United States District Court, D. Delaware
ERIC BLATTMAN, individually and as an assignee of certain former members of E2.0 LLC, LAMB FAMILY LLC, and DAVID STAUDINGER, Plaintiffs / Counterclaim-Defendants,
THOMAS M. SIEBEL, DAVID SCHMAIER, JOHN DOE 1, and JOHN DOE 2, Defendants / Counterclaim-Plaintiffs. C3, INC. d/b/a C3 IoT, Plaintiff / Counterclaim-Defendant,
ERIC BLATTMAN, individually and as an assignee of certain former members of E2.0 LLC, LAMB FAMILY LLC, and DAVID STAUDINGER, Defendants / Counterclaim-Plaintiffs.
Wilmington this 24th day of July, 2017,
having reviewed the defendants' motion for sanctions and
papers submitted in connection therewith, the court issues
its decision as follows:
before the court is a motion for sanctions pursuant to
Fed.R.Civ.P. 11 filed by defendants Thomas Siebel and David
Schmaier (collectively, the "defendants") against
plaintiffs Eric Blattman, Lamb Family LLC, and David
Staudinger (collectively, the "plaintiffs"). (D.I.
192). Defendants argue that there was no objectively
reasonable basis for plaintiffs to file their claims and
continue to pursue those claims. (D.I. 193 at 1).
dispute involves two consolidated actions - the Blattman
Action and the C3 Action - arising from the merger of C3,
Inc. ("C3") and Efficiency 2.0 LLC
("E2.0"). Plaintiffs are, or represent through
assignment, the former E2.0 unitholders. (D.I. 45 at 1).
Plaintiffs initiated the Blattman Action by filing a
complaint against defendants alleging securities fraud under
Section 10(b) and Rule 1 Ob-5, common law fraud, and breach
of an oral contract. (D.I. 28 ¶¶ 140-61).
Defendants Thomas Siebel ("Siebel") and David
Schmaier ("Schmaier") are C3's chairman and
former chief operating officer, respectively. (Id. at
¶ 5). On April 24, 2015, defendants filed a motion to
dismiss the Blattman Action, arguing that an integration
clause in the merger agreement barred all three claims and
that the statute of frauds barred the breach of contract
claim. (D.I. 33; D.I. 34 at 1). The court granted the motion
to dismiss the breach of contract claim, but denied the
motion to dismiss the fraud claims. (D.I. 64).
C3 Action, initiated by C3, asserted claims against
plaintiffs (who were technically
defendants/counterclaim-plaintiffs) for securities fraud,
common law fraud, breach of contract, recoupment, and
attorneys' fees. (D.I. 183 at 2). Relevant to the present
motion, plaintiffs asserted fraud counterclaims in the C3
Action identical to the fraud claims they asserted against
defendants in the Blattman Action. (D.I. 120). C3 moved to
dismiss the fraud counterclaims, arguing, among other things,
that they were barred by a general release in a release
agreement. (D.I. 126). The court denied the motion to dismiss
the fraud counterclaims, because the release agreement was
extraneous to the pleadings and, therefore, could not be
considered on a motion to dismiss. (D.I. 183 at 11; D.I.
184). Shortly after the court ruled on C3's motion to
dismiss, defendants in the Blattman Action filed a motion for
sanctions pursuant to Fed.R.Civ.P. 11, which raises in part
arguments the court has previously rejected. (D.I. 192).
Standard of Review.
decision to grant a motion for sanctions is within the
court's discretion. Brice v. Bauer, 2017 WL
2210920, at *1 (3d Cir. May 19, 2017). "Rule 11 provides
that attorneys may be sanctioned if they ... fail to make a
reasonable inquiry into the legal legitimacy of a
pleading." Ario v. Underwriting Members of Syndicate
53 at Lloyds, 618 F.3d 277, 297 (3d Cir. 2010). The
standard for imposing sanctions in those cases is
"reasonableness under the circumstances."
Brubaker Kitchens, Inc. v. Brown, 280 Fed.App'x.
174, 184 (3d Cir. 2008). Reasonableness is "an objective
knowledge or belief at the time of filing a challenged paper
that the claim was well grounded in law and fact."
Ford Motor Co. v. Summit Prod, Inc., 930 F.2d 277,
289 (3d Cir. 1991).
argue that Rule 11 sanctions are warranted, because there was
no objectively reasonable basis for plaintiffs to file their
claims and continue to pursue those claims. (D.I. 193 at 1).
To explain why, defendants grouped plaintiffs' fraud
allegations into three categories: (i) C3 was valued at $500
million; (ii) E2.0 would continue operations as a stand-alone
business; and (iii) Siebel committed to cause C3 to provide
capital funding needed to expand E2.0's operations in
accordance with the E2.0 Business Unit Budget.
(Id.). According to defendants, the objective facts
demonstrate that they made no misrepresentations regarding
C3's value, and even if they had mispresented C3's
value, plaintiffs did not reasonably rely on such
misrepresentations. (Id. at 8-10, 12-15). In
addition, plaintiffs are legally barred from making a fraud
claim based on C3's value due to a no-liability clause in
a non-disclosure agreement, an integration clause in the
merger agreement, and/or a general release in a release
agreement. (Id. at 10-11, 15-16). Any remaining
misrepresentations regarding C3's value amount to future
predictions or puffery which are not actionable under
Delaware law. (Id. at 1-2, 16-17). Finally,
defendants argue that the fraud claims based on the continued
operation and funding of E2.0 are legally barred by a
contractual disclaimer in the merger agreement and/or a
general release in a release agreement. (Id. at
Defendants essentially argue that Rule 11 sanctions are
appropriate because plaintiffs' fraud claims fail on the
merits. Rule 11, however, "is not an appropriate vehicle
for resolving legal or factual disputes, " or
"addressing the strength or merits of a claim."
StrikeForce Techs., Inc. v. WhiteSky, Inc., 2013 WL
5574643, at *4 (D.N.J. Oct. 9, 2013). The court finds that it
would be more appropriate to consider defendants'
arguments in its motion for sanctions after a ruling on
amotion for summary judgment. See, e.g., Davis v. Wells
Fargo U.S. Bank Nat'l Assoc, 2016 WL 4440342, at *4
(E.D. Pa. Aug. 23, 2016) (denying a Rule 11 motion because
factual disputes are more appropriately addressed on the
merits and many of the same arguments may be raised on
summary judgment); Marlowe Patent Holdings v. Ford Motor
Co., 2013 WL 6383122, at *5 (D.N.J. Dec. 5, 2013)
(stating that "[a] Rule 11 motion for sanctions is not
an appropriate substitute for summary judgment proceedings,
and should not be used to raise issues of legal sufficiency
that more properly can be disposed of by ... a motion for
summary judgment."); Thorner v. Sony Comput. Entm
't Am. Inc., 2010 WL 904797, at *2 (D.N.J. Mar. 9,
2010) (denying defendants' motion for sanctions as
premature when it "came before any dispositive motion or
final judgment in favor of... defendants"). Accordingly,
the court denies defendants' motion for sanctions without
foregoing reasons, C3's motion for sanctions is denied
without prejudice for renewal at the appropriate time. (D.I.