Lerner Master Fund, LLC v. Paige (In re Paige)

494 B.R. 206
CourtUnited States Bankruptcy Court, M.D. Pennsylvania
DecidedApril 1, 2013
DocketBankruptcy No. 5-11-bk-05957-JJT; Adversary No. 5-12-ap-00067-JJT
StatusPublished

This text of 494 B.R. 206 (Lerner Master Fund, LLC v. Paige (In re Paige)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, M.D. Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Lerner Master Fund, LLC v. Paige (In re Paige), 494 B.R. 206 (Pa. 2013).

Opinion

OPINION1

JOHN J. THOMAS, Bankruptcy Judge.

The Debtors, Michele and Christopher Paige, are confronted with an eight count discharge/dischargeability Complaint filed by the Lerner Management Fund (LMF). At the same time, the Proof of Claim of LMF has been objected to by the Paiges. The Paiges are pro se. When appropriate to identify them individually, I shall refer [209]*209to them by their first name. They have devoted a considerable amount of effort in filing responsive Motions to the LMF filings. On August 15, 2012, argument occurred on all pending Motions. This Opinion is dispositive of those Motions.

It appears that each of the Paiges maintained control over related corporations and were involved, in individually different capacities, in the maintenance of a hedge fund in which LMF was the principal investor. Subsequently, LMF sued Michele Paige and obtained a judgment in the Delaware Court of Chancery. After the Paiges filed bankruptcy, this instant Complaint was filed. The Paiges have responded with a flurry of variously titled responses including pleadings filed at Docs. ##4, 20, 22, 24, 26, 28, 30, 32, and 43. Because many of the Paiges’ arguments overlap, and, in order to expedite disposition, I will dispose of the Paiges’ pleadings as a loosely phrased Motion to Dismiss under Rule 12.

Preliminary Overview

Christopher Paige first argues that the litigation by LMF against him in Delaware was dismissed with prejudice, and therefore, no further action against him can occur.

In his lengthy Memorandum Opinion, Chancellor Leo E. Strine, Jr. of the Delaware Court of Chancery stated the following regarding LMF’s counterclaims against Christopher Paige:

It is no doubt correct that Christopher Paige was ... involved in his wife’s decision to cause Paige General Partner to use the Gate Provision against the Lerner Fund.... It may be that he can be held responsible for aiding and abetting or on other grounds such as unjust enrichment, but none of those grounds has been pled here.... I dismiss the fiduciary duty count against Christopher Paige and Paige Capital Management without prejudice, reserving to the Lemer Fund the right to bring an aiding or abetting or unjust enrichment claim in the event that Michele Paige and Paige General Partner do not satisfy the final judgment.

Doc. # 50-3, Exhibit A at 68-69 filed to Case Docket 5-ll-bk-05957(emphasis added).

Christopher Paige’s first two arguments attempt to show that the Chancellor’s decision to dismiss LMF’s claims without prejudice was unlawful under Delaware law. Initially, he argues that Rule 15(aaa) of the Delaware Court of Chancery Rules provides the grounds for this conclusion. Essentially, the rule asserts that if a defendant makes a motion to dismiss a plaintiffs complaint for failure to state a claim for which relief can be granted, and if the plaintiff then chooses to file an answering brief in opposition to the motion rather than to amend his pleadings accordingly, any subsequent dismissal of the plaintiffs claims pursuant to the defendant’s motion will be with prejudice unless the “dismissal with prejudice would not be just under all the circumstances.” Braddock v. Zimmerman, 906 A.2d 776, 783 (Del.2006) (providing this encapsulation of the rule).2

[210]*210Christopher Paige contends that because he “filed a motion to dismiss [LMF’s counterclaims] which LMF chose to answer [rather than to amend its pleadings], the Chancery Court’s dismissal was a dismissal with prejudice as a matter of law under Del. Ch. Ct. 15(aaa).” Pre-Hearing Brief in Support of Debtors’ Evidentiary Objections to LMF’s Proof of Claim Against Christopher Paige, Doc. # 112 at 7 filed to Case Docket 5-ll-bk-05957. Further, Christopher Paige argues that since a claim that has been dismissed with prejudice cannot be relitigated, LMF’s claims against him should be unenforceable as a matter of law.

Christopher Paige’s argument conveniently overlooks the very last clause of Rule 15(aaa) quoted above. The rule clearly states that if a “dismissal with prejudice would not be just under all the circumstances,” the court shall have the legal discretion to dismiss the claims in question without prejudice.

In the present instance, Chancellor Strine articulated a very clear reason why a dismissal with prejudice would have been unfair. In a letter dated August 24, 2011, the Chancellor explains that since Christopher Paige raised certain arguments at a very late stage in the trial, LMF did not have a fair opportunity to litigate a number of potentially fruitful claims against Christopher Paige.3 Rather than allow for full litigation of these theories, the court dismissed LMF’s claims due to the lack of economic or practical utility in imposing liability on Christopher Paige if Michele Paige or the fund were able to fully satisfy the judgment. The court was acting wholly within the discretion accorded to it under Rule 15(aaa) in dismissing without prejudice.

Christopher Paige’s second argument challenges the legality of dismissing a claim without prejudice after a trial has already been completed. It is “undisputed and indisputable,” he contends “that Delaware law does not permit dismissals without prejudice after trial.... LMF does not even attempt to explain how or why Chancellor Strine could reverse and/or modify these authorities.... ” Reply Brief in Support of Debtor’s Objection to LMF’s Proof of Claim Against Christopher Paige, Doc. # 104 at 4 filed to Case Docket 5-11-bk-[211]*21105957. Christopher Paige then cites several cases that purportedly stand for this proposition. Id.

Unfortunately Christopher Paige’s characterization of his authorities is overly broad and somewhat misleading. The cases cited by Christopher Paige hold that if a plaintiff voluntarily withdraws his claims after inducing the defendant to spend a substantial amount of time and resources litigating or preparing to litigate the issues, the court will, out of fairness to the defendant, be obliged to dismiss the plaintiffs claims with prejudice.4

The present case deviates from this paradigm in two crucial respects. First, LMF never voluntarily withdrew its claims of unjust enrichment and aiding/abetting against Christopher Paige. Second, LMF apparently never even had a fair chance to litigate these claims in the first place. Chancellor Strine’s judgment is not contradicted by the cited authorities.

Christopher Paige next argues that even if a dismissal without prejudice was legally permissible, LMF will still be barred from amending its pleadings in the original Delaware lawsuit to include charges of unjust enrichment and aiding and abetting a breach of fiduciary duty. In Braddock v. Zimmerman, the Supreme Court of Delaware held that a dismissal without prejudice serves as a final judgment and “is not to be construed as an implicit invitation to file an amended complaint,” unless “the plaintiff is expressly granted leave to amend within a certain time.” Braddock v. Zimmerman, 906 A.2d 776, 783-84 (Del.2006). However, the otherwise final judgment “does not operate as a res judicata

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Cite This Page — Counsel Stack

Bluebook (online)
494 B.R. 206, Counsel Stack Legal Research, https://law.counselstack.com/opinion/lerner-master-fund-llc-v-paige-in-re-paige-pamb-2013.