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Wenske v. Blue Bell Creameries, Inc.

Court of Chancery of Delaware

September 25, 2019

MS. MARY GIDDINGS WENSKE, INDIVIDUALLY AND AS TRUSTEE OF THE THOMAS HUNTER GIDDINGS, JR. TRUST U/W/O THOMAS H. GIDDINGS DATED 5/23/2000, Plaintiffs,
v.
BLUE BELL CREAMERIES, INC., BLUE BELL CREAMERIES, U.S.A., INC., PAUL W. KRUSE, JIM E. KRUSE, HOWARD W. KRUSE, GREG BRIDGES, RICHARD DICKSON, WILLIAM J. RANKIN, DIANA MARKWARDT, JOHN W. BARNHILL, JR., PAUL A. EHLERT, DOROTHY MCLEOD MACINERNEY, PATRICIA RYAN, Defendants, and BLUE BELL CREAMERIES, L.P., Nominal Defendant.

          ORDER GRANTING APPLICATION TO CERTIFY INTERLOCUTORY APPEAL

          JOSEPH R. SLIGHTS III, VICE CHANCELLOR

         WHEREAS, the newly-created Special Litigation Committee (the "Committee") of Nominal Defendant Blue Bell Creameries, L.P. ("Blue Bell") intervened in this action for the limited purpose of moving to stay the litigation pending the results of its investigation of the derivative claims asserted here (D.I. 102, 103);

         WHEREAS, Plaintiffs opposed the Committee's Motion to Stay (D.I. 128);

         WHEREAS, by Opinion dated August 30, 2019 (D.I. 150), the Court denied the Committee's Motion to Stay upon concluding the Committee had not been properly formed, as a matter of the law, because the Court had already determined that the sole appointing authority, Blue Bell's general partner, Blue Bell Creameries, Inc. ("BBGP"), was unfit to consider a demand to pursue the derivative claims (the "Opinion")[1];

         WHEREAS, on September 9, 2019, the Committee timely filed an application for certification of an interlocutory appeal of the Opinion (the "Application") (D.I. 151);

         WHEREAS, the Application asserts three grounds for interlocutory appeal under Supreme Court Rule 42: (1) "The question of whether a sole general partner of a limited partnership (deemed to have a disabling conflict of interest for purposes of demand futility) is stripped of the power and authority to act through a special committee of its board of directors comprised of disinterested and independent directors to utilize the process created by Zapata is an important question of Delaware law that the Supreme Court promptly should resolve"-presumably relying upon Supreme Court Rule 42(b)(iii)(A) and perhaps, although unclear, Rule 42(b)(iii)(B)[2]; (2) the question of law decided by the Opinion "relates to the construction or application of a statute of this State"-6 Del. C. § 17-403(c)-that should be settled by the Supreme Court promptly-presumably relying upon Supreme Court Rule 42(b)(iii)(C)[3]; and (3) "the review of the interlocutory order may terminate the litigation" if the Supreme Court were to reverse the Opinion and hold that the Committee was properly formed, and if the Committee were then to determine that the claims asserted in this litigation should not be prosecuted- presumably relying upon Supreme Court Rule 42(b)(iii)(G)[4];

         WHEREAS, on September 18, 2019, Plaintiffs opposed the Application (the "Opposition") (D.I. 157); and

         WHEREAS, the Court has carefully considered the Application, the Opposition and the criteria set forth in Supreme Court Rule 42, IT IS HEREBY ORDERED, this 25th day of September, 2019, that:

         1. Supreme Court Rule 42(b)(i) provides, "[n]o interlocutory appeal will be certified by the trial court or accepted by this Court unless the order of the trial court decides a substantial issue of material importance that merits appellate review before a final judgment."[5] Rule 42(b)(ii) provides that instances where the trial court certifies an interlocutory appeal "should be exceptional, not routine, because [interlocutory appeals] disrupt the normal procession of litigation, cause delay, and can threaten to exhaust scarce party and judicial resources."[6] For this reason, "parties should only ask for the right to seek interlocutory review if they believe in good faith that there are substantial benefits that will outweigh the certain costs that accompany an interlocutory appeal."[7]

         2. When certifying an interlocutory appeal, "the trial court should identify whether and why the likely benefits of interlocutory review outweigh the probable costs, such that interlocutory review is in the interests of justice. If the balance is uncertain, the trial court should refuse to certify the interlocutory appeal."[8]

         3. After careful review, I am satisfied the Opinion "decide[d] a substantial issue of material importance that merits appellate review before a final judgment, "[9]that "the likely benefits of interlocutory review outweigh the probable costs, "[10] and that "[t]he interlocutory order involves a question of law resolved for the first time in this State."[11]

         4. First, the Opinion decided a substantial issue in that it decided an issue that "relate[s] to the merits of the case, " albeit somewhat remotely.[12] Specifically, the Opinion determined that BBGP, as Blue Bell's sole general partner, had to be free from conflict before it could delegate its management of the litigation asset to a special litigation committee. Because the Court already has determined BBGP could not have objectively considered a limited partner's demand that it pursue the derivative claims at issue here, it follows that BBGP, as an entity, cannot delegate the authority to determine whether to prosecute the derivative claims to a committee of its board of directors or to agents appointed by any such committee.[13] This determination restricted, if not eliminated, an important aspect of BBGP's right to manage Blue Bell.[14] And, while I acknowledge Plaintiffs' argument that the Opinion addressed a motion to stay, and therefore does not relate directly to "the merits of the case, " the practical effect of the Opinion is that the Committee will have no say in the management of the litigation asset. This, in turn, means the Committee will have no right or ability to terminate the litigation if that is the outcome it would have deemed justified after it completed its investigation. Thus, while the Opinion did not adjudicate the merits of the case, it did "relate to the merits."[15]

         5. Second, the Opinion "involved a question of law resolved for the first time in this State"[16]-that is, the authority (or not) of a lone, conflicted general partner to delegate its management of a litigation asset to a special litigation committee. While the matter is settled in the corporate context, where the outcome here would have been different, [17] the question has not been decided in the limited partnership/alternative entity context.[18]

         6. Third, while the Opinion did not directly construe a statute, the Committee is correct that the Opinion did implicate a Delaware statute-6 Del. C. ยง 17-403(c)-to the extent that the Opinion could be interpreted, in a stretched reading, to limit the general partner's statutory right to delegate management authority to "1 or more persons, " including to "agents, officers or employees of the general ...


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