COURT OF CHANCERY
OF THE
STATE OF DELAWARE
D ONALD F. PARSONS, J .
R New Castle County Courthouse
VICE CHANCELLOR 500 N. King Street, Suite 11400
Wilmington, Delaware 19801-3734
Date Submitted: June 12, 2014
Date Decided: September 3, 2014
Philip A. Rovner, Esq. Brian M. Rostocki, Esq.
Jonathan A. Choa, Esq. John C. Cordrey, Esq.
Potter Anderson & Corroon LLP Reed Smith LLP
1313 N. Market Street 1201 N. Market St., Suite 1500
Wilmington, DE 19801 Wilmington, DE 19801
RE: Harry Pontone v. Milso Industries Corporation, et al.
Civil Action # 7615-VCP
Dear Counsel:
On May 29, 2014, the Court issued a Memorandum Opinion (the “Opinion”)
addressing the exceptions of Defendant Milso Industries Corp. (“Milso”) to the
Second Report of the Special Master relating to corporate advancement of disputed
fees and expenses.1 The Opinion overruled most of Milso’s exceptions, but the
Court partially agreed with one of Milso’s legal interpretations and held that, for
fees and expenses relating to counterclaims to be advanceable, the counterclaim
1
Pontone v. Milso Indus. Corp., 2014 WL 2439973 (Del. Ch. May 29, 2014)
[hereinafter Mem. Op.].
Pontone v. Milso Industries Corporation, et al.
Civil Action # 7615-VCP
September 3, 2014
Page 2
must be compulsory. Applying that holding, the Opinion found two counterclaims
by Plaintiff, Harry Pontone (“Pontone”), were not compulsory and, thus, were not
advanceable. Specifically, the Opinion held that Pontone’s counterclaim for
misappropriation of name, image, and likeness and his counterclaim for abuse of
process were not subject to advancement.
Currently before the Court is Pontone’s timely-filed motion for reargument
under Court of Chancery Rule 59(f). Pontone’s motion requests a rehearing on the
Opinion’s holding concerning the legal standard applicable to advancement for
counterclaims and, regardless, seeks reconsideration of the Opinion’s holding that
the two above-mentioned counterclaims were not compulsory. In opposition,
Milso argues that the Court held correctly on each of these issues. According to
Milso, Pontone’s motion merely rehashes the same arguments the Court rejected
previously and improperly attempts to supplement the record.
For the reasons that follow, the motion for reargument is denied.
I. Legal Standard
To prevail on a motion for reargument under Rule 59(f), the moving party
must demonstrate either that the court overlooked a decision or principle of law
that would have controlling effect or that the court misapprehended the facts or the
Pontone v. Milso Industries Corporation, et al.
Civil Action # 7615-VCP
September 3, 2014
Page 3
law so the outcome of the decision would be different.2 For the movant to prevail,
a misapprehension of the facts or the law must be both material and outcome
determinative of the earlier decision.3 Mere disagreement with the Court’s
resolution of a matter does not entitle a party to a rehearing, and the Court will
deny a motion for reargument that does no more than restate a party’s prior
arguments.4
The Court generally will not consider new evidence on a motion for
reargument. Reargument under Rule 59(f) “is only available to re-examine the
existing record.”5 In appropriate circumstances, however, a litigant may seek
reargument based on newly discovered evidence.6 “To succeed on such a basis, an
2
See, e.g., Preferred Invs., Inc. v. T&H Bail Bonds, 2013 WL 6123176, at *4
(Del. Ch. Nov. 21, 2013); Medek v. Medek, 2009 WL 2225994, at *1 (Del.
Ch. July 27, 2009); Reserves Dev. LLC v. Severn Sav. Bank, FSB, 2007 WL
4644708, at *1 (Del. Ch. Dec. 31, 2007).
3
See, e.g., Preferred Invs., 2013 WL 6123176, at *4; Aizupitis v. Atkins, 2010
WL 318264, at *1 (Del. Ch. Jan. 27, 2010); Medek, 2009 WL 2225994, at
*1.
4
See, e.g., Preferred Invs., 2013 WL 6123176, at *4; In re Mobilactive
Media, LLC, 2013 WL 1900997, at *1 (Del. Ch. May 8, 2013); Brown v.
Wiltbank, 2012 WL 5503832, at *1 (Del. Ch. Nov. 14, 2012).
5
Reserves Dev. LLC, 2007 WL 4644708, at *1.
6
In re Mobilactive Media, 2013 WL 1900997, at *1; Reserves Dev. LLC,
2007 WL 4644708, at *1.
Pontone v. Milso Industries Corporation, et al.
Civil Action # 7615-VCP
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Page 4
applicant must show the newly discovered evidence came to his knowledge since
the trial and could not, in the exercise of reasonable diligence, have been
discovered for use at the trial.”7
II. Pontone’s Motion for Reargument
Pontone dedicates a significant portion of his motion to critiquing the
Opinion’s analysis of the Delaware Supreme Court’s decision in Citadel Holding
Corp. v. Roven.8 The remainder of the motion argues that the two counterclaims
this Court found non-compulsory in fact are compulsory. These issues are
addressed in turn.
A. The Roven Standard for Advanceability of Counterclaims
A key portion of the Opinion dealt with the proper legal standard under
Delaware law for advancement of fees and expenses for counterclaims.9
Resolution of the issue turned on the proper interpretation of the Delaware
Supreme Court’s holding in Roven that counterclaims must be “necessarily part of
the same dispute” as the affirmative claims asserted against the advancee and be
7
Reserves Dev. LLC, 2007 WL 4644708, at *1.
8
603 A.2d 818 (Del. 1992).
9
Mem. Op. at *3-7.
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Civil Action # 7615-VCP
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Page 5
“advanced to defeat, or offset” those claims.10 Subsequent cases from the Court of
Chancery11 potentially added an interpretive gloss on the Supreme Court’s standard
and the parties vigorously contested—and in Pontone’s case continue to contest—
the proper standard. In the briefing before this Court on the exceptions to the
Second Report of the Special Master, the parties collectively devoted no fewer than
twenty-five pages solely to the proper legal standard. They also devoted another
forty pages to applying their respective interpretations seriatim to the eight Pontone
counterclaims found advanceable by the Special Master. Thus, the parties were
heard fully on this issue.
To satisfy the burden for reargument, Pontone must show an outcome-
determinative overlooking of principle or precedent or else a similarly critical
misapprehension of the law or facts. Pontone asserts that the Opinion adopts an
“unsupported” interpretation of the Roven standard and that the rationales of other
Court of Chancery cases cited in the Opinion rest upon those decisions’ authors’
10
603 A.2d at 824.
11
See, e.g., Paolino v. Mace Sec. Int’l, Inc., 985 A.2d 392 (Del. Ch. 2009);
Sun-Times Media Gp., Inc. v. Black, 954 A.2d 380 (Del. Ch. 2008); Zaman
v. Amedo Hldgs., Inc., 2008 WL 2168397 (May 23, 2008); Reinhard &
Kreinberg v. Dow Chem. Co., 2008 WL 868108 (Mar. 28, 2008).
Pontone v. Milso Industries Corporation, et al.
Civil Action # 7615-VCP
September 3, 2014
Page 6
own “misreading of Roven.”12 Pontone’s motion fails to identify any overlooked
precedent or principle that would control the outcome here. Instead, he rehashes
arguments previously rejected by the Court, as catalogued in Milso’s opposition to
the motion.13
In the motion for reargument, for example, Pontone argues that the
“indelibly clear” holding of Roven is that “counterclaims are advanceable . . .
whether or not those counterclaims also happen to be compulsory in nature.”14
Similarly, in earlier briefing, Pontone observed that “nowhere in the decision does
the Supreme Court state that Mr. Roven’s counterclaims were compulsory or that
noncompulsory counterclaims could not qualify for advancement.”15 In an effort
to convince the Court of the soundness of his position, Pontone’s motion offers a
12
Pl.’s Mot. for Rearg. (“Pl.’s Mot.”) 9.
13
Def.’s Answer to Pl.’s Mot. for Rearg. (“Def.’s Answer”) 4-5 (quoting
examples of arguments made in the briefing preceding the Opinion that
Pontone repeated nearly verbatim in the motion for reargument).
14
Pl.’s Mot. 3.
15
Pl.’s Answering Br. in Opp’n to Milso’s Exceptions to the Second Report of
the Special Master (“Pl.’s Exceptions Br.”) 9. Defendant Milso Industries
Corp.’s Opening Brief in Support of its Exceptions to the Special Master’s
Second Report and its subsequent Reply Brief are cited to similarly as
“Def.’s Exceptions Br.” and “Def.’s Exceptions Reply.”
Pontone v. Milso Industries Corporation, et al.
Civil Action # 7615-VCP
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reprise of the same thorough analysis of Roven’s facts and reasoning16 that he had
provided previously.17 In a further attempt to sway the Court, Pontone now points
to the appellate briefs in the Roven case and asks the Court to take judicial notice
of those documents.18 These efforts do not satisfy Pontone’s burden.
An increasingly detailed version of an argument already rejected by a court
does not show that the court previously overlooked or misapprehended any fact or
law in an outcome-determinative way. Instead, Pontone’s briefing reveals that he
disagrees with the Court’s legal interpretation that Roven requires counterclaims to
be compulsory to be advanceable. Pontone’s proper course of action would be an
appeal to the Delaware Supreme Court at the appropriate time to try to obtain the
legal interpretation he seeks. As for the present motion, Pontone has not met the
standard required for this Court to grant reargument.
B. The Non-Compulsory Counterclaims
Aside from Pontone’s disagreement with the Court’s interpretation of Roven,
Pontone further argues that the two counterclaims the Opinion found non-
advanceable are, in fact, compulsory counterclaims and therefore advanceable. On
16
Pl.’s Mot. 6-8.
17
Pl.’s Exceptions Br. 7-9.
18
Pl.’s Mot. 8 n.1.
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these topics, Pontone’s motion suffers from the same flaws as noted above: the
motion merely repeats rejected arguments without pointing to some overlooked
law or facts that would have changed the outcome of the Opinion.
The Opinion found that Pontone’s counterclaims for misappropriation and
abuse of process were not compulsory. On the misappropriation counterclaim,
Pontone, in the motion for reargument, asks the Court to supplement the record—a
matter addressed below—and advances two arguments why the misappropriation
counterclaim is compulsory: (1) Defendants in this case, who are the plaintiffs in
the underlying litigation in Pennsylvania (the “Pennsylvania Plaintiffs”19),
repeatedly placed Pontone’s goodwill at issue in the Pennsylvania Action; and (2)
the Opinion “unreasonably interprets the actual scope of Federal Rule 13(a) for
compulsory counterclaims.”20
Much of the dispute here centers on the nature of the claims the
Pennsylvania Plaintiffs are asserting in that litigation. In the motion for
reargument, Pontone emphasizes the Pennsylvania Plaintiffs’ focus on Pontone’s
19
Unless otherwise noted, terms such as this, which are defined in the Opinion,
have the same meaning as was ascribed to them in the Opinion.
20
Pl.’s Mot. 12.
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Civil Action # 7615-VCP
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Page 9
personal goodwill.21 Milso counters by showing the strong similarities between
Pontone’s pre-Opinion briefing and his present arguments,22 and Milso continues
to maintain that Pontone’s misappropriation counterclaim is based largely on the
use of Pontone’s image on a cake in September 2011.23 Milso further contends
that references to Pontone’s goodwill in the Pennsylvania Action relate to damages
calculations pertinent to the Pennsylvania Plaintiffs’ lost profits claim.24 The Court
heard similar arguments about the nature of the claims being pursued in the
Pennsylvania Action before it issued the Opinion.25 Personal goodwill can
constitute an element of a lost profits claim tied to the sale of a business without
that goodwill being related to specific instances of misappropriation of the other
party’s image that occurred several years after the sale.
Pontone further argues that the Court adopted too narrow of an interpretation
of the meaning of the term “compulsory counterclaim.” Here, Pontone attempts to
21
Id. at 11-12.
22
Def.’s Answer 8-9.
23
Id. at 9.
24
Id. at 9-10.
25
See Pl.’s Exceptions Br. 31-32; Def.’s Exceptions Br. 32-33; Def.’s
Exceptions Reply 13-14.
Pontone v. Milso Industries Corporation, et al.
Civil Action # 7615-VCP
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Page 10
show that, despite the Pennsylvania Plaintiffs having asserted a trademark
infringement claim only against Scott Pontone, and not his father, Harry Pontone,
the misappropriation counterclaim in the Pennsylvania Action qualifies as
compulsory because it “arises as an offshoot of the same set of facts and
transactions that have been placed in issue by the Pennsylvania Plaintiffs.”26
In the Opinion, the Court responded to the parties’ previously-made
arguments about the Pennsylvania Action and determined that Pontone’s
misappropriation counterclaim is “legally and factually distinct from, and logically
unrelated to, the affirmative claims asserted against Pontone in the Pennsylvania
Action.”27 Pontone previously attempted, with similar arguments,28 to convince
26
Pl.’s Mot. 13.
27
Mem. Op. at *10.
28
Compare Pl.’s Exceptions Br. 31 (“In the Pennsylvania Litigation, Milso
alleges that one of the ways in which Pontone breached his fiduciary duties
was by, inter alia, refusing to agree to sign a new proposed employment
agreement.”), with Pl.’s Mot. 13 (“The Pennsylvania Plaintiffs also claim
that Pontone breached his fiduciary duties by, inter alia, refusing to agree to
sign a new employment agreement, which proposed the grant of rights to use
Pontone’s name and personality at trade events.”); and Pl.’s Exceptions Br.
31 (“The record in the Pennsylvania Litigation also shows that even the
evidence in support of Pontone’s counterclaim comes from the same
customers that Milso placed in issue and even expressly referenced in its
Complaint against Pontone.”), with Pl.’s Mot. 13 (“The Pennsylvania
Plaintiffs pleaded that Pontone’s alleged wrongdoing involved his failure to
Pontone v. Milso Industries Corporation, et al.
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the Court that the misappropriation counterclaim was sufficiently related to the
Pennsylvania Plaintiffs’ claims to qualify for advancement. But, Pontone failed to
identify any outcome-determinative overlooked or misapprehended facts or law
that would lead this Court to revisit its decision. The Court continues to view the
wrong complained of in Pontone’s misappropriation counterclaim as distinct from
and significantly narrower than the Pennsylvania Plaintiffs’ claims regarding
Pontone’s alleged breaches of his fiduciary duties or contractual obligations
relating back, at least in part, to the sale of his family’s business to Milso.
For the second counterclaim, abuse of process, Pontone advances four
separate arguments: (1) Pontone was granted leave to replead the abuse of process
claim in the Pennsylvania Action; (2) the abuse of process claim actually was ripe;
(3) Milso previously conceded that the abuse of process claim was compulsory;
and (4) abuse of process counterclaims have been found compulsory by other
courts. Addressing these arguments in turn, the Court concludes that Pontone’s
motion falls short of the showing required to support the granting of reargument.
use his name, person, and reputation to visit customers and ensure that key
clients maintained their relationship with the Pennsylvania Plaintiffs.”).
Pontone v. Milso Industries Corporation, et al.
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First, Pontone apprised the Court before it issued its Opinion that he had
requested permission to replead the abuse of process counterclaim.29 Since the
Opinion, the Pennsylvania court has granted Pontone leave to replead the abuse of
process counterclaim. As Milso notes,30 however, the Pennsylvania court adhered
to its holding that counterclaims based on the “initiation and continuation” of the
Pennsylvania Action remain unripe.31 Instead, the Pennsylvania court ruled that
any repled counterclaims must be “based on specific factual allegations linked to
an identified kind of process asserted to have been abused” and will be severed
from the main case.32
The Opinion in this case held that a “claim for relief that is not ripe at the
time a defending party serves its responsive pleading does not qualify as a
compulsory counterclaim.”33 The Opinion also found that the principal basis for
29
Pl.’s Exceptions Br. 35 (“Milso also fails to mention that the counterclaim
was dismissed without prejudice for pleading insufficiency. Promptly after
dismissal, Pontone filed a motion for leave to amend this counterclaim. That
motion to amend is still pending.”) (internal citations omitted).
30
Def.’s Answer 11.
31
York Gp., Inc. v. Pontone, 2014 WL 896632, at *45 (W.D. Pa. Mar. 6,
2014).
32
Id.
33
Mem. Op. at *10.
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Pontone’s abuse of process counterclaim was the initiation and continuation of the
Pennsylvania Action.34 Since the Court issued the Opinion, the Pennsylvania court
explicitly has held that the defendants in the Pennsylvania Action, including
Pontone, “will not be granted leave at this time to replead claims of that nature
because the litigation is ongoing.”35 Thus, nothing has changed with regard to the
abuse of process counterclaim Pontone initially tried to plead, which was the
subject of the Opinion for which he seeks reargument.
Second, seizing on the above-quoted language from the Opinion, Pontone
now argues his counterclaim was ripe. In this regard, the Court agrees with Milso
that: “With this argument, Pontone appears to be seeking reargument not only of
this [Court’s] Opinion, but the Pennsylvania court’s prior decisions.”36 This Court
is not in the business of deciding whether a counterclaim based on Pennsylvania
law was ripe at the time it was filed in a Pennsylvania court when a Pennsylvania
judge already has held that it was not.
34
Id.
35
York Gp., Inc., 2014 WL 896632, at *45.
36
Def.’s Answer 12.
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Third, Pontone argues that Milso conceded that Pontone’s counterclaim for
abuse of process was compulsory.37 Pontone previously presented an entire
paragraph on this point.38 A two-sentence recitation of an earlier rejected
argument provides no basis for a motion for reargument. Finally, Pontone asserts
that “this Court overlooked that counterclaims for abuse of process have previously
been found to be compulsory.”39 Citations to a 1987 Ninth Circuit opinion and a
1961 Third Circuit opinion follow. Whether the Third Circuit found an abuse of
process counterclaim to be compulsory in one case it decided over fifty years ago
is immaterial here; the Opinion based its holding on the findings of a particular
Pennsylvania court with regard to a particular counterclaim, which the
Pennsylvania court found to be unripe.
For the foregoing reasons, Pontone’s motion fails to meet the standard for
obtaining reargument.
C. Supplementing the Record
Before concluding, I consider it useful to comment briefly on the issue of
supplementing the record on a motion for reargument. A motion for reargument
37
Pl.’s Mot. 15.
38
Pl.’s Exceptions Br. 35.
39
Pl.’s Mot. 15-16.
Pontone v. Milso Industries Corporation, et al.
Civil Action # 7615-VCP
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Page 15
deals with the record as of the time of the initial determination. Motions for
reargument can involve consideration of new evidence. But, “[t]o succeed on such
a basis, an applicant must show the newly discovered evidence came to his
knowledge since the trial and could not, in the exercise of reasonable diligence,
have been discovered for use at the trial.”40 In this case, Pontone asks the Court to
supplement the record with the Pennsylvania Plaintiffs’ Expert Report on
Damages.41 This report, which was submitted in the Pennsylvania Action after the
close of briefing on Milso’s exceptions to the Special Master’s Second Report—
but before this Court issued the Opinion—generally is not the sort of evidence that
a court will permit a party to add after a motion has been decided. Most
importantly, even if the Court did consider the Expert Report, it would not change
the outcome here. For purposes of Pontone’s motion for reargument, the Expert
Report is irrelevant, because, as noted above, personal goodwill can be a factor in
determining lost profits. The misappropriation counterclaim at issue in this
advancement case is distinct from the Pennsylvania Plaintiffs’ offensive claims.
40
Reserves Dev. LLC, 2007 WL 4644708, at *1.
41
Pl.’s Mot. 11 n.4, Ex. 1.
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Page 16
For that and other reasons previously discussed, the Expert Report does not further
Pontone’s argument that the misappropriation counterclaim is compulsory.
Pontone also notes that the Court has discretion to supplement the record if it
“serves the interest of fairness and justice.”42 This is true, but the Court considers
several factors in determining whether to grant a motion to reopen the record, such
as:
(1) whether the evidence has come to the moving party’s
knowledge since the trial; (2) whether the exercise of
reasonable diligence would have caused the moving party
to discover the evidence for use at trial; (3) whether the
evidence is so material and relevant that it will likely
change the outcome; (4) whether the evidence is material
and not merely cumulative; (5) whether the moving party
has made a timely motion; (6) whether undue prejudice
will inure to the nonmoving party; and (7) considerations
of judicial economy.43
In the circumstances of this case, the Court does not find it to be in the interests of
justice to consider the Expert Report. The report has little, if any, relevance to
Pontone’s misappropriation counterclaim and, to the extent it may be relevant, it is
merely cumulative of arguments already made by Pontone that the
42
Id. at 11 n.4 (quoting Whittington v. Dragon Gp., LLC, 2012 Del. Ch.
LEXIS 163, at *9 (Del. Ch. July 20, 2012)).
43
Whittington, 2012 Del. Ch. LEXIS 163, at *10-11 (internal citations
omitted).
Pontone v. Milso Industries Corporation, et al.
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Page 17
misappropriation counterclaim is compulsory. Additionally, considerations of
judicial economy counsel against allowing parties to supplement the record on a
motion for reargument except in those cases where, as factor three counsels, “the
evidence is so material and relevant that it will likely change the outcome.”
Absent such a situation, reargument under Court of Chancery Rule 59(f) “is only
available to re-examine the existing record.”44
III. Conclusion
To succeed on a motion for reargument, a movant must show that the Court
overlooked or misapprehended some critical fact or controlling law that would
have resulted in a different outcome. Pontone’s motion for reargument failed to
make such a showing. Thus, for the reasons stated in this Letter Opinion, the
motion is denied.
IT IS SO ORDERED.
Sincerely,
/s/ Donald F. Parsons, Jr.
Donald F. Parsons, Jr.
Vice Chancellor
DFP/ptp
44
Reserves Dev. LLC, 2007 WL 4644708, at *1.