Submitted: December 4, 2018
Stephen L. Caponi and Matthew B. Goeller, of K&L GATES
LLP, Wilmington, Delaware, Attorneys for Plaintiff.
Richard M. Beck and Sean M. Brennecke, of KLEHR HARRISON
HARVEY BRANZBURG LLP, Wilmington, Delaware; OF COUNSEL:
Clifford A. Wolff, of WOLFF LAW, Fort Lauderdale, Florida;
David K. Stein, of BRICKER & ECKLER, of Columbus, Ohio,
Attorneys for Defendants.
G. Harris, of BERGER HARRIS LLP, Wilmington, Delaware,
Attorney for Non-Parties David K. Stein and Bricker &
GLASSCOCK, VICE CHANCELLOR
a rare case, fortunately, where this Court must become
involved in adjudicating meaningful motions for sanctions
based on lawyer misconduct. To quote the wise words of Vice
Chancellor Laster, counsel should "think twice, three
times, four times, perhaps even more" before seeking
sanctions. That is not to say, however, that this
Court does not take seriously its responsibility to oversee
the conduct of attorneys practicing before it. While most
inappropriate conduct by attorneys is the province of
disciplinary counsel, in the rare case where the conduct of
counsel endangers the administration of justice toward those
litigating here, this Court must act. This, I think, is one
worth pointing out that Court rules and the Delaware Rules of
Professional Conduct constitute the limits of behavior, and
are not practice guidelines. The norms of civility and candor
expected of Delaware lawyers are not only a part of the
heritage of practice cherished by our bar, but are essential
to the administration of justice. In other words, Delaware
practitioners, whether indigenous or pro hac vice,
should respect these norms because they are good and right;
when they do not, the courts must enforce them because they
are indispensable to our ability to perform the core
functions of a justice system.
are lawyers. We understand the pressures and frustrations of
practice. It is no pleasure to criticize the practice of
others, none of our own eyes being timber-free. Nonetheless,
when gamesmanship and incivility become a drag on justice, we
I discuss cross-motions for sanctions. Only the
Plaintiff's motions are substantial. The Defendants are
represented by counsel licensed to practice in the state of
Ohio. Their attorney, David K. Stein, appears here as a
courtesy extended to him to practice pro hac vice at
the recommendation of, and with the assistance of, Delaware
counsel. His behavior has fallen short of that expected of
counsel practicing before the Bar of the Supreme Court of the
State of Delaware. Two fundamental principles are thus put in
tension: the right of litigants, consistent with the rules
limiting practice in Delaware, to have the attorney of their
choosing; and the principles of justice alluded to above.
Here, I find, the latter must control. Some of the alleged
misconduct involves collateral litigation in other
jurisdictions; that, I address by reference to the
disciplinary counsel of the appropriate jurisdiction. With
respect to misconduct in this litigation, I find it
appropriate to grant Mr. Stein's motion to withdraw his
admission pro hac vice, and to refer the matter to
disciplinary counsel for its review.
The Parties and Relevant Non-Parties
LendUS, LLC is a mortgage lender, servicer, and seller of
residential mortgages that is licensed to operate in forty
states. It is incorporated in Delaware and has a
principal place of business in Alamo,
John Goede is a former LendUS employee. He is also the
founder of American Eagle Mortgage Co., LLC. He came to work
for LendUS as part of LendUS's merger with American Eagle
Mortgage's parent company in 2017.Thereafter, he was
an officer within LendUS, and was partly responsible for
overseeing all of the American Eagle division's
operations and personnel.
John Schrenkel is a former LendUS employee. He was a senior
executive at American Eagle, and he joined LendUS as part of
LendUS's merger with American Eagle's parent company
in 2017. Thereafter, he was an officer within
LendUS and, along with Defendant Goede, was responsible for
overseeing all of the American Eagle division's
operations and personnel.
David K. Stein is an attorney who is licensed to practice in
Ohio, Florida, the United States District Court for the
Northern and Southern Districts of Ohio and the Eastern
District of Michigan, and the United States Court of Appeals
for the Sixth Circuit. Mr. Stein is admitted to practice
pro hac vice in this case. Mr. Stein does not
represent the Defendants solely for purposes of this action;
per the Plaintiff, he was also involved in facilitating the
events at issue in this litigation, the Defendants'
departure from LendUS and their subsequent employment with
Supreme Lending. As part of this case, LendUS sought to
depose Mr. Stein about his knowledge of LendUS employees
leaving to work for Supreme Lending. Because Mr. Stein is an
attorney in this matter, and his involvement as a witness
would bear on his ability to continue in his role as counsel,
I granted the Defendants' Motion for a Protective Order
on November 15, 2018. I reasoned that the Defendants'
ability to choose their counsel outweighed LendUS's need
to depose Mr. Stein, in light of the fact that the
information Mr. Stein possessed could be obtained elsewhere.
Bricker & Eckler LLP is a law firm in Ohio, of which Mr.
Stein is a Partner.
The Underlying Litigation
filed this action on March 30, 2018. Its Complaint brought
three counts: breach of contract, breach of fiduciary duty,
and tortious interference with contract. Because this
is a fledgling suit and there is relatively little record
evidence, and because the underlying litigation is only
marginally relevant to the current sanctions motions, I will
merely summarize the relevant facts and allegations of this
action, as laid out in the Complaint.
alleges that while the Defendants were employed with LendUS,
they were responsible for managing and overseeing
approximately three hundred employees within LendUS's
American Eagle division. In 2017, LendUS investigated
financial irregularities within American Eagle and concluded
that the irregularities were likely the result of intentional
misconduct. LendUS ultimately confronted the
Defendants about the irregularities in early
2018. LendUS submits that at around the time
of the confrontation, the Defendants began meeting with
another mortgage lender, Supreme Lending, "to explore
the possibility of Supreme Lending acquiring most if not all
of the people and assets of the [American Eagle]
Complaint further alleges that the Defendants decided to join
Supreme Lending, and thereafter, they set out on a campaign
to recruit American Eagle division employees to move to
Supreme Lending, in violation of certain contractual
covenants. LendUS caught wind of the
Defendants' purported behavior. It terminated Goede and
Schrenkel for cause on March 30, 2018, the same day that it
filed the Complaint.
suit progressed, the parties engaged in prolific motion
practice. A significant point of disagreement was whether,
under the relevant contractual terms, Delaware or Florida had
jurisdiction over the litigation. On October 30, 2018, a
Federal District Court in Florida decided that the case
should proceed in Delaware.Significant to the issues here
is that the proceedings in this matter are bifurcated;
predicate issues, relating to Count II of Plaintiff's
Complaint, have proceeded on an expedited track, and that
phase of the litigation is scheduled for trial on January 28,
2019 through February 1, 2019. The extent to which discovery
was also to proceed on a bifurcated basis is relevant to some
of the issues involved in the sanctions motions, described
LendUS's First Motion for Sanctions
first filed a Motion for Sanctions on October 15, 2018. That
Motion alleges that David K. Stein, while representing the
Defendants in this matter, engaged in improper conduct in
regard to David Berry, a LendUS employee. Specifically,
LendUS claims that Mr. Stein, on behalf of the Defendants,
filed a separate indemnification action against Mr. Berry in
Ohio. LendUS claims that this Ohio action was
"entirely baseless" and was "used only as a
vehicle to obtain ex parte discovery related to this
litigation." Per the recitations in LendUS's
Motion, the Defendants sought to depose Mr. Berry, and told
him that if he appeared for the deposition, the case against
him would be dismissed. Mr. Berry was deposed, without an
attorney, by the Defendants' counsel, Mr.
Stein. The Defendants did not notify LendUS
that Mr. Berry was to be deposed. Afterward, the Ohio
action was voluntarily dismissed without
second deposition-this time as part of the present litigation
and with LendUS's counsel present-Mr. Berry stated that
in his first deposition, the same attorney (Mr. Stein) had
previously asked him some of the same questions; that is, in
the first deposition, Mr. Stein had asked Mr. Berry questions
relating to the LendUS litigation. LendUS contends that this
line of questioning sought disclosure of privileged
information in violation of the Delaware Rules of
Professional Conduct. Among other things, LendUS requests
the Court to sanction the Defendants and Mr. Stein, to
prohibit the use of Mr. Berry's deposition, to prohibit
Mr. Stein from contacting any current or former LendUS
employees, to take steps to identify all improper conduct by
Defense counsel, and to award LendUS reasonable fees and
expenses associated with its Motion.
their Opposition to the Motion, the Defendants assert that
the allegations in the Ohio litigation were
meritorious. They also assert that neither Mr. Stein
nor the Defendants violated the Delaware Rules of
Professional Conduct because Mr. Berry did not have the right
to speak for LendUS; thus, his deposition was not an improper
ex parte deposition.
The Defendants' First Motion to Compel and for
after LendUS filed its first Motion for Sanctions, the
Defendants filed a Motion to Compel and for Sanctions on
October 19, 2018. It, too, related to the Berry Depositions.
The Defendants' Motion alleges that "anytime [sic]
Defendants' counsel sought to explore Berry's
knowledge of the facts underlying the allegations in the
Complaint, Plaintiff's counsel inappropriately shut down
questioning." The Defendants argue that the
Plaintiff's counsel attempted to improperly use
attorney-client privilege to prevent discovery of relevant
facts. The Defendants seek an order compelling
LendUS to produce Mr. Berry for deposition, requiring Mr.
Berry to testify on the topics that he had previously been
instructed not to discuss, and awarding the Defendants their
fees associated with the motion.
LendUS's Second Motion for Sanctions
filed a second Motion for Sanctions on November 8, 2018. In
that Motion, LendUS alleges that on September 7, 2018, Mr.
Stein filed suit in Florida against another LendUS employee,
Rachel Brillhart May, seeking over $150, 000 in damages for
her purported failure to repay a loan. According to
LendUS, an intermediary told Ms. May that if she immediately
quit her position with LendUS, the suit would be
dismissed. LendUS also alleges that Mr. Stein has
continued to improperly contact current and former LendUS
employees about the present litigation, without disclosing
that contact to LendUS.
second Motion for Sanctions, LendUS requests that Mr. Stein
be disqualified from further involvement in this
Opposition, the Defendants assert that this Court has no
authority to make determinations regarding the May lawsuit,
because it is not relevant to, nor does it interfere with,
the present litigation. They also argue that LendUS's
statements regarding Mr. Stein's communications with
LendUS employees are false and misleading, and that sanctions
The Perel Deposition
November 14, 2018, LendUS's counsel sent a letter to
"inform the Court of recent unacceptable conduct by
Defendants' pro hac vice counsel, David K.
Stein," concerning a deposition taken the previous
day. On November 13, 2018, the Defendants had
deposed Michael Perel, a LendUS employee, regarding events
relevant to this lawsuit. LendUS's letter highlighted
several instances of Mr. Stein's unprofessional conduct
that occurred during the Perel Deposition. LendUS
transmitted to the Court a copy of the deposition transcript,
as well as a video recording.
worth pointing out what apparently led to Mr. Stein's
frustration at the deposition. As described above, this
matter has been bifurcated, with issues arising from a single
count of the Complaint proceeding on an expedited schedule.
Accordingly, Mr. Caponi, representing the Plaintiff,
instructed the witness not to testify regarding issues
outside the scope of the portion of the action that had been
expedited. Mr. Stein believed all matters relevant to the
litigation, writ large, were fair game. This was a good faith
dispute, which should have been resolved by counsel or,
failing that, through referral to the Court. Unfortunately,
Mr. Stein took another approach.
simultaneously reviewing the deposition transcript and the
video, it is clear to me that Mr. Stein took a hostile tone
toward the Plaintiff's attorney, Steven L. Caponi,
regarding Mr. Caponi's objections. Mr. Stein
repeatedly interrupted Mr. Caponi, and after one such
interruption, he said to Mr. Caponi, "I really have seen
enough and heard enough from you." Mr. Stein
questioned whether Mr. Caponi is, in fact, admitted to
practice in Delaware and whether he understands Delaware
law. Mr. Stein also referred to Mr. Caponi as
"Egregious Steve" and the "sovereign of
Delaware" throughout the deposition. Furthermore,
Mr. Stein remarked, "Mr. Caponi, you don't get to
create the rules. This is my deposition. I'm paying the
court reporter. You don't create the
Stein badgered and belittled Mr. Caponi in a manner that was
neither relevant nor productive to the present lawsuit. For
instance, after a break, Mr. Stein inquired, on the record,
whether Mr. Caponi had washed his hands after using the
restroom. He also said to the deponent, Mr. Perel,
that he was "talking [with] little words so that [Mr.
Caponi] can understand."
written recitation does not adequately convey the sarcasm and
hostility that Mr. Stein expressed toward opposing counsel
and the deponent. Beyond inappropriate words, Mr. Stein's
unprofessionalism manifested through physical acts. The
record reflects that Mr. Stein raised his hand and made
yapping gestures toward Mr. Caponi while Mr. Caponi was
speaking. Mr. Caponi also relates that Mr. Stein
"leaned across the table and [bared] his teeth" in
an aggressive and exaggerated grimace while Mr. Caponi was
Stein similarly harassed the deponent, Mr. Perel. Like his
treatment of Mr. Caponi, Mr. Stein often interrupted Mr.
Perel during the deposition. Mr. Stein tenaciously inquired
about Mr. Perel's personal life, extending beyond what
was relevant to the lawsuit. This included inquiring about
the reasons that Mr. Perel's marriage ended in divorce,
as well as prolonged questioning on Mr. Perel's use of
alcohol and drugs, despite Mr. Perel's repeated answers
that he does not drink. For instance, Mr. Stein questioned:
Stein: The question is do you know whether there was
litigation prior to [the Defendants'] termination?
Perel: I don't know.
Stein: You don't know?
Perel: Or recall.
Stein: Are you under the influence of any drugs or alcohol
sitting here today?
Perel: No. Why?
Stein: Well, I'm asking the questions. So your answer is
no. Is there anything that would harm or hinder your memory
being able to answer truthfully here today?
Perel: I only speak the truth, so no.
Stein: Do you have a physical condition that prevents you
from having the power of recall as to events that might have
happened in 2018?
Perel: I have no issue with my memory if that's what
you're asking me.
Stein: And you're not under the influence of any alcohol
sitting here today?
Perel: No, I don't drink alcohol. I have [a medical
Stein: When did you stop drinking alcohol?
Perel: I have never-I don't drink alcohol.
Perel: Yes. I have [a medical issue] . . . and I avoid
alcohol at all costs.
Stein: Okay. Was that always the case while you were employed
by RPM or LendUS?
Perel: Yes, that's always the case.
Stein: And you're not under the influence of any
medication that would prevent your memory from working here
today, are you?
Perel: No. . . . 
on multiple occasions, Mr. Stein questioned Mr. Perel's
truthfulness. In addition to the aforementioned questions
about whether Mr. Perel was under the influence of any drugs
or alcohol during the deposition, and his sarcastic inquiry
into Mr. Perel's mental and physical capacity, Mr. Stein
accused Mr. Perel of "making things
up" and lying under ...