

Pontone’s misappropriation counterclaim and, to the extent it may be relevant, it is

merely cumulative of arguments already made by Pontone that the

42 Id. at 11 n.4 (quoting Whittington v. Dragon Gp., LLC, 2012 Del. Ch. LEXIS 163, at *9 (Del. Ch. July 20, 2012)). 43 Whittington, 2012 Del. Ch. LEXIS 163, at *10-11 (internal citations omitted). Pontone v. Milso Industries Corporation, et al. Civil Action # 7615-VCP September 3, 2014 Page 17

misappropriation counterclaim is compulsory. Additionally, considerations of

judicial economy counsel against allowing parties to supplement the record on a

motion for reargument except in those cases where, as factor three counsels, “the

evidence is so material and relevant that it will likely change the outcome.”

Absent such a situation, reargument under Court of Chancery Rule 59(f) “is only

available to re-examine the existing record.”44

III. Conclusion To succeed on a motion for reargument, a movant must show that the Court

overlooked or misapprehended some critical fact or controlling law that would

have resulted in a different outcome. Pontone’s motion for reargument failed to

make such a showing. Thus, for the reasons stated in this Letter Opinion, the

motion is denied.

IT IS SO ORDERED.

Sincerely,

/s/ Donald F. Parsons, Jr.

Donald F. Parsons, Jr. Vice Chancellor DFP/ptp

44 Reserves Dev. LLC, 2007 WL 4644708, at *1.