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.
before the court is Plaintiffs' Motion for Leave to File
a Third Amended Complaint, which would add Thomas J.
Scaramellino ("Scaramellino") as a defendant to
this action. (D.I. 280). For the reasons set forth below,
Plaintiffs' motion is denied.
action arises out of the acquisition of Efficiency 2.0 LLC
("E2.0") by C3, Inc. ("C3"). (D.I. 190
¶ 9). C3 was represented in the merger negotiations by
its Chief Executive Officer Thomas Siebel
("Siebel") and Chief Operating Officer David
Schmaier ("Schmaier, " and collectively with C3 and
Siebel, the "Defendants"). (Id. at ¶
29). As former unitholders of E2.0, Plaintiffs Eric Blattman,
Lamb Family LLC, and David Staudinger (collectively,
"Plaintiffs") were contractually entitled to
receive additional consideration after the merger closed in
the form of an "Earnout" and "Holdback Units,
" provided certain conditions were satisfied.
(Id. at ¶¶ 43, 161). According to
Defendants, those conditions were not satisfied and
Plaintiffs, as a result, were not entitled to either the
Earnout or the Holdback Units. (Id. at ¶¶
134-35, 162). In response, Plaintiffs have sued Defendants
for securities fraud and common law fraud, and C3 alone for
breach of contract. (Id. at ¶¶ 140-64).
case consolidates two actions that are essentially mirror
opposites: Civ. No. 15-530-GMS, referred to as the
"Blattman Action, " and Civ. No. 16-750-GMS,
referred to as the "C3 Action." The plaintiffs and
claims in one case are essentially the defendants and
counterclaims in the other case. The court previously
granted-in-part and denied-in-part Defendants' motion to
dismiss the counterclaims in the C3 Action, which mirrored
the claims Plaintiffs sought leave to add to the Blattman
Action by filing a second amended complaint. (D.I. 183). That
ruling precipitated the present dispute. In the second
amended complaint, Plaintiffs alleged that C3 breached the
merger agreement by: (1) refusing to distribute the Holdback
Units; (2) engaging in bad-faith interference with an
"Earnout Achievement, " and (3) delivering
"Earnout Notices" that did not properly report
profit and revenue. (D.I. 190 at ¶¶ 161-67). The
court dismissed that portion of the breach of contract claim
based on the Earnout Notices, because it was subject to
mandatory arbitration. (D.I. 183 at 11-13). The court noted
that, unlike the Earnout Notices for 2013 and 2014, C3 never
delivered an Earnout Notice for 2015. (Id. at 13).
Thus, Plaintiffs had a plausible argument that the
arbitration provision was never triggered for the 2015
Earnout Notice. (Id.). Nevertheless, the court
declined to exacerbate the parties' tortured procedural
history by allowing the claim based on the 2015 Earnout
Notice to remain a part of this litigation. (Id.).
expected, sometime after the court issued its decision,
Defendants delivered a 2015 Earnout Notice. (D.I. 280 at 7).
The 2015 Earnout Notice-like the previous Earnout Notices-
stated that no Earnout would be paid. (Id. at 1).
Plaintiffs claim that Scaramellino was obligated to deliver
an "Objection" to Defendants regarding the 2015
Earnout Notice. (Id.). To trigger the arbitration
process an Objection must be served. Under the Merger
Agreement, any Objection to an Earnout Notice must be
asserted by the "Securityholder Representative."
(Id.). The merger agreement designates Scaramellino
as the Securityholder Representative for all former E2.0
proposed amended complaint, Plaintiffs allege that
Scaramellino has refused to serve an Objection to the 2015
Earnout Notice, because he has already been compensated for
his rights to Earnout distributions, including any Earnout
distribution for fiscal year 2015, through a November 2013
Stock Purchase Agreement he signed with Defendants. (D.I.
280-3 ¶ 174). In exchange for the benefits he received
from Defendants, Scaramellino has also signed a declaration,
drafted by Defendants' counsel, "undercutting the
factual basis for the E2.0 Unitholders' claims to the
Earnout." (Id. at ¶ 213). Thus, Plaintiffs
allege that Scaramellino breached his fiduciary duties by
refusing to serve an Objection and signing the declaration,
as the actions were "entirely self-interested and
hindered the E2.0 Unitholders from obtaining a benefit that
Scaramellino himself has already received." (D.I. 280 at
claim that Scaramellino had no obligation to serve an
Objection to the 2015 Earnout Notice, because he resigned as
Securityholder Representative in 2012. (D.I. 284 at 2).
According to Defendants, Plaintiff Eric Blattman
("Blattman") subsequently assumed the role of
Securityholder Representative. (Id.). At this point,
the parties dispute whether Scaramellino or Blattman is the
Securityholder Representative. Blattman claims that, although
he previously attempted to assume the position of
Securityholder Representative, Defendants refused to
recognize him in that position and, in any event, the
position is irrevocable. (D.I. 280 at 1 & 7). Defendants
counter that they did recognize Blattman as the
Securityholder Representative, which is why C3 sent him the
2014 Earnout Notice. (Id. at 7). Ultimately, the
court need not resolve this factual dispute in order to
decide the current motion. If anything, the factual dispute
illustrates why the court should deny leave to amend the
STANDARD OF REVIEW.
to grant or deny a motion for leave to amend is within the
district court's discretion. Foman v. Davis, 371
U.S. 178, 182 (1962). Under Fed.R.Civ.P. 15(a)(2),
"[t]he court should freely give leave when justice so
requires." The Third Circuit has adopted a liberal
approach to the amendment of pleadings to ensure that "a
particular claim will be decided on the merits rather than on
technicalities." Dole v. Arco Chem. Co., 921
F.2d 484, 486-87 (3d Cir. 1990). Nevertheless, leave to amend
should be denied where amendment is futile, made in bad
faith, or causes undue delay or prejudice. Oran v.
Stafford, 226 F.3d 275, 291 (3d Cir. 2000); In re
Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434
(3d Cir. 1997). In addition, leave should be denied when the
amendment "relates only indirectly, if at all, to the
original complaint and the alleged cause of action arose out
[of] an entirely unrelated set of facts and related to a
defendant not implicated in the original complaint."
Bohm v. Straw, 2013 WL 100441, at *14 (W.D. Pa. Jan.
8, 2013) (quoting Nottingham v. Peoria, 709 F.Supp.
542, 544 (M.D. Pa. 1988)). In such circumstances, the
unrelated claims "will not promote judicial economy or
the speedy disposition of the dispute between the
parties." Id. at 14.
may have stated a plausible claim for relief against
Scaramellino, but the court finds that, for the following
reasons, the fiduciary duty claim does not need to be added
to this action. First, Scaramellino does not need to be a
party to this action in order to provide complete relief on
the claims currently before the court. Plaintiffs' claims
related to the Earnout Notice have been dismissed in favor of
arbitration, so no claims related to the Earnout Notice
remain before the court. (D.I. 183 at 12-13). To the extent
Plaintiffs need the court to find that Scaramellino is in
fact the Securityholder Representative and compel him to
serve an Objection so arbitration may go forward, that can be
addressed in a separate action. To the extent Scaramellino
has a conflict of interest that undercuts the credibility of
his declaration indicating that Plaintiffs' Earnout claim
has no merit, that evidence can still be presented at trial
to impeach him.
the proposed amendment will delay proceedings by adding a new
defendant and a new cause of action that is different and
distinct from the existing claims against Defendants with
respect to the relevant law, facts, and time frames. The
claims remaining before the court are focused on whether
Defendants committed common law fraud and securities fraud in
the lead up to the 2012 merger, and whether C3 breached the
merger agreement by engaging in bad faith business operations
shortly after the merger closed and by refusing to release
the Holdback Units a year and a half later. According to
Plaintiffs, the impetus for the breach of fiduciary duty
claim occurred in the last five weeks. (D.I. 280 at 1). The
parties have not taken any discovery regarding whether and
why Scaramellino resigned as Securityholder Representative in
2012, or whether and why Blattman assumed the role in 2013
but disavows it now. (D.I. 284 at 3). As a new party,
Scaramellino would also be entitled to discovery, but he has
not participated as a party in this action to date.
(Id. at 4). In contrast, fact discovery closed on
September 15, 2017; expert discovery will close on November
20, 2017; dispositive motions are due on December 20, 2017;
and trial is scheduled to start on March 26, 2018.
(Id. at 1).
of these reasons, the court denies Plaintiffs' motion for
leave to amend. See Cornell & Co. Inc. v.
Occupational Safety & Health Review Comm'n, 573
F.2d 820, 824 (3d Cir. 1978) (finding that defendants will be
prejudice because proposed amendment changed legal and
factual basis of claim); Dockery v. Wetzel, 2013 WL
664931, at *3 (W.D. Pa. 2013) (denying leave to add a new
cause of action against a new defendant based on events that
occurred after the lawsuit was initiated); Bohm,
2013 WL 100441, at *13 (denying leave where the new claim
arose out of an entirely different set of facts and related
to a defendant not implicated in the original complaint).