CapStack Nashville 3 LLC v. MACC Venture Partners

COURT OF CHANCERY
OF THE
SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE
VICE CHANCELLOR 34 THE CIRCLE
GEORGETOWN, DELAWARE 19947

Date Submitted: August 15, 2018
Date Decided: August 16, 2018

Thad J. Bracegirdle, Esquire Philip Trainer, Jr., Esquire
Julie M. O’Dell, Esquire Randall J. Teti, Esquire
Wilks, Lukoff & Bracegirdle, LLC Ashby & Geddes
4250 Lancaster Pike, Suite 200 500 Delaware Avenue, 8th Floor
Wilmington, Delaware 19805 Wilmington, Delaware 19899

Re: CapStack Nashville 3 LLC et al. v. MACC Venture Partners et al.,
Civil Action No. 2018-0552-SG

Dear Counsel:

The road to a temporary restraining order (“TRO”) is well-worn; it typically

requires only that a movant show a non-frivolous claim of wrongdoing, and resulting

threatened imminent irreparable harm, to trigger equity’s solicitude. If a weighing

of the equites then demonstrates that injunctive relief to maintain the status quo

pending a final hearing is appropriate, Chancery will, typically, enter a TRO,

limiting the freedom of action of the responding party.

Preventing harm is a public good, but it is not the only public good. In certain

cases, other values trump maintenance of the status quo. In the Anglo-American

judicial system, freedom of speech is a jealously guarded right. Historically, equity
denied itself jurisdiction over restraints on speech,1 leaving determinations of the

actionability of potentially slanderous speech to a jury of the speaker’s peers at an

action at law. Both the Delaware and Federal Constitutions have enshrined the right

to speak, casting further doubt on the ability of Chancery to place prior restraints on

speech, particularly before a determination of whether the speech is entitled to

constitutional protection following a hearing on the merits.2

This TRO request illustrates this tension. Essentially, the movants contend

that the respondents, the movants’ business partners, have made false statements

about the movants’ conduct of the business, and threaten to make further such

statements to investors and regulatory authorities, in an attempt to extort a business

advantage. The respondents assert that the statements, and pending statements, are

true. The movants’ claims are colorable. For a number of reasons, however, I must

decline to employ equity in prior restraint of the respondents’ speech. I explain

below.

1
The interested reader is referred to Vice Chancellor Laster’s scholarly and thoughtful
examination of the development of the law in this area, in Organovo Holdings, Inc. v. Dimitrov,
162 A.3d 102 (Del. Ch. 2017).
2
See, e.g., Hill v. Petrotech Res. Corp., 325 S.W.3d 302, 309 (Ky. 2010) (adopting “the modern
rule that defamatory speech may be enjoined only after the trial court’s final determination by a
preponderance of the evidence that the speech at issue is, in fact, false, and only then upon the
condition that the injunction be narrowly tailored to limit the prohibited speech to that which has
been judicially determined to be false”).
2
 I. BACKGROUND

The following facts are those alleged in the Complaint and in the Motion for

a Temporary Restraining Order. This case stems from a joint venture to invest in

and manage three apartment complexes in Nashville, Tennessee.3 The joint venture

has a rather baroque organizational structure. Nominal Defendant CSP Nashville 3

LLC (“CSP”), a Delaware limited liability company, is the entity that owns the

properties.4 Nominal Defendant CapStack MACC LLC (“CSM”), another Delaware

limited liability company, serves as CSP’s managing member. 5 CSM, for its part,

has two 50% members: Plaintiff CapStack Nashville 3 LLC (“CapStack”) and

Defendant MACC Venture Partners LLC (“MACC”).6 Like CSP and CSM,

CapStack and MACC are Delaware limited liability companies.7 CSM has two

managers: Plaintiff David Blatt (appointed by CapStack) and Defendant S. Anthony

Azar (appointed by MACC).8 The properties themselves are managed by Defendant

Capstone Multifamily Group, LLC, a North Carolina limited liability company

affiliated with Azar and MACC.9

3
Compl. ¶ 1.
4
Id. ¶ 5.
5
Id. ¶ 6.
6
Id. ¶ 7.
7
Id.
8
Id. ¶¶ 8–10.
9
Id. ¶ 11.
3
 The Plaintiffs purchased the apartment complexes in August 2017.10 Several

months before the investment, the Plaintiffs had been introduced to the Defendants.11

At that time, Azar told the Plaintiffs that he and the other Defendants had experience

in managing apartment complexes, hiring appropriate staff, and negotiating with

contractors.12 Based on these representations, the Plaintiffs decided in the fall of

2017 to offer the Defendants the opportunity to participate in a joint venture to

manage the properties.13 The parties then executed an operating agreement and put

in place the ownership structure described above.14

According to the Plaintiffs, it soon emerged that the Defendants’

representations about their experience and capabilities were false.15 Although the

Defendants claimed to have expertise in property management, they “severely

overestimated the [p]roperties’ capital expenditures budget.”16 Worse, the

Defendants allegedly breached several provisions of the operating agreement.17 For

example, the Defendants violated the operating agreement’s unanimity requirement

by making important decisions for CSM and CSP without obtaining the Plaintiffs’

10
Id. ¶ 13.
11
Id.
12
Id.
13
Id. ¶ 14.
14
Id.
15
Id. ¶ 15.
16
Id.
17
Id. ¶¶ 17–19.
4
consent.18 The Defendants also breached the operating agreement by refusing to

keep the Plaintiffs reasonably informed about developments at CSM and CSP.19

The Plaintiffs complained to the Defendants about this alleged misconduct.

According to the Plaintiffs, the Defendants struck back, via a letter they sent on July

2, 2018, to counsel for Blatt and NH Cohen Capital LLC, the placement agent for

the CSP investment.20 The letter accused Blatt of misconduct, including making

several misrepresentations about his experience and qualifications in the CSP private

placement memorandum (“PPM”).21 For instance, according to the letter, the PPM

falsely claimed that Blatt “was involved in turning around a list of multifamily

developments, none of which appear to have been associated with Blatt, and several

of which were actually demolished.”22 The letter also asserted that the PPM

misrepresented the fees Blatt received from the investment.23 Further, the letter

quoted one of Blatt’s former associates, who accused Blatt of “circulat[ing] an

unofficial version of the PPM with markedly different terms, in an effort to defraud

investors and others.”24 The letter ended with a demand that Blatt and CapStack

withdraw as a manager and member of CSM.25

18
Id. ¶¶ 17–18.
19
Id. ¶ 19.
20
Id. ¶ 20.
21
Compl. Ex. F.
22
Id. at 1.
23
Id.
24
Id. at 2.
25
Id. at 3.
5
 The Plaintiffs rejected the demand.26 Approximately two weeks later, the

Defendants sent a second letter to counsel for Blatt and NH Cohen.27 The

Defendants reiterated their demand that the Plaintiffs withdraw from the joint

venture.28 The Defendants also stated that they intended to “notify investors of the

facts and circumstances relating to the CSP . . . private placement memorandum and

closing.”29 The Defendants then said, “We believe that investors, and the [Securities

and Exchange Commission (“SEC”)], would be most comfortable with the situation

if David Blatt returned the funds taken at closing and he were no longer involved in

the management of the investment.”30 The letter was sent on July 18, and it

requested that Blatt take these steps by July 27.31

The Plaintiffs interpret the July 18 letter as threatening to disclose the

allegations about Blatt to investors and the SEC unless the Plaintiffs withdrew from

the joint venture.32 According to the Plaintiffs, the statements about Blatt in the July

letters are false.33 In any event, as a result of the letters, Blatt resigned as a registered

broker with NH Cohen on July 19.34

26
Compl. ¶ 21.
27
Id.
28
Compl. Ex. G.
29
Id. at 1.
30
Id.
31
Id.
32
Compl. ¶ 21.
33
Id. ¶¶ 20, 22, 64–68.
34
Id. ¶ 22.
6
 Instead of acceding to the Defendants’ demands, the Plaintiffs commenced

this action on July 27. Their Complaint asserts nine claims, including fraud, breach

of contract, breach of fiduciary duty, tortious interference with contract, and

defamation and/or trade libel.35 The same day the Complaint was filed, the Plaintiffs

moved for a TRO under Court of Chancery Rule 65(b). The Plaintiffs seek an order

“temporarily enjoining Defendants and their respective partners, officers, agents,

servants, employees, and those persons in active concert or participation with them,

from making defamatory and libelous statements about Plaintiffs to the SEC,

investors in CSP . . . , or any other third parties.”36 The Defendants oppose the

request; I heard argument on the TRO on August 15.

II. ANALYSIS

A TRO “may be issued when the movant demonstrates that: ‘[1] it has a

colorable claim, [2] faces a likelihood of imminent, irreparable harm if relief is not

granted, and [3] will suffer greater hardships if the TRO is not granted than the

defendants would if the relief were granted.’”37 “Of the three factors, irreparable

harm is the most important; it is the sine qua non for this form of relief.”38 “The

35
Id. ¶¶ 27–74.
36
Pls.’ Mot. for Temporary Restraining Order 9; see also id. at 5 (“By this motion, Plaintiffs seek
an immediate injunction against Defendants’ publication and dissemination of baseless,
defamatory and libelous misstatements so that Plaintiffs’ business reputation will not be
improperly harmed during the pendency of this action.”).
37
CBS Corp. v. Nat’l Amusements, Inc., 2018 WL 2263385, at *3 (Del. Ch. May 17, 2018) (quoting
Arkema Inc. v. Dow Chem. Co., 2010 WL 2334386, at *1 (Del. Ch. May 25, 2010)).
38
IMO Daniel Kloiber Dynasty Trust, 98 A.3d 924, 937 (Del. Ch. 2014).
7
purpose of a temporary restraining order is to preserve the status quo to enable the

plaintiff to adequately . . . prepare his case and demonstrate his entitlement to

ultimate relief.”39

Here, the Plaintiffs seek a TRO enjoining the Defendants’ speech.

Specifically, the Plaintiffs ask this Court to temporarily enjoin the Defendants from

making allegedly defamatory statements about the Plaintiffs to the SEC, investors in

CSP, or any other third parties. In other words, the Plaintiffs seek a prior restraint.40

That request must be denied for several reasons.

First, the Plaintiffs have failed to establish that irreparable harm will likely

result absent a TRO. The filings in this case are a matter of public record; none of

the parties’ papers have been filed under seal. Indeed, the Plaintiffs themselves

attached to the Complaint the letters that contain the purportedly defamatory

material.41 As a result, the allegedly false information the Defendants intend to

convey to the SEC and other investors is already accessible to the public. It is

unlikely, then, that further dissemination of this publicly available information

would work irreparable harm on the Plaintiffs. Moreover, the Defendants

39
Dieleuterio v. Pennell, 1985 WL 4567, at *2 (Del. Ch. Dec. 13, 1985).
40
See, e.g., Alexander v. United States, 509 U.S. 544, 550 (1993) (“Temporary restraining orders
and permanent injunctions—i.e., court orders that actually forbid speech activities—are classic
examples of prior restraints.”); Auburn Police Union v. Carpenter, 8 F.3d 886, 902 (1st Cir. 1993)
(“Although the classic form of prior restraint involves an administrative licensing scheme, a
judicial injunction that prohibits speech prior to a determination that the speech is unprotected also
constitutes a prior restraint.” (citation omitted)).
41
Compl. Exs. F, G.
8
represented at oral argument that NH Cohen, which received the July letters, has

already disclosed the supposedly defamatory allegations to the Financial Industry

Regulatory Authority. The Defendants also represented that, as a result of this

disclosure, the SEC already has or will initiate an investigation into the allegations.

These developments cast further doubt on the efficacy of Plaintiffs’ attempt to

demonstrate that future speech threatens irreparable harm.

Second, the Plaintiffs’ request runs afoul of the “traditional maxim that equity

will not enjoin a libel.”42 This rule traces back to equity’s traditional refusal “to

exercise jurisdiction over a claim for defamation based on a prayer for injunctive

relief.”43 The rule now rests on additional considerations, primarily “the importance

afforded to the constitutional protections of speech.”44 Regardless of the rationale

supporting the rule, “[t]he upshot is the same: a court of equity generally cannot

issue an injunction in a defamation case.”45

The principle that equity will not enjoin a libel has special force in the context

of pretrial requests for injunctive relief. Some American jurisdictions “have

endorsed permanently enjoining a defendant from repeating speech found

defamatory in an adversarial proceeding.”46 Under this exception to the traditional

42
Organovo, 162 A.3d at 115 (internal quotation marks omitted).
43
Id.
44
Id.
45
Id. at 119.
46
Id. at 124.
9
rule, “once a judge or jury has made a final determination that the speech at issue is

defamatory, the speech determined to be false may be enjoined.”47 I need not decide

whether this Court may enjoin speech that has been adjudged defamatory after a full

trial on the merits.48 Assuming such an injunction would be within the jurisdiction

and power of equity, that is not the situation before me. Instead, the Plaintiffs ask

me to temporarily enjoin future speech based solely on a finding that the Complaint

pleads a colorable claim for defamation or trade libel. Colorability, in the TRO

context, requires only that the claim not be frivolous; if a plaintiff pleads a non-

frivolous claim of wrongful conduct and shows a threat of resulting imminent

irreparable harm, a TRO may issue.49 A finding that the plaintiff’s claim is likely to

prevail is not required. In my view, to enjoin speech upon such a showing would

amount to an unconstitutional prior restraint.

When an injunction against speech is entered before a full trial on the merits,

“it is almost always treated as an unconstitutional prior restraint.”50 The reason is

47
Hill, 325 S.W.3d at 308.
48
It appears that “no Delaware case has considered whether a court may enjoin future defamatory
speech following an adjudication of falsity.” Organovo Holdings, Inc., 162 A.3d at 124 n.105.
49
CBS Corp., 2018 WL 2263385, at *3.
50
Mark A. Lemley & Eugene Volokh, Freedom of Speech and Injunctions in Intellectual Property
Cases, 48 Duke L.J. 147, 171 (1998); see also Balboa Island Vill. Inn, Inc. v. Lemen, 156 P.3d
339, 344–45 (Cal. 2007) (“[P]reventing a person from speaking or publishing something that,
allegedly, would constitute a libel if spoken or published is far different from issuing a posttrial
injunction after a statement that already has been uttered has been found to constitute defamation.
Prohibiting a person from making a statement or publishing a writing before that statement is
spoken or the writing is published is far different from prohibiting a defendant from repeating a
statement or republishing a writing that has been determined at trial to be defamatory and, thus,
unlawful. This distinction is hardly novel.”).
10
straightforward: while such an injunction is in force, it “restrain[s] even speech that

may ultimately prove to be protected.”51 Likewise, “since preliminary injunctions

are often easier to get than final determinations on the merits and are granted based

on less evidence and less deliberation, the danger that the court will get it wrong and

mistakenly restrict protected speech is even greater.”52 Thus, “[i]n all but the most

exceptional circumstances, an injunction restricting speech pending final resolution

of constitutional concerns is impermissible.”53 This rationale applies with equal

force to First Amendment protections as well as the protections of speech and press

found in the Delaware Constitution.54 Indeed, the Delaware Constitution appears to

explicitly prohibit prior restraints, providing that “any citizen may print on any

subject, being responsible for the abuse of that liberty.”55

51
Freedom of Speech and Injunctions in Intellectual Property Cases, supra, at 176.
52
Id.
53
Bollea v. Gawker Media, LLC, 2012 WL 5509624, at *1 (M.D. Fla. Nov. 12, 2012); see also,
e.g., Alsworth v. Seybert, 323 P.3d 47, 56 (Alaska 2014) (“Preliminary injunctions are almost
always held to be unconstitutional burdens on speech because they involve restraints on speech
before the speech has been fully adjudged to not be constitutionally protected.”).
54
Under the Delaware Constitution, “[t]he press shall be free to every citizen who undertakes to
examine the official conduct of men acting in a public capacity; and any citizen may print on any
subject, being responsible for the abuse of that liberty.” Del. Const. art. I, § 5. The Delaware
Supreme Court has held that “this provision has the same scope as the federal first amendment.”
Gannett Co., Inc. v. State, 571 A.2d 735, 740 n.9 (Del. 1989).
55
Del. Const. art. I, § 5; cf. Gulf States Theatres of Louisiana, Inc. v. Richardson, 287 So. 2d 480,
491 (La. 1973) (“Louisiana Constitution, Article I, Section 3 reads: ‘No law shall ever be passed
to curtail or restrain the liberty of speech or of the press; Any person may speak, write and publish
his sentiments on all subjects, being responsible for the abuse of that liberty.’ This is a clear and
concise statement of our constitutional view that there can be no prior restraint of speech or other
expression. One may speak, but when he exercises this privilege, he is accountable if there is an
actual abuse of the privilege under one of the few exceptions to total freedom of expression.”);
William Goldman Theatres, Inc. v. Dana, 173 A.2d 59, 61 (Pa. 1961) (“Apart from the Fourteenth
Amendment, the guarantee of free communication of thought and opinion is independently
11
 Here, it is unclear whether the speech the Defendants propose to engage in is

constitutionally unprotected defamation. At oral argument, the Defendants

vigorously disputed the Plaintiffs’ contention that their threat, or promise, to speak

was intended as coercive or retaliatory, or their words false. The record in this case

is sparse, and neither side has taken any discovery. Again, the standard for

evaluating the Plaintiffs’ claims at this stage—colorability—is exceedingly easy to

satisfy; it requires only that a plaintiff state “a non-frivolous cause of action.”56

Thus, it may turn out that, contrary to the allegations in the Complaint, the

accusations against Blatt are true, and that the Defendants did not use those

accusations to extort concessions from the Plaintiffs.57 In that case, a TRO enjoining

the Defendants from repeating the allegations about Blatt to other parties would have

the effect of forbidding the Defendants from engaging in constitutionally protected

protected by our State Constitution of 1874. Article I, Section 7, P.S., thereof recognizes and
declares that ‘The free communication of thoughts and opinions is one of the invaluable rights of
man, and every citizen may freely speak, write and print on any subject, being responsible for the
abuse of that liberty.’ This provision is a direct inhibition on previous restraint of an exercise of
the protected rights . . . .” (emphasis omitted)).
56
Newell Rubbermaid Inc. v. Storm, 2014 WL 1266827, at *9 (Del. Ch. Mar. 27, 2014) (internal
quotation marks omitted).
57
Cf. Freedom of Speech and Injunctions in Intellectual Property Cases, supra, at 201 (“When
even a low probability of success on the merits can yield a preliminary injunction, we should
expect that in many cases even speech that would ultimately be found protected will be
preliminarily enjoined. If a court concludes, for instance, that a plaintiff should get a preliminary
injunction even though he has only a 33% chance of success on the merits (perhaps because the
balance of hardships favors him), this in effect represents a judgment that it is better that two
constitutionally protected works be temporarily enjoined than one copyright infringement remain
unenjoined. Perhaps this is a sound judgment as a matter of pure copyright law (though even there
one might question the wisdom of the tradeoff), but it is particularly troubling from a First
Amendment perspective.” (footnote omitted)).
12
speech. The rule against speech restraints prior to a merits determination is designed

to address precisely this situation.58 Accordingly, even if the Plaintiffs could state a

colorable claim for defamation and demonstrate a likelihood of imminent,

irreparable harm, they would not be entitled to the TRO they seek.

The Plaintiffs try to avoid this conclusion by characterizing their defamation

claim as one for “trade libel,” and then suggesting that the Complaint also states a

claim for tortious interference with business relations. According to the Plaintiffs, a

TRO is appropriate in such a circumstance under J.C. Pitman & Sons v. Pitman, a

case decided by this Court over seventy years ago.59 There, Chancellor Harrington

held that “a continued course of wrongful action may, ordinarily, be stopped by

injunction, although it includes a trade libel.”60 Under Pitman and similar cases from

other jurisdictions, an injunction may be granted where “the trade libel furthered

another tort that independently warranted equitable relief.”61 I note that Pitman does

not deal specifically with interim as opposed to final injunctive relief—the case was

before the Chancellor on a general demurrer, the equivalent of a motion to dismiss

the complaint.62

58
See Latino Officers Ass’n, New York, Inc. v. City of New York, 196 F.3d 458, 465 (2d Cir. 1999)
(“The danger of a prior restraint, as opposed to ex post disciplinary action, is precisely that making
predictions ex ante as to what restrictions on speech will ultimately be found permissible is
hazardous and may chill protected speech.”).
59
47 A.2d 721 (Del. Ch. 1946).
60
Id. at 726.
61
Organovo Holdings, Inc., 162 A.3d at 120.
62
Pitman, 47 A.2d at 200.
13
 In my view, Pitman does not support the Plaintiffs’ request for injunctive

relief. Pitman does not define the tort of trade libel, but this Court has since had

occasion to describe the doctrine’s historical evolution. The concept of trade libel

“initially covered statements ‘disparaging the quality . . . of property,’ then expanded

‘to encompass any injury to economic advantage arising from false derogatory

statements.’”63 The Second Restatement embodies this expanded view of trade libel,

classifying it as a subset of the tort of “injurious falsehood.”64 The Restatement

defines injurious falsehood as follows:

One who publishes a false statement harmful to the interests of another
is subject to liability for pecuniary loss resulting to the other if

(a) he intends for publication of the statement to result in harm
to interests of the other having a pecuniary value, or either
recognizes or should recognize that it is likely to do so, and

(b) he knows that the statement is false or acts in reckless
disregard of its truth or falsity.65

“The purpose of an injurious falsehood claim . . . is to protect economic interests of

the injured party against pecuniary loss as opposed to [t]he purpose of a defamation

claim[,] which is to protect reputation.”66

63
Organovo Holdings, Inc., 162 A.3d at 120 (quoting Michael A. Albert & Robert L. Bocchino,
Jr., Trade Libel: Theory and Practice Under the Common Law, the Lanham Act, and the First
Amendment, 89 Trademark Rep. 826, 827 (1999)).
64
See Incyte Corp. v. Flexus Biosciences, Inc., 2017 WL 7803923, at *7 (Del. Super. Nov. 1, 2017)
(“The Restatement explains that trade libel is a type of injurious falsehood, a tort that is recognized
by Delaware courts.”).
65
Restatement (Second) of Torts § 623A (Am. Law Inst. 1971).
66
DeNoble v. DuPont Merck Pharm. Co., 1997 WL 35410094, at *5 (Del. Super. Apr. 11, 1997).
14
 In other words, as traditionally understood, trade libel addressed false

statements about a competitor’s products—statements of a kind that could damage

or destroy a competitor in ways not readily remediable by ex post facto damages.67

Some jurisdictions, concerned that free speech could be used as a bludgeon to

destroy competition without effective redress at law, were receptive to the idea that

such malicious business falsehoods were subject to injunctive restraint, particularly

when the statements invoked another tort doctrine as well.68 Here, the Plaintiffs’

trade-libel claim is not of the traditional variety; it does not involve disparagement

of goods. Instead, the Plaintiffs allege that the Defendants have falsely accused Blatt

of lying in an offering memorandum, thereby harming the Plaintiffs’ pecuniary

interests. In my view, these allegations are insufficient to overcome the longstanding

rule forbidding pretrial injunctions against speech. Indeed, that rule would lose

much of its vitality if the Plaintiffs’ argument were accepted.

Assuming that she is gainfully employed, it should not be difficult for the

typical defamation plaintiff to allege that purportedly false speech injured her

pecuniary interests. Presumably, a false accusation that such a plaintiff is a liar

would hurt her earning capacity. And even if that could not be proved at trial, a

court considering a TRO would likely be forced to accept as true a plaintiff’s

67
Organovo Holdings, Inc., 162 A.3d at 120.
68
Id.
15
allegation that defamatory statements about her integrity harmed her ability to

pursue economic activity. Thus, by characterizing a defamation claim as one for

trade libel (and including in her complaint a separate tort, perhaps for intentional

infliction of emotional distress), a plaintiff could circumvent the well-established

prohibition on prior restraints. The exception would come nigh to swallowing the

rule. Such an outcome could chill protected speech.69

Accordingly, assuming Delaware law, following Pitman, permitted issuance

of a TRO to prevent a traditional trade libel accompanied by an independent tort

supporting equitable relief—as the Plaintiffs urge me to find—such is not the

situation here. Rather, the Plaintiffs in this case seek to exploit the expanded scope

of trade libel to overcome the rule against pretrial speech restraints. Because the

Plaintiffs’ request for a TRO risks restraining speech before this Court determines

whether it is constitutionally protected, the application must be denied.70

69
See Pittsburgh Press Co. v. Pittsburgh Comm’n on Human Relations, 413 U.S. 376, 390 (1973)
(“The special vice of a prior restraint is that communication will be suppressed, either directly or
by inducing excessive caution in the speaker, before an adequate determination that it is
unprotected by the First Amendment.”).
70
Moreover, it is not clear whether the Plaintiffs have stated even a colorable claim for tortious
inference with business relations. To state a claim for tortious interference, the plaintiff must
allege, among other things, “the reasonable probability of a business opportunity.”
DeBonaventura v. Nationwide Mut. Ins. Co., 419 A.2d 942, 947 (Del. Ch. 1980). “[T]o plead a
reasonable probability of a business opportunity, [a plaintiff] must identify a specific party who
was prepared to entered into a business relationship but was dissuaded from doing so by the
defendant and cannot rely on generalized allegations of harm.” Agilent Techs., Inc. v. Kirkland,
2009 WL 119865, at *7 (Del. Ch. Jan. 20, 2009) (internal quotations marks omitted). The
Complaint fails to identify any specific party that planned on doing business with the Plaintiffs but
was discouraged from doing so by the Defendants. Thus, even accepting the Plaintiffs’ argument
16
 Finally, I note an additional consideration. At oral argument, it appeared that

a primary concern of the Plaintiffs is to prevent the Defendants from making the

purportedly defamatory allegations to the SEC. Although I need not decide the

question here, I assume that the Defendants are at least conditionally privileged to

reveal these allegations to the SEC. Like other administrative agencies, the SEC

performs quasi-judicial functions.71 The Complaint suggests that the Defendants

seek to have the SEC investigate the allegations about Blatt, and perhaps initiate

proceedings against him. Under the Second Restatement, “[a] witness is absolutely

privileged to publish defamatory matter concerning another in communications

preliminary to a proposed judicial proceeding or as a part of a judicial proceeding in

which he is testifying, if it has some relation to the proceeding.”72 By contrast, many

jurisdictions, perhaps including this one,73 have held that such communications

receive only a qualified privilege.74 In any event, the possibility that the statements

that injurious falsehood plus a separate tort can support a TRO against future speech, the Plaintiffs
have arguably failed to allege facts supporting such a separate tort.
71
See, e.g., Lucia v. SEC, 138 S. Ct. 2044, 2049 (2018) (“The SEC has statutory authority to
enforce the nation’s securities laws. One way it can do so is by instituting an administrative
proceeding against an alleged wrongdoer. By law, the Commission may itself preside over such a
proceeding. But the Commission also may, and typically does, delegate that task to an ALJ. . . .
[A]n SEC ALJ exercises authority ‘comparable to’ that of a federal district judge conducting a
bench trial.”).
72
Restatement (Second) of Torts § 588 (Am. Law Inst. 1971).
73
See Matthews v. Mancuso, 2017 WL 4164419, at *3 (Del. Super. Sept. 19, 2017) (holding that
allegedly defamatory statements to the New Castle County Housing Authority were qualifiedly
privileged).
74
See David Elder, Defamation: A Lawyer’s Guide § 2:10 (2018) (“A large number of cases
involve persons making formal or informal complaints to prosecutors or law enforcement officers.
17
the Defendants wish to make to the SEC are privileged75 weighs against entry of the

TRO.

For the reasons above, the Plaintiffs’ request that I enter a temporary

restraining order is DENIED. To the extent the foregoing requires an Order to take

effect, IT IS SO ORDERED.

Sincerely,

/s/ Sam Glasscock III

Sam Glasscock III

Although considerable disagreement exists, the overwhelming majority view provides only a
qualified privilege.” (footnotes and internal quotation marks omitted)).
75
The Plaintiffs contended at oral argument that such a privilege may only run to the victim of the
alleged wrongdoing, a proposition that, to my mind, is not supported by public policy, logic, or
law.

18