EFiled: Jul 21 2014 04:03PM EDT Transaction ID 55762166 Case No. 5957-VCN
COURT OF CHANCERY OF THE STATE OF DELAWARE
JOHN W. NOBLE 417 SOUTH STATE STREET VICE CHANCELLOR DOVER, DELAWARE 19901 TELEPHONE: (302) 739-4397 FACSIMILE: (302) 739-6179
July 21, 2014
Thad J. Bracegirdle, Esquire Seth J. Reidenberg, Esquire Wilks, Lukoff & Bracegirdle, LLC Tybout, Redfearn & Pell 1300 North Grant Avenue, Suite 100 750 Shipyard Drive, Suite 400 Wilmington, DE 19806 Wilmington, DE 19801
Re: Matthew v. Laudamiel, et al. C.A. No. 5957-VCN Date Submitted: July 7, 2014
Dear Counsel:
Two discovery disputes between Plaintiff Stewart Matthew and Defendant
Fläkt Woods Group, SA (“Fläkt Woods”) require resolution.1 The first involves
the scope of discovery into Plaintiff’s scenting activities following dissolution of
Aeosphere. The second raises the question of whether a non-settling defendant
may inspect an unredacted settlement (the “Settlement Agreement”) reached by
1 Familiarity with the background of this litigation is presumed. See, e.g., Matthew v. Laudamiel, 2012 WL 605589 (Del. Ch. Feb 21, 2012), rev’d, 56 A.3d 1023 (Del. 2012) (generally reviewing the various claims). Matthew v. Laudamiel, et al. C.A. No. 5957-VCN July 21, 2014 Page 2
Plaintiff and Defendants Roberto Capua and Action 1 SRL (the “Settling
Defendants).
1. Fläkt Woods has inquired about Plaintiff’s post-dissolution scenting
activities for two reasons: mitigation and, perhaps, its unclean hands defense to
Plaintiff’s equitable claims. Plaintiff seeks to limit the scope of the inquiry to his
actions or plans involving the so-called “scent organ” used by Aeosphere. Fläkt
Woods, on the other hand, proposes a broader scope—one that is generally
consistent with Plaintiff’s discovery into its post-dissolution activities—addressing
plans and actions generally involving scenting, not limited to specific hardware.2
As Fläkt Woods moves from the scope suggested by Plaintiff to the scope that it
now sponsors, the likelihood of useful information does decline. That reduction,
however, does not justify precluding discovery. The general standard of Court of
Chancery Rule 26(b)(1) (“any matter not privileged, which is relevant to the
2 Fläkt Woods has narrowed the scope of the dispute somewhat by its focus on scenting-related activities instead of any remunerative activity that Plaintiff pursued or could have pursued. Matthew v. Laudamiel, et al. C.A. No. 5957-VCN July 21, 2014 Page 3
subject matter of the pending action”) is, of course, liberal and does not in this
instance justify limiting Fläkt Woods’ efforts.3
Limiting Fläkt Woods’ discovery along the lines advocated by Plaintiff
would, unfortunately and inevitably, leave for him to decide which of his
activities—if any—depended upon Aeosphere’s proprietary information. Fläkt
Woods is entitled to know what those actions may have been; that will enable it to
conclude, through its perspective, whether Plaintiff’s conduct was informed by (or
dependent upon) the proprietary knowledge of Aeosphere.
2. Plaintiff settled with the Settling Defendants. Fläkt Woods wants a
copy of the joint tortfeasor Settlement Agreement, intended to have been adopted
under 10 Del. C. ch. 63. A redacted version was provided, and the Plaintiff has
agreed to narrow the scope of his redactions to minimize concerns about the
potential that there were improper incentives that may have motivated the
settlement. As a practical matter, the disagreement here has been reduced to the
3 A broad standard is consistent with the Fourth Amended Complaint. There, at paragraph 51, the Plaintiff assails Defendant’s conduct not only with respect to the scent organ, but also with “larger, commercial air scenting systems.” Aeosphere was focused on the use of the “scent organ,” and it is likely that use of its property—tangible and intangible—would relate more directly to the scent organ, but Aeosphere’s business aspirations cannot be confirmed so easily at this stage. Matthew v. Laudamiel, et al. C.A. No. 5957-VCN July 21, 2014 Page 4
amount of the settlement and the timing of its disclosure. If the Plaintiff prevails
after trial, this number—all agree—will become subject to discovery and use in
allocating liability. Fläkt Woods, however, asserts that the entire Settlement
Agreement—including the settlement amount and the timing of its payment—is
now proper. Conversely, Plaintiff argues that discovery of the agreement is
premature.
When considering a discovery request to access such an agreement,
Delaware courts “balance the interests of the parties, in terms of both facilitating
the settlement of litigation, on the one hand, and allowing access to admissible
evidence or information that may lead to the discovery of admissible evidence, on
the other hand.”4 Matthew does not dispute the non-settling defendants’ right to
contribution in the form of a set off from the joint tortfeasors, the Settling
Defendants. However, he primarily relies on Bottaro v. Hatton Associates5 to
support his contention that the financial information which may be used to
calculate the amount of the set off should not be made until a final judgment has
4 In re Pietlock, 2005 WL 2335460, at *1 (Del. Ch. Sept. 14, 2005). 5 96 F.R.D. 158, 160 (E.D.N.Y. 1982). Matthew v. Laudamiel, et al. C.A. No. 5957-VCN July 21, 2014 Page 5
been rendered.6 The Court is persuaded by those cases which did not follow
Bottaro’s reasoning, which was, in part, based upon Federal Rule of Evidence 408
and concerned admissibility rather than discoverability. The information requested
is relevant, and as another federal court reasoned after noting the liberality of
Federal Rule of Civil Procedure 26(b)(1), “[d]iscovery of the settlement documents
will allow the remaining defendants to assess their remaining liability.” 7 This
conclusion is appropriate here as well, and no policy counsels against the timely
release of such settlement information.8
Moreover, this Court has elsewhere ruled that similar settlement information
should be released under Court of Chancery Rule 26(b), because it could “provide
a basis for reducing the damages against the [non-settling] Defendants . . . or . . .
6 Id. at 160. It is relevant that a variety of cases at the federal level either rejected Bottaro’s reasoning or found grounds upon which to distinguish it. See, e.g., Barclay v. Gressit, 2013 WL 3819937 (D. Me. July 24, 2013); Rates Tech. Inc. v. Cablevision Sys. Corp., 2006 WL 3050879 (E.D.N.Y. Oct. 20, 2006); In re CFS-Related Sec. Fraud Litig., 2003 WL 24136089 (N.D. Okla. July 31, 2003); Johnson Matthey, Inc. v. Research Corp., 2003 WL 24136087 (S.D.N.Y. June 16, 2003); White v. Kenneth Warren & Son, Ltd., 203 F.R.D. 364 (N.D. Ill. 2001); Bennett v. La Pere, 112 F.R.D. 136 (D.R.I. 1986). 7 White v. Kenneth Warren & Son, Ltd., 203 F.R.D. 364, 367 (N.D. Ill. 2001). 8 The amount paid (or to be paid) by the Settling Defendants, of course, does not guide the question of whether Fläkt Woods is liable. Matthew v. Laudamiel, et al. C.A. No. 5957-VCN July 21, 2014 Page 6
the amount of any judgment entered against them.” 9 Although such reasoning did
not explicitly rely on 10 Del. C.
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EFiled: Jul 21 2014 04:03PM EDT Transaction ID 55762166 Case No. 5957-VCN
COURT OF CHANCERY OF THE STATE OF DELAWARE
JOHN W. NOBLE 417 SOUTH STATE STREET VICE CHANCELLOR DOVER, DELAWARE 19901 TELEPHONE: (302) 739-4397 FACSIMILE: (302) 739-6179
July 21, 2014
Thad J. Bracegirdle, Esquire Seth J. Reidenberg, Esquire Wilks, Lukoff & Bracegirdle, LLC Tybout, Redfearn & Pell 1300 North Grant Avenue, Suite 100 750 Shipyard Drive, Suite 400 Wilmington, DE 19806 Wilmington, DE 19801
Re: Matthew v. Laudamiel, et al. C.A. No. 5957-VCN Date Submitted: July 7, 2014
Dear Counsel:
Two discovery disputes between Plaintiff Stewart Matthew and Defendant
Fläkt Woods Group, SA (“Fläkt Woods”) require resolution.1 The first involves
the scope of discovery into Plaintiff’s scenting activities following dissolution of
Aeosphere. The second raises the question of whether a non-settling defendant
may inspect an unredacted settlement (the “Settlement Agreement”) reached by
1 Familiarity with the background of this litigation is presumed. See, e.g., Matthew v. Laudamiel, 2012 WL 605589 (Del. Ch. Feb 21, 2012), rev’d, 56 A.3d 1023 (Del. 2012) (generally reviewing the various claims). Matthew v. Laudamiel, et al. C.A. No. 5957-VCN July 21, 2014 Page 2
Plaintiff and Defendants Roberto Capua and Action 1 SRL (the “Settling
Defendants).
1. Fläkt Woods has inquired about Plaintiff’s post-dissolution scenting
activities for two reasons: mitigation and, perhaps, its unclean hands defense to
Plaintiff’s equitable claims. Plaintiff seeks to limit the scope of the inquiry to his
actions or plans involving the so-called “scent organ” used by Aeosphere. Fläkt
Woods, on the other hand, proposes a broader scope—one that is generally
consistent with Plaintiff’s discovery into its post-dissolution activities—addressing
plans and actions generally involving scenting, not limited to specific hardware.2
As Fläkt Woods moves from the scope suggested by Plaintiff to the scope that it
now sponsors, the likelihood of useful information does decline. That reduction,
however, does not justify precluding discovery. The general standard of Court of
Chancery Rule 26(b)(1) (“any matter not privileged, which is relevant to the
2 Fläkt Woods has narrowed the scope of the dispute somewhat by its focus on scenting-related activities instead of any remunerative activity that Plaintiff pursued or could have pursued. Matthew v. Laudamiel, et al. C.A. No. 5957-VCN July 21, 2014 Page 3
subject matter of the pending action”) is, of course, liberal and does not in this
instance justify limiting Fläkt Woods’ efforts.3
Limiting Fläkt Woods’ discovery along the lines advocated by Plaintiff
would, unfortunately and inevitably, leave for him to decide which of his
activities—if any—depended upon Aeosphere’s proprietary information. Fläkt
Woods is entitled to know what those actions may have been; that will enable it to
conclude, through its perspective, whether Plaintiff’s conduct was informed by (or
dependent upon) the proprietary knowledge of Aeosphere.
2. Plaintiff settled with the Settling Defendants. Fläkt Woods wants a
copy of the joint tortfeasor Settlement Agreement, intended to have been adopted
under 10 Del. C. ch. 63. A redacted version was provided, and the Plaintiff has
agreed to narrow the scope of his redactions to minimize concerns about the
potential that there were improper incentives that may have motivated the
settlement. As a practical matter, the disagreement here has been reduced to the
3 A broad standard is consistent with the Fourth Amended Complaint. There, at paragraph 51, the Plaintiff assails Defendant’s conduct not only with respect to the scent organ, but also with “larger, commercial air scenting systems.” Aeosphere was focused on the use of the “scent organ,” and it is likely that use of its property—tangible and intangible—would relate more directly to the scent organ, but Aeosphere’s business aspirations cannot be confirmed so easily at this stage. Matthew v. Laudamiel, et al. C.A. No. 5957-VCN July 21, 2014 Page 4
amount of the settlement and the timing of its disclosure. If the Plaintiff prevails
after trial, this number—all agree—will become subject to discovery and use in
allocating liability. Fläkt Woods, however, asserts that the entire Settlement
Agreement—including the settlement amount and the timing of its payment—is
now proper. Conversely, Plaintiff argues that discovery of the agreement is
premature.
When considering a discovery request to access such an agreement,
Delaware courts “balance the interests of the parties, in terms of both facilitating
the settlement of litigation, on the one hand, and allowing access to admissible
evidence or information that may lead to the discovery of admissible evidence, on
the other hand.”4 Matthew does not dispute the non-settling defendants’ right to
contribution in the form of a set off from the joint tortfeasors, the Settling
Defendants. However, he primarily relies on Bottaro v. Hatton Associates5 to
support his contention that the financial information which may be used to
calculate the amount of the set off should not be made until a final judgment has
4 In re Pietlock, 2005 WL 2335460, at *1 (Del. Ch. Sept. 14, 2005). 5 96 F.R.D. 158, 160 (E.D.N.Y. 1982). Matthew v. Laudamiel, et al. C.A. No. 5957-VCN July 21, 2014 Page 5
been rendered.6 The Court is persuaded by those cases which did not follow
Bottaro’s reasoning, which was, in part, based upon Federal Rule of Evidence 408
and concerned admissibility rather than discoverability. The information requested
is relevant, and as another federal court reasoned after noting the liberality of
Federal Rule of Civil Procedure 26(b)(1), “[d]iscovery of the settlement documents
will allow the remaining defendants to assess their remaining liability.” 7 This
conclusion is appropriate here as well, and no policy counsels against the timely
release of such settlement information.8
Moreover, this Court has elsewhere ruled that similar settlement information
should be released under Court of Chancery Rule 26(b), because it could “provide
a basis for reducing the damages against the [non-settling] Defendants . . . or . . .
6 Id. at 160. It is relevant that a variety of cases at the federal level either rejected Bottaro’s reasoning or found grounds upon which to distinguish it. See, e.g., Barclay v. Gressit, 2013 WL 3819937 (D. Me. July 24, 2013); Rates Tech. Inc. v. Cablevision Sys. Corp., 2006 WL 3050879 (E.D.N.Y. Oct. 20, 2006); In re CFS-Related Sec. Fraud Litig., 2003 WL 24136089 (N.D. Okla. July 31, 2003); Johnson Matthey, Inc. v. Research Corp., 2003 WL 24136087 (S.D.N.Y. June 16, 2003); White v. Kenneth Warren & Son, Ltd., 203 F.R.D. 364 (N.D. Ill. 2001); Bennett v. La Pere, 112 F.R.D. 136 (D.R.I. 1986). 7 White v. Kenneth Warren & Son, Ltd., 203 F.R.D. 364, 367 (N.D. Ill. 2001). 8 The amount paid (or to be paid) by the Settling Defendants, of course, does not guide the question of whether Fläkt Woods is liable. Matthew v. Laudamiel, et al. C.A. No. 5957-VCN July 21, 2014 Page 6
the amount of any judgment entered against them.” 9 Although such reasoning did
not explicitly rely on 10 Del. C. § 6304, as Fläkt Woods does here, Beard
Research’s reasoning nonetheless supports a similar conclusion in this context. In
sum, the broad standard of Court of Chancery Rule 26(b) entitles Fläkt Woods to
an unredacted copy of the Settlement Agreement.10
***
Accordingly, full responses shall be provided by Plaintiff within fourteen
calendar days to:
1. Request No. 45 to Defendant Fläkt Woods Group SA’s Third Request
for Production of Documents Directed to Plaintiff;
2. Interrogatory No. 23 and Interrogatory No. 27 to Defendant Fläkt
Woods Group SA’s Second Set of Interrogatories Directed to Plaintiff Stewart
Matthew; and
9 Beard Research, Inc. v. Kates, 2008 WL 5330557, at *1 (Del. Ch. Dec. 15, 2008). 10 The Plaintiff and the Settling Defendants negotiated that the settlement’s terms would be maintained as confidential. The Settlement Agreement should be treated as such, in accordance with the parties’ agreement. Matthew v. Laudamiel, et al. C.A. No. 5957-VCN July 21, 2014 Page 7
3. Document Requests 3 and 4 to Second Set of Document Requests by
Defendants Christophe Laudamiel, Roberto Capua, Action 1 SRL, and DreamAir
LLC Directed to Plaintiff Stewart Matthew.11
IT IS SO ORDERED.
Very truly yours,
/s/ John W. Noble
JWN/cap cc: Stephanie S. Habelow, Esquire Mr. Christophe Laudamiel DreamAir LLC Register in Chancery-K
11 Fläkt Woods pursued this discovery after the Settling Defendants resolved Plaintiff’s claims against them. Def. Fläkt Woods Group SA’s Mot. to Compel Produc. of Docs. and Resps. to Interrogs., Ex. J. Because of the novel issues and the not fully consistent authority governing the discovery disputes, Plaintiff’s opposition to Fläkt Woods’ discovery efforts was substantially justified. See Ct. Ch. R. 37(a)(4). Accordingly, no award of expenses is warranted.