Pavel Menn v. Conmed Corp. and Endodynamix, Inc.

• Court: Court of Chancery of Delaware
• Decided: February 25, 2019
• Docket: CA 2017-0137-KSJM
• Status: Published

Opinion

COURT OF CHANCERY OF THE STATE OF DELAWARE KATHALEEN ST. JUDE MCCORMICK LEONARD L. WILLIAMS JUSTICE CENTER VICE CHANCELLOR 500 N. KING STREET, SUITE 11400 WILMINGTON, DELAWARE 19801-3734

Date Submitted: February 19, 2019 Date Decided: February 25, 2019

A. Thompson Bayliss, Esquire John L. Reed, Esquire Daniel J. McBride, Esquire Ethan H. Townsend, 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: Pavel Menn v. Conmed Corp. and Endodynamix, Inc., C.A. No. 2017-0137-KSJM

Dear Counsel:

This letter opinion addresses Defendants’ Motion for Leave to Amend Their

Answer.

I. Background Conmed Corporation acquired Endodynamix, Inc. on July 30, 2014, through

a Stock Purchase Agreement. The Stock Purchase Agreement designated Pavel

Menn the representative of Endodynamix’s selling stockholders.

Under the Stock Purchase Agreement, Endodynamix’s selling stockholders

were entitled to post-closing “milestone” and “earnout” payments in connection

with the development and sale of certain products, including “clip appliers.”

Plaintiff commenced this litigation on February 22, 2017, contending that

Conmed and Endodynamix breached the Stock Purchase Agreement by Menn v. Conmed Corp. C.A. No. 2017-0137-KSJM February 25, 2019 Page 2

discontinuing the development of clip appliers. In their initial answer filed on

March 22, 2017, Defendants denied that they had discontinued developing the clip

appliers.

In 2017, the parties responded to written discovery and document requests.

In early 2018, the parties discussed engaging in mediation. Those discussions

delayed litigation; mediation never happened. In the summer and fall of 2018, the

parties identified deponents and scheduled depositions. The first deposition was

set for October 16, 2018.

In September 2018, Defendants determined to discontinue development of

the clip appliers. In part due to this factual development, Defendants determined to

amend their answer. On October 5, 2018, in advance of depositions, Defendants

sent their proposed amended answer to Plaintiff. Plaintiff opposed Defendants’

filing of the amended answer.

The parties briefed Defendants’ motion to amend and the Court heard oral

arguments on February 19, 2019. Menn v. Conmed Corp. C.A. No. 2017-0137-KSJM February 25, 2019 Page 3

II. Analysis Under Court of Chancery Rule 15(a), the Court freely grants leave to amend

pleadings “when justice so requires.” 1 Justice generally requires resolving matters

on their merits. 2 For this reason, granting leave to amend is “very permissive.”3

The Court will grant leave “unless there is evidence of bad faith, undue delay,

dilatory motive, undue prejudice or futility of amendment.” 4

Defendants’ proposed amendments fall into three categories:

1. Amendments reflecting Defendants’ 2018 decision to discontinue

development of the clip appliers and the rationale behind that

decision.5

2. Amendments converting prior admissions to qualified denials based

on information obtained through discovery. 6

1 Ct. Ch. R. 15(a); U.S. Bank Nat’l Ass’n v. U.S. Timberlands Klamath Falls, LLC, 2005 WL 2093694, at *1 (Del. Ch. Mar. 30, 2005) (“This court freely grants leave to amend pleadings.”). 2 Lillis v. AT&T Corp., 896 A.2d 871, 877 (Del. Ch. 2005), decision clarified, 2005 WL 311991 (Del. Ch. Nov. 17, 2005). 3 Id. at 877. See also Bokat v. Getty Oil Co., 262 A.2d 246, 251 (Del. 1970) (granting leave to amend under rule 15(a) is “always addressed to the discretion of the trial court”). 4 Lillis, 896 A.2d at 877 n.11 (quoting Fox v. Christina Square Assoc., L.P., 1995 WL 405744, at *2 (Del. Ch. June 19, 1995)). 5 Mot. to Am. Ex. L ¶¶ 38, 60–75, 81–90. 6 Id. ¶¶ 15–16. Menn v. Conmed Corp. C.A. No. 2017-0137-KSJM February 25, 2019 Page 4

3. Amendments adding a new “Eighth Defense” based on a “legal

arbiter” provision in the Stock Purchase Agreement. 7

Defendants have made a sufficient showing as to the first two categories of

amendments, which generally seek to conform the pleadings to Defendants’ view

of the evidence.8 Plaintiff argues that the first two categories are prejudicial

because the amendments are factually inaccurate. Plaintiff’s “arguments do no

more than convince me that the parties genuinely dispute the factual issues, that

those issues should be resolved on their merits, and that I should not deny the

defendant a good faith opportunity to correct its answer to conform with its present

knowledge and belief about the facts relevant to this case.”9 Also, there is no

discovery deadline in this action. Plaintiff’s ability to seek discovery concerning

the amended allegations ameliorates any prejudice resulting from the timing of the

amendments.

7 Id. ¶¶ 76–80. 8 See Save Our Cty., Inc. v. New Castle Cty., 2013 WL 1223600, at *1 (Del. Ch. Mar. 27, 2013) (granting leave to amend where “the beneficial effect of correcting factual inaccuracies outweighs the risk of unfair prejudice”); see also Gotham P’rs v. Hallwood Realty, 1999 WL 1022069, at *4 (Del. Ch. Oct. 18, 1999) (granting leave to amend to allow the defendant to “attempt to conform this pleading with the evidence as it now understands it”). 9 Gotham P’rs, 1999 WL 1022069, at *3. Menn v. Conmed Corp. C.A. No. 2017-0137-KSJM February 25, 2019 Page 5

Defendants have not made a sufficient showing as to the proposed Eighth

Defense.

Under Delaware law, a party waives its right to invoke an arbitration

provision by “actively participat[ing] in a lawsuit or tak[ing] other action

inconsistent with the right to arbitration . . . .” 10 This rule is in part due to the

“essential purpose of arbitration, which is to provide an alternate dispute resolution

mechanism that affords a relatively speedy remedy to the litigants while at the

same [time] alleviating congestion in the docket of the court system.” 11 A finding

of waiver is particularly appropriate where a party seeking arbitration first obtains

in litigation the benefits of discovery to which it might not be entitled in

arbitration.12

The doctrine of waiver applies equally to a party asserting an arbitration

provision as a defense. In W.R. Ferguson, Inc. v. William A. Berbusse, Jr., Inc.,

the court found that a party waived an arbitration clause by participating in

litigation. 13 There, the defendant first raised an arbitration clause as a defense nine

10 See SBC Interactive, Inc. v. Corp. Media P’rs, 714 A.2d 758, 762 (Del. 1998) (quoting Falcon Steel Co. v. Weber Eng’g Co., 517 A.2d 281, 288 (Del. Ch. 1986)); see also Dorsey v. Nationwide Gen. Ins. Co., 1989 WL 102493, at *1 (Del. Ch. Sept. 8, 1989). 11 Dorsey, 1989 WL 102493, at *2. 12 Id. 13 216 A.2d 876, 878 (Del. Super. 1966). Menn v. Conmed Corp. C.A. No. 2017-0137-KSJM February 25, 2019 Page 6

and a half months after the litigation commenced and after the parties had engaged

in written discovery. 14 The court had “no hesitation, under such circumstances, in

holding that the defendant . . . waived the contract provision relating to

arbitration.”15

Defendants did not raise the “legal arbiter” defense until approximately

twenty-one months after litigation commenced and after the parties had engaged in

written discovery and document production. As in W.R. Ferguson, Defendants

waived their right to assert defenses arising from the arbitration provision.

For these reasons, as to Defendants’ proposed Eighth Defense, the motion to

amend is DENIED. The motion is otherwise GRANTED.

IT IS SO ORDERED.

Very truly yours,

/s/ Kathaleen St. Jude McCormick

Vice Chancellor

KSJM/lef

14 Id. 15 Id.