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DiRienzio v. Lichtenstein

Court of Chancery of Delaware

October 30, 2013

DiRienzio
v.
Lichtenstein

Submitted: October 10, 2013

Michael A. Weidinger, Esq. Joanne P. Pinckney, Esq. Elizabeth Wilburn Joyce, Esq. Kevin M. Capuzzi, Esq. Seton C. Mangine, Esq. Pinckney, Harris & Weidinger, LLC.

Bruce L. Silverstein, Esq. Martin S. Lessner, Esq. Kathaleen St. Jude McCormick, Esq. Paul J. Loughman, Esq. Lakshmi A. Muthu, Esq. Young Conaway Stargatt & Taylor LLP.

John M. Seaman, Esq. Derrick B. Farrell, Esq. Abrams & Bayliss LLP.

Donald F. Parsons, Jr. Vice Chancellor

On January 18, 2013, seventeen of the nineteen Defendants in this action moved to dismiss the derivative counts of Frederick DiRienzo's First Amended Class Action and Derivative Complaint (the "First Amended Complaint"). Defendants Joseph Mullen and Mark Schwarz (collectively, the "Special Committee") joined that effort by filing their own motion to dismiss on January 22, 2013.[1] In a Memorandum Opinion (the "Opinion") dated September 30, I granted Defendants' motion to dismiss as to Counts IV through VIII (the "Derivative Claims") of the First Amended Complaint—which were not pled in the original complaint—because DiRienzo failed to satisfy Court of Chancery Rule 23.1's demand requirement.[2] In addition, I granted the Special Committee's separate motion to dismiss Counts I through III (the direct claims for breach of fiduciary duties, or the "Direct Claims") for failure to state a claim.[3] On October 10, DiRienzo filed an application for certification of an interlocutory appeal of the Opinion. Defendants oppose the application. For the following reasons, I find that the application does not meet the criteria for certification under Supreme Court Rule 42. Thus, I deny DiRienzo's application.

I. STANDARD

Supreme Court Rule 42(b) sets forth the standard for certifying an interlocutory

appeal to the Delaware Supreme Court. The trial court will not certify, and the Supreme Court will not accept, an interlocutory appeal unless the order of the trial court determines a substantial issue, establishes a legal right, and meets one of the five additional criteria enumerated in Rule 42(b).[4] Generally, the Supreme Court will accept an application for interlocutory appeal only in extraordinary or exceptional circumstances.[5] To obtain leave to pursue an interlocutory appeal, a party must apply in the first instance to the trial court and then to the Supreme Court.[6] The Supreme Court will decide whether to accept the application in its sole discretion, but may consider as one factor the trial court's decision on whether to certify the appeal.[7] When considering whether to certify an interlocutory appeal, the trial court must balance the interests of advancing potentially case dispositive issues against the additional burden of fragmentation and delay that interlocutory review can create.[8]

II. ANALYSIS

A. The Substantial Issue and Legal Right Requirements

The Supreme Court has explained that "the substantive element of the appealability of an interlocutory order must relate to the merits of the case."[9] In addition, an order establishes a legal right when it "create[s] []or diminish[es] any party's rights with respect to the underlying substantive issues."[10] Here, DiRienzo argues that the Opinion determined substantial issues, i.e., it related to the merits of the case, in "barr[ing] on standing grounds [his] challenge, under a direct, derivative or contractual basis, to the Exchange and Unwind in the context of complex, but novel questions at the intersection of corporate and alternative entity law."[11] DiRienzo contends that the Opinion satisfies the legal right requirement because it: (1) eliminated his right to seek relief under certain claims; (2) freed Defendants from such challenges; and (3) presumptively barred similar claims asserted by all other minority holders.[12]

In opposing certification, Defendants argue that DiRienzo has misconstrued the legal and practical consequences of the Opinion. Specifically, Defendants assert that the Opinion did not extinguish his ability to challenge directly the transactions in issue, even if it did extinguish the Derivative Claims.[13] Defendants also contend that the practical effect of the Opinion only was to deny a motion to amend a complaint, which generally does not satisfy Rule 42(b).[14]

Having carefully considered the parties' arguments, I disagree with DiRienzo's sweeping characterization of the effects of the Opinion. Nevertheless, I find that this Court's dismissal of DiRienzo's derivative claims satisfies the ...


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