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Ritchie v. Huizenga Managers Fund, LLC

Superior Court of Delaware

December 21, 2017

A.R. THANE RITCHIE, an individual, RITCHIE RISK-LINKED STRATEGIES, LLC, a Delaware Limited Liability Company, RITCHIE PARTNERS, LLC, a Delaware Limited Liability Company, and RITCHIE CAPITAL MANAGEMENT, LLC, a Delaware Limited Liability Company, Plaintiffs,
HUIZENGA MANAGERS FUND, LLC, a Delaware Limited Liability Company, Defendant.

          Submitted: November 7, 2017

          John S. Vishneski III, Esq., Paul Walker-Bright, Esq., Kurt F. Gwynne, Esq., Brian M. Rostocki, Esq., Benjamin P. Chappie, Esq., Myron T. Steele, Esq., John A. Sensing, Esq. (Argued), Ryan C. Cicoski, Esq., Attorneys for Plaintiffs

          Steven L. Caponi, Esq., K&L Gates, LLP, Gary W. Garner, Esq., Christopher J. Barber, Esq. (Argued), Williams Montgomery & John Ltd., Attorneys for Defendant




         This is an indemnification case. The underlying Illinois suit arises from a dispute over the sale of securities. The parties in the instant case and the underlying case have exchanged positions. The Plaintiffs in this case ("Ritchie") were the defendants in the Illinois action. The Defendant in this case ("Huizenga") was the plaintiff in the Illinois action.

         Huizenga is a hedge fund. Ritchie made two sales of securities to Huizenga through a Subscription Agreement. In 2007, Huizenga brought suit against Ritchie in the Cook County Circuit Court in Illinois, alleging violations of the Delaware Securities Act ("DSA"). After a twenty-six-day trial, the court entered judgment in favor of Huizenga in regard to one of the two sales. On appeal, the Illinois Court of Appeals affirmed that judgment and granted Huizenga's cross-appeal for recovery of the other sale as well. Accordingly, the trial court entered a second judgment. On November 9, 2017, Ritchie filed a notice of appeal of the second judgment. In addition to this appeal, a determination of prejudgment interest and attorneys' fees remains pending before the Illinois Court.

         Ritchie now brings this Delaware action for declaratory judgment, asserting that under the Subscription Agreement, Huizenga has an obligation to indemnify Ritchie for the losses it incurred in the underlying suit, seeking a set off of the entire Illinois judgment. In response, Huizenga has filed this Motion to Dismiss or Stay. Ritchie has filed a Motion to Strike portions of Huizenga's reply brief in support of its Motion to Dismiss or Stay.


         Rule 12(b)(3) governs a motion to dismiss or stay on the basis of improper venue. In McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co., [1]the Delaware Supreme Court prescribed a three-part test Delaware courts must consider when deciding whether to stay or dismiss an action: "(1) is there a prior action pending elsewhere; (2) in a court capable of doing prompt and complete justice; (3) involving the same parties and the same issues?"[2] If those three factors are satisfied, "McWane and its progeny establish a strong preference for the litigation of a dispute in the forum in which the first action was filed."[3] "[T]hese concepts are impelled by considerations of comity and the necessities of an orderly and efficient administration of justice."[4]

         When reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court must determine whether the claimant "may recover under any reasonably conceivable set of circumstances susceptible of proof."[5] The Court must accept as true all non- conclusory, well-plead allegations.[6] Every reasonable factual inference will be drawn in favor of the non-moving party.[7] If the claimant may recover under that standard of review, the Court must deny the motion to dismiss.[8]


         The Case Must Be Stayed Under

         McWane The action in Illinois filed in 2007 is a prior action involving the same parties. Ritchie argues the prior action is "effectively resolved, " urging the Court not to consider: a remaining writ of certiorari to the United States Supreme Court; and the determination of attorneys' fees and prejudgment interest, significant enough to warrant pending status under McWane. However, on November 9, 2017, [9] Ritchie filed Notices of Appeal challenging the entry of the second judgment. That judgment is therefore not final.[10] Ritchie is free to make its indemnification argument on appeal, raising the possibility of conflicting rulings between this Court and the Illinois Court-one of "the precise problems McWane strives to eliminate."[11]The action remains pending for McWane purposes.

         The pending prior action is also before a court with the capacity to hear it. As a court of general jurisdiction, [12] the Circuit Court of Cook County, Illinois is capable of "doing prompt and complete justice."[13] This Court will not substantively examine Ritchie's argument that the Illinois court has ignored Delaware precedent and is therefore incapable of offering complete justice. "[T]he full faith and credit clause of the Constitution precludes any inquiry into the merits of the cause of action, the logic or consistency of the decision, or the validity of the legal principles on which the judgment is based."[14] Even assuming the Illinois court incorrectly applied Delaware law, the United States Constitution requires this Court to honor the Illinois court's holding. Moreover, allowing this claim for indemnification to proceed in the forum in which the underlying action has been litigated for ten years allows for prompt justice, in line with "the general policy embedded in the McWane doctrine that all related claims should be heard in the court in which an action is first brought."[15]

         Neither party disputes that both actions involve the same parties. However, the parties dispute whether both actions involve the same issues. "McWane does 'not require that the parties and issues in both actions be identical. Substantial or functional identity is sufficient."'[16] To determine whether issues are sufficiently identical for McWane purposes, courts ask whether "the events underlying all the claims arose out of a common nucleus of operative facts."[17]

         Though the parties have swapped sides of the "v, " the events underlying this action are substantially identical to the pending action. Ritchie is seeking relief based on the contract that facilitated the sales involved in the Illinois action. Both cases arise out of the same sales of securities between ...

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