In re Tile Shop Holdings, Inc. Litigation

• Court: Court of Chancery of Delaware
• Decided: June 11, 2020
• Docket: C.A. 2019-0892-SG
• Status: Published

Opinion

COURT OF CHANCERY OF THE SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE VICE CHANCELLOR 34 THE CIRCLE GEORGETOWN, DELAWARE 19947

June 11, 2020

Gregory V. Varallo, Esq. Brock E. Czeschin, Esq. BERNSTEIN LITOWITZ BERGER Susan M. Hannigan, Esq. & GROSSMANN LLP Angela Lam, Esq. 500 Delaware Avenue, Suite 901 RICHARDS, LAYTON & FINGER, P.A. Wilmington, DE 19801 One Rodney Square 920 North King Street Wilmington, Delaware 19801

Carl D. Neff, Esq. E. Chaney Hall, Esq. FOX ROTHSCHILD LLP 919 N. Market Street, Suite 300 Wilmington, DE 19801

RE: In re Tile Shop Holdings, Inc. Litigation, Consol. C.A. No. 2019- 0892-SG

Dear Counsel:

Yesterday, June 10, 2020, I granted the Defendants’ Motion for Leave to

Amend Answer (the “Motion”).1 The Defendant directors sought to expressly plead

an exculpatory clause in Tile Shop Holdings, Inc.’s charter as an affirmative defense

against the Plaintiffs’ allegations of breach of the fiduciary duty of care.2 This

1 Order, D.I. 215. 2 Defs. Robert A. Rucker, Peter J. Jacullo III, Peter H. Kamin, Cabell Lolmaugh, Todd Krasnow, and Philip B. Livingston’s Mot. for Leave to Amend Answ., D.I. 209. affirmative defense was, oddly, omitted from the Defendants’ original Answer (the

“Answer”).3 The Plaintiffs oppose, pointing out that five months have passed since

the Answer was filed, that this is an expedited matter, and that discovery has taken

place with the assumption that the duty of care was implicated here.4 They note that

trial is quickly approaching.5 As a result, they allege prejudice would result from

the proposed amendment, and oppose, essentially, on grounds of laches in the

Defendants’ assertion of their affirmative defense. Last night, Plaintiffs filed an

opposition brief asking that I therefore deny the Defendants’ Motion.

In a typical case, I would allow briefing on the Defendants’ Motion and

Plaintiffs’ opposition, based on the objection just described. I do not take lightly

allegations of prejudice due to delay in the assertion of affirmative rights by litigants.

The circumstances here, however, convince me otherwise.

Under our rules, leave to amend a pleading, while addressed to the discretion

of the Court, is freely granted as equity requires.6 The Answer was filed on

3 See Answ., D.I. 50. 4 Order Granting Mot. for a Temporary Restraining Order and Expedited Proceedings, D.I. 31. 5 The Plaintiffs’ opposition brief states that the parties agreed to adjourn trial until July 13–15, 2020 given a substitution of counsel and the COVID-19 pandemic, however, on May 28, 2020, trial was postponed from the July dates to August 11–14, 2020. See Pl.’s Opp’n to Defs.’ Mot. for Leave to Amend Answ., D.I. [_], at 10. 6 Ch. Ct. R. 15(a); see Hendry v. Hendry, 2005 WL 3359078, at *6 (Del. Ch. Dec. 1, 2005) (“Motions to amend often are granted at the discretion of the court unless there is serious prejudice to a party opposing the motion.”); McAllister v. Kallop, 1993 WL 104626, at *6 (Del. Ch. Mar. 19, 1993) (“Rule 15(a) states that [leave to amend] shall be freely given when justice so requires.”). 2 November 26, 2019.7 The Defendants’ Motion was filed on May 12, 2020.8 I

withheld any action on the Motion to allow the Plaintiffs an opportunity to respond.

When no response was forthcoming after four weeks, I granted the Motion

yesterday, June 10, 2020. Last night, after the close of business, I received Plaintiffs’

brief in opposition. I note that a proposed—non-stipulated—schedule for briefing

the Motion for Leave to Amend was filed by Plaintiffs on June 9, 2020, as part of a

larger Third Amended [Proposed] Scheduling Order.9 At no point did the Plaintiffs

communicate their opposition to the Motion to chambers before submitting their

proposed scheduling order on June 9, 2020.

This is an expedited matter. The assertion of the exculpation clause as a

defense was dilatory. The assertion of an objection to the proposed amendment was

dilatory. I suspect there is some prejudice threatened on one side or the other as a

result, regardless of how I now proceed.10 The assertion of the exculpation clause

serves a core function of this Court—determining matters on the merits given the

full facts pertaining thereto.11 The Plaintiffs have asserted both care and loyalty

7 Answ., D.I. 50. 8 Defs. Robert A. Rucker, Peter J. Jacullo III, Peter H. Kamin, Cabell Lolmaugh, Todd Krasnow, and Philip B. Livingston’s Mot. for Leave to Amend Answ., D.I. 209. 9 Letter, D.I. 214, Ex. A. 10 See Brown v. Ocean Drilling & Expl. Co., 1977 WL 9543, at *2 n.3 (Del. Ch. Nov. 1, 1977) (“Prejudice is the strongest reason for disallowing a proposed amendment to pleadings.”). 11 See Brunswick Corp. v. Colt Realty, Inc., 253 A.2d 216, 220 (Del. Ch. 1969) (“In exercising [the Court’s] discretion I am moved by the desire to see the litigation decided on its merits and to get before the Court all of the facts which will help achieve that objective.”). 3 claims; the Amended Answer will cause them to alter their strategy with respect to

that portion of the Action seeking damages. The resulting prejudice, I believe, can

be ameliorated by adjusting the outstanding scheduling order, which I will consider

liberally if requested. The Plaintiffs may also seek to recover fees in the way of the

costs of redundant discovery necessary because of the late assertion of the

exculpatory clause, if they find it appropriate to do so. But in light of all the

circumstances here, I find the amendment in the interests of justice, and I decline to

withdraw my order granting the Motion for Leave to Amend.

To the extent the foregoing requires an order to take effect, it is SO

ORDERED.

Sincerely,

/s/ Sam Glasscock III

Sam Glasscock III