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Carlyle Investment Management L.L.C. v. Moonmouth Company S.A.

Court of Chancery of Delaware

February 24, 2015

CARLYLE INVESTMENT MANAGEMENT L.L.C., TC GROUP, L.L.C., TCG HOLDINGS, L.L.C., DAVID M. RUBENSTEIN, DANIEL A. D'ANIELLO, WILLIAM E. CONWAY, JR., JAMES H. HANCE, JOHN C. STOMBER, and MICHAEL J. ZUPON, Plaintiffs,
v.
MOONMOUTH COMPANY S.A., PLAZA MANAGEMENT OVERSEAS S.A., PARBOLD OVERSEAS LTD., LOUIS J.K.J. REIJTENBAGH, and STICHTING RECOVERY CCC, Defendants.

Date Submitted: November 19, 2014

R. Judson Scaggs, Jr., Esq., Shannon E. German, Esq. MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Robert A. Van Kirk, Esq., R. Hackney Wiegmann, Esq., Sarah F. Teich, Esq., Brian C. Rabbitt, Esq., WILLIAMS & CONNOLLY LLP, Washington, D.C.; Attorneys for Plaintiffs.

Michael F. Bonkowski, Esq., COLE, SCHOTZ, MEISEL, FORMAN & LEONARD, P.A., Wilmington, Delaware; Alan Kolod, Esq., Mark N. Parry, Esq., MOSES & SINGER LLP, New York, New York; Attorneys for Plaza Management Overseas S.A. and Louis J.K.J. Reijtenbagh.

David L. Finger, Esq., FINGER & SLANINA, LLC, Wilmington, Delaware; Attorneys for Liquidators of Carlyle Capital Corporation Limited (in Liquidation).

MEMORANDUM OPINION

PARSONS, VICE CHANCELLOR.

Although this case is stayed on the merits, I allowed discovery solely on the issue of personal jurisdiction over the defendants. What resulted is an international discovery dispute. Before the Court is a motion by the Liquidators of Carlyle Capital Corporation Limited (in Liquidation) ("CCC") to intervene in this action for the limited purpose of seeking a protective order concerning the authorized discovery.[1] For the reasons that follow, the motion to intervene is granted, and the motion for a protective order is granted without prejudice to the plaintiffs' ability to renew their motion to compel in accordance with Section II.E of this Memorandum Opinion.

I. BRIEF BACKGROUND

CCC is a Guernsey limited company, incorporated and registered in the Bailiwick of Guernsey, a British Crown dependency. CCC lost over a billion dollars during the financial crisis and was placed into liquidation in March 2008. The Liquidators are officers of the Royal Court of Guernsey and are charged with winding up the affairs of CCC and attempting to extract any remaining value for its stakeholders. After investigation, the Liquidators determined that CCC's only remaining potentially valuable assets were claims against those persons and entities involved with CCC's management and operations. The plaintiffs in this case, Carlyle Investment Management, L.L.C. and various related entities and persons (together, "Plaintiffs" or "Carlyle"), [2] are the defendants in contentious litigation that ensued-and remains ongoing-in Guernsey (generally, the "Guernsey Litigation"). Louis J.K.J. Reijtenbagh and entities related to him (together, "Defendants")[3] previously held a significant stake in CCC. Plaintiffs allege that Reijtenbagh violated certain releases between him and Carlyle by pursuing, assisting with, or financing litigation against Carlyle.

To pursue the Guernsey Litigation in light of CCC's financial situation, the Liquidators required outside litigation funding, which they eventually received from various unknown parties. Defendants allegedly provided at least some of that funding, in violation of the releases.

Defendants previously attempted to remove this case to federal court. That effort failed and the case was remanded back to this Court. Defendants appealed the remand order. On May 6, 2014, I stayed this case pending the Third Circuit's decision on Defendants' appeal (the "May 2014 Decision"). The Third Circuit heard argument on that appeal on June 4, 2014, and took the case under advisement. Although I decided to stay all merits-related litigation in this case, I allowed the parties to conduct limited discovery relating to personal jurisdiction in Delaware, because "that discovery likely would be useful no matter what the outcome of the appeal is."[4] When I allowed that limited discovery to proceed, it was anticipated that the parties could coordinate on this narrow issue without oversight by this Court.[5] That hope was misplaced.

On May 14, 2014, Defendants moved for reconsideration of the May 2014 Decision and for a protective order. Plaintiffs opposed that motion, and I denied it in a letter opinion dated August 21. On July 21, Plaintiffs moved to compel production of certain documents relating to Defendants' alleged funding of the CCC Liquidators and the various lawsuits filed by the Liquidators, one of which initially was pending in Delaware. After briefing, I heard argument on the motion to compel on August 28, 2014, at which time I granted Plaintiffs' motion in part (the "Production Order").

On September 8, the Liquidators moved to intervene in this action for the purpose of seeking a protective order as to the documents I ordered produced, which dealt with the nature of the relationship between Defendants and the Liquidators (the "Discovery Documents"). The Liquidators asserted that the Discovery Documents are protected by confidentiality orders of the Royal Court of Guernsey and are subject to litigation privilege under Guernsey law and work product immunity under Delaware law. Briefing on the Liquidators' motion concluded on October 16.[6] I heard argument on October 20, 2014 (the "Argument"). At the Argument, it was disclosed that, despite the Production Order, Defendants had not produced any of the Discovery Documents.[7] I again ordered the Discovery Documents produced (the "Second Production Order"), [8] but limited access to them to Defendants' lawyers not involved in the Guernsey Litigation.[9] I also required Defendants to file a compliance statement.[10]

Defendants submitted the required compliance statement on November 10 (the "Compliance Statement"). According to the Compliance Statement, Defendants produced: (1) a redacted copy of the Funding Agreement with a redaction log; and (2) a privilege log of individual documents in their possession consisting of the communications potentially concerning the relationship between Defendants or their affiliates and the Liquidators. Those communications, referred to herein as the Discovery Documents, are 92 documents comprising roughly 700 pages that concern the negotiations between an affiliate of Defendants and the Liquidators pertaining to the funding agreement. The Liquidators have asserted claims of privilege and confidentiality as to all 92 documents.

Finally, pursuant to a discussion of certain other issues at the Argument, the parties were given an opportunity to file supplemental briefing focused on when the Liquidators first became aware of this case. That supplemental briefing concluded on November 19, 2014.[11]

II. ANALYSIS

Several issues require resolution. First, can the Liquidators intervene in this case under the rules of this Court? Second, did the Liquidators unreasonably delay in moving to intervene such that I should hold their claims of privilege and confidentiality waived? Third, are the Discovery Documents protected by work product privilege or litigation privilege, which is the Guernsey equivalent of work product? Fourth, how should this case proceed from this point?

A. Can the Liquidators Intervene?

1. Standard for intervention

In certain situations a nonparty may intervene in a case pending before this Court, either as of right or by permission of the Court in its discretion. Court of Chancery Rule 24(a) governs intervention as of right and states that

[u]pon timely application anyone shall be permitted to intervene in an action: (1) [w]hen a statute confers an unconditional right to intervene; or (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.[12]

A potential intervenor "need only claim, rather than prove, an interest in the subject of the litigation; the validity of that claimed interest is assessed by reference to the allegations accompanying the motion to ...


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