In re Xura, Inc. Stockholder Litigation

• Court: Court of Chancery of Delaware
• Decided: February 13, 2019
• Docket: Consol. CA 12698-VCS
• Status: Published

Opinion

COURT OF CHANCERY OF THE STATE OF DELAWARE

417 S. State Street JOSEPH R. SLIGHTS III Dover, Delaware 19901 VICE CHANCELLOR Telephone: (302) 739-4397 Facsimile: (302) 739-6179

Date Submitted: January 10, 2019 Date Decided: February 13, 2019

A. Thompson Bayliss, Esquire John L. Reed, Esquire Abrams & Bayliss LLP DLA Piper LLP (US) 20 Montchanin Road, Suite 200 1201 N. Market Street, Suite 2100 Wilmington, DE 19807 Wilmington, DE 19801

Re: In re Xura, Inc. Stockholder Litigation Consolidated C.A. No. 12698-VCS

Dear Counsel:

On December 31, 2018, the court-appointed Special Master, Peter B. Ladig,

Esquire, issued his Report and Recommendation No. 3 (the “Report”) in which he

recommended that the Court deny the parties’ competing requests for fee shifting.1

Specifically, the Petitioner, Obsidian Management, LLC, requested that the Court

shift fees as a sanction for alleged spoliation of evidence by representatives of

Respondent, Xura, Inc., and non-party, Siris Capital Group, LLC. Xura and Siris

cross-moved for fee shifting as a sanction for Obsidian’s alleged violation of Court

1 D.I. 285. In re Xura, Inc. Stockholder Litigation Consolidated C.A. No. 12698-VCS February 13, 2019 Page 2

orders relating to discovery in aid of Obsidian’s spoliation allegations. The Special

Master determined that Obsidian’s request for fee shifting must await the Court’s

merits adjudication of Obsidian’s motion for an adverse inference based on

spoliation. As for Xura and Siris’s request, the Special Master denied that request

on the grounds that the movants had not carried their onerous burden of

demonstrating bad faith and had not otherwise justified fee shifting as a sanction for

discovery violations. Based on these findings, the Special Master recommended that

both parties bear the Special Master’s fees equally.

Xura and Siris have filed joint exceptions to the Report.2 For the reasons that

follow, the exceptions are overruled.

Under Court of Chancery Rule 144(c), “[a]ny party may take exception to a

final report or a draft report” issued by a court-appointed special master.3 When

exceptions are taken, the Court reviews those exceptions, and the recommendations

of the special master, de novo.4

2 D.I. 288 (Opening Brief); DI 294 (Reply Brief). 3 Ct. Ch. R. 144(c). 4 See Lynch v. City of Rehoboth Beach, 2005 WL 2000774, at *1 (Del. Ch. Aug. 16, 2005). In re Xura, Inc. Stockholder Litigation Consolidated C.A. No. 12698-VCS February 13, 2019 Page 3

Here, the exceptions rest principally on the premise that the Special Master

ignored the fact that Obsidian initiated and pursued spoliation discovery in violation

of the Court’s orders. I disagree. The Special Master’s Report clearly reflects that

he was well aware of the Court’s orders with respect to spoliation discovery and was

also well aware of Obsidian’s discovery conduct following the entry of those orders.5

With knowledge of the Court’s orders, the Special Master characterized Obsidian’s

discovery conduct as “aggressive but not unjustified.”6 I share that view. He also

concluded, after careful analysis, that Xura and Siris had not carried their “stringent

burden” of demonstrating that Obsidian engaged in bad faith litigation conduct in

pursuing spoliation discovery.7 After carefully reviewing the matter, I agree with

that conclusion as well. Accordingly, “[b]elieving the [Special] Master to have dealt

5 See Report at 8–9, 22–24. 6 Id. at 20. 7 Id. at 19 (quoting Beck v. Atl. Coast PLC, 868 A.2d 840, 851 (Del. Ch. 2005) (“The bad faith exception [to the American Rule] is not lightly invoked. The party seeking a fee award bears the stringent evidentiary burden of producing ‘clear evidence’ of bad faith conduct.”)). In re Xura, Inc. Stockholder Litigation Consolidated C.A. No. 12698-VCS February 13, 2019 Page 4

with the issues in a proper manner and having articulated the reasons for [his]

decision well, there is no need for me to repeat [his] analysis.”8

The exceptions to the Special Master’s Report are OVERRULED. The

Report is hereby adopted in its entirety.

IT IS SO ORDERED.

Very truly yours,

/s/ Joseph R. Slights III

cc: Marcus E. Montejo, Esquire Rudolf Koch, Esquire Robert S. Saunders, Esquire Michael F. Bonkowski, Esquire Peter B. Ladig, Esquire

8 In re Erdman, 2011 WL 2191680, at * 1 (Del. Ch. May 26, 2011).