Blattman et al v. Siebel et al

Filing 265

MEMORANDUM OPINION re 192 Motion for Sanctions. Signed by Judge Gregory M. Sleet on 7/31/2017. (asw)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
ERIC BLATTMANl individually and as an
assignee of certain former members ofE2.0
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LLC, LAMB FAMILY LLC, and DAVID
STAUDINGER,
Plaintiffs I Counterclaim-Defendants,
V.

THOMAS M. SIEB L, DAVID SCHMAIER,
JOHN DOE 1, and JOHN DOE 2,

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Defendants Counterclaim-Plaintiffs.

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Civ. No. 15-530-GMS
Consolidated with
Civ. No. 16-750-GMS

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C3, INC. d/b/a C3 lrT,
:laintiff I Cjounterclaim-Defendant,

ERIC BLATTMA , individually and as an
assignee of certain former members of E2.0
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LLC, LAMB FAMILY LLC, and DAVID
STAUDINGER,
Defendants Counterclaim-Plaintiffs.

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MEMORANDUM
I.

INTRODU<rTION
Pending beflre the court is a motion for sanctions pursuant to Fed. R. Civ. P. 11 filed by

defendants Thom:as

~iebel and David Schmaier (collectively, the "defendants") against plaintiffs

Eric Blattman, La

b Family LLC, and David Staudinger (collectively, the "plaintiffs").

192). Defendants

(D.1.

gue that there was no objectively reasonable basis for plaintiffs to file their

claims and continue to pursue those claims. (D.1. 193 at 1).

II.

BACKGRQ1ND
This dispute ivolves two consolidated actions - the Blattrnan Action and the C3 Action -

arising from the merger of C3, Inc. ("C3") and Efficiency 2.0 LLC ("E2.0"). Plaintiffs are, or
represent through as1gnment, the former E2.0 unitholders. (D.I. 45 at I). Plaintiffs initiated the
Blattman Action by filing a complaint against defendants alleging securities fraud under Section
lO(b) and Rule lOb-t common law fraud, and breach of an oral contract. (D.I. 28

~~ 140-61).

Defendants Thomas riebel ("Siebel'') and David Schmaier ("Schmaier") are C3 's chairman and
former chief operating officer, respectively. 1 (Id. at~ 5). On April 24, 2015, defendants filed a

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mot10n to d" . t heI Blattman A ct1on, argumg th at an mtegrat10n c1ause m t h e merger agreement
1sm1ss
barred all three claijs and that the statute of frauds barred the breach of contract claim. (D.I. 33;
D .!. 34 at I). The cor granted the motion to dismiss the breach of contract claim, but denied the
motion to dismiss the fraud claims. (D.I. 64).
The C3 Actibn, initiated by C3, asserted claims against plaintiffs (who were technically
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defendants/countercrm-plaintiffs) for securities fraud, common law fraud, breach of contract,
recoupment, and attorneys' fees. 2
asserted fraud

count~rclaims

(D.1. 183 at 2). Relevant to the present motion, plaintiffs

in the C3 Action identical to the fraud claims they asserted against

defendants in the Brttman Action.

(D.I. 120). C3 moved to dismiss the fraud counterclaims,

arguing, among other things, that they were barred by a general release in a release agreement.
(D.I. 126). The cojrt denied the motion to dismiss the fraud counterclaims, because the release
agreement was exfeous to the pleadings and, therefore, could not be considered on a motion to

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C3 was not i;med as a defendant in the Blattman Action.

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To avoid co· sion, the court will continue to refer to Eric Blattman, Lamb Family LLC,
and David Stauding r as the "plaintiffs" and Siebel and Schmaier as the "defendants," even when
referring to argume~ts, claims, and defenses raised in the C3 Action.

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dismiss. (D.I. 183 a 11; D.I. 184). Shortly after the court ruled on C3's motion to dismiss,
defendants in the Bl ttman Action filed a motion for sanctions pursuant to Fed. R. Civ. P. 11,
which raises in part jguments the court has previously rejected. (D.I. 192).

III.

STANDARDOFREVIEW
The decision

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grant a motion for sanctions is within the court's discretion. Brice v. Bauer,

2017 WL 2210920, at *1 (3d Cir. May 19, 2017). "Rule 11 provides that attorneys may be
sanctioned if they ... fail to make a reasonable inquiry into the legal legitimacy of a pleading."

Ario v. Underwriting Members ofSyndicate 53 at Lloyds, 618 F.3d 277, 297 (3d Cir. 2010). The
standard for imposilg sanctions in those cases is "reasonableness under the circumstances."

Brubaker Kitchens, Jnc. v. Brown, 280 Fed. App'x. 174, 184 (3d Cir. 2008). Reasonableness is
"an objective knowlfge or belief at the time of filing a challenged paper that the claim was well
grounded in law and fact." Ford Motor Co. v. Summit Prod., Inc., 930 F.2d 277, 289 (3d Cir.
1991).

IV.

DISCUSSI9N
Defendants J.gue that Rule 11 sanctions are warranted, because there was no objectively

reasonable basis for blaintiffs to file their claims and continue to pursue those claims. (D.I. 193 at
1). To explain why, defendants grouped plaintiffs' fraud allegations into three categories: (i) C3
.was valued at $500

illion; (ii) E2. 0 would continue operations as a stand-alone business; and (iii)

Siebel committed to cause C3 to provide capital funding needed to expand E2.0's operations in
accordance with the E2.0 Business Unit Budget. (Id.). According to defendants, the objective
facts demonstrate th t they made no misrepresentations regarding C3 's value, and even if they had

mispresented C3's

1alue, plaintiffs did not reasonably rely on such misrepresentations. (Id. at 8-

10, 12-15). In addition, plaintiffs are legally barred from making a fraud claim based on C3's

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value due to a no-liab lity clause in a non-disclosure agreement, an integration clause in the merger
agreement, and/or a eneral release in a release agreement. (Id. at 10-11, 15-16). Any remaining
misrepresentations regarding C3's value amount to future predictions or puffery which are not
actionable under Del{ware law. (Id. at 1-2, 16-17). Finally, defendants argue that the fraud claims
based on the continur operation and funding ofE2.0 are legally barred by a contractual disclaimer

in the merger agree1ent and/or a general release in a release agreement.3 (Id.. at 18-20).
Defendants essentially argue that Rule 11 sanctions are appropriate because plaintiffs'
fraud claims fail on

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or factual disputes,"

merits. Rule 11, however, "is not an appropriate vehicle for resolving legal

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"addressing the strength or merits of a claim." StrikeForce Techs., Inc. v.

WhiteSky, Inc., 2013 WL 5574643, at *4 (D.N.J. Oct. 9, 2013). The court finds that it would be
more appropriate to consider defendants' arguments in its motion for sanctions after a ruling on a
motion for summary judgment. See, e.g., Davis v. Wells Fargo US. Bank Nat'! Assoc., 2016 WL
4440342, at *4 (E.DJ Pa. Aug. 23, 2016) (denying a Rule 11 motion because factual disputes are
more appropriately addressed on the merits and many of the same arguments may be raised on
summary judgment); Marlowe Patent Holdings v. Ford Motor Co., 2013 WL 6383122, at *5
(D .N.J. Dec. 5, 20 Bf (stating that "[a] Rule 11 motion for sanctions is not an appropriate substitute

for summary judgmjnt proceedings, and should not be used to raise issues oflegal sufficiency that
more properly can be disposed of by ... a motion for summary judgment."); Thorner v. Sony

Comput. Entm 't Aj_ Inc., 2010 WL 904797, at *2 (D.N.J. Mar. 9, 2010) (denying defendants'
motion for sanctioJ as premature when it "came before any dispositive motion or final judgment

Plaintiffs ditlpute defendants' characterization of their fraud claims, the facts purportedly
showing that their c aims have no merit, and the law purportedly showing that their claims are
legally barred. (D.I. 195-1).
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in favor of ... defen ants").

Accordingly, the court denies defendants' motion for sanctions

without prejudice.

V.

CONCLUSION
For the foreJoing reasons, C3 's motion for sanctions is denied without prejudice for
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renewa1 at the appropnate time.

Dated: July

j_J_, 20

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