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Pontone v. Milso Industries Corp.

Court of Chancery of Delaware, New Castle

October 6, 2014

Harry Pontone
Milso Industries Corporation, et al.

Submitted: September 15, 2014.

Philip A. Rovner, Esq. Jonathan A. Choa, Esq. Potter Anderson & Corroon LLP.

Brian M. Rostocki, Esq. Reed Smith LLP.

Dear Counsel:

This is an advancement proceeding based on related litigation in Pennsylvania. On May 29, 2014, this Court issued a memorandum opinion (the "Exceptions Opinion") addressing the exceptions of defendant Milso Industries Corporation ("Milso") to the Second Report of the Special Master on a number of disputed advancement issues.[1] The Court rejected most of Milso's arguments, but partially agreed with Milso that for fees and expenses relating to counterclaims to be advanceable, the counterclaim must be compulsory. As a result, the Court held that two of the counterclaims asserted by the plaintiff, Harry Pontone ("Pontone"), in the Pennsylvania litigation and deemed advanceable by the Special Master, in fact were not advanceable. Pontone timely sought reargument on the Exceptions Opinion. On September 3, 2014, the Court denied Pontone's motion for reargument (the "Reargument Opinion").[2]

On September 15, each side moved for certification of an interlocutory appeal.[3] On September 25, both parties timely opposed the other side's motion.[4]For the reasons set forth below, the Court grants both motions and certifies this matter for an interlocutory appeal.

I. Contentions of the Parties

In resolving the issues presented in the Exceptions Opinion, this Court analyzed the Delaware Supreme Court's decision in Citadel Holding Corp. v. Roven.[5] The Exceptions Opinion found that Roven established a two-pronged test for determining whether counterclaims asserted by a party seeking advancement are "in defense" of the affirmative claims and thus advanceable: (1) the counterclaims must be "necessarily part of the same dispute" as the affirmative claims; and (2) the counterclaims must be "advanced to defeat, or offset" those affirmative claims.[6] Both sides contend that, in different ways, the Court erred in interpreting Roven. Pontone seeks certification as to the first prong of the identified test; Milso seeks certification as to the second prong.

Both sides set forth similar arguments in support of certification. Each side asserted that, for their client, the Exceptions Opinion decided a substantial issue, determined a legal right, and satisfied the same two sub-criteria for certification specified under Supreme Court Rule 42(b)(i)-(v). In opposition, Pontone contends that Milso fails to meet any of the Rule 42 criteria. Milso, for its part, opposes Pontone's request for certification, arguing that he has failed to meet any of the sub-criteria under Rule 42(b)(i)-(v). Interestingly, each side alleges that it has satisfied Rule 42(b)(i) via Rule 41(b)(ii): conflicting trial court decisions on the issue. Both parties, however, deny the existence of a jurisprudential split as to the Roven prong on which their opponent seeks certification. At the risk of oversimplification, Pontone contends that there are a series of errant Court of Chancery decisions on prong one, but not on prong two, while Milso avers that the cases conflict on prong two, but not on prong one.

II. Rule 42 Requirements

Supreme Court Rule 42 governs interlocutory appeals. Under Rule 42(b), to meet the criteria for an interlocutory appeal the opinion of the trial court must: (a) determine a substantial issue; (b) establish a legal right; and (c) meet at least one of the five additional sub-criteria enumerated in Rule 42(b)(i)-(v). "Applications for interlocutory review are addressed to the sound discretion of [the Supreme] Court and are granted only in exceptional circumstances."[7] One factor the Supreme Court may consider in exercising its discretion is the opinion of the trial court.[8]

A. Substantial Issue

An order satisfies the substantial issue requirement when it decides a main question of law relating to the merits of the case, as opposed to some collateral matter, such as a discovery dispute.[9] Pontone spends approximately forty percent of his opposition arguing that Milso has failed to establish the existence of a "substantial issue." In this regard, Pontone misinterprets the standard. The focus is not on the merits of Milso's legal argument, but rather on whether the trial court's order determined a substantial issue.[10] This case involves advancement issues. The Exceptions Opinion made a determination about a disputed and uncertain legal question pertaining to the propriety of ...

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