Compagnie des Grands Hotels d'Afrique S.A. v. Starwood Capital Group Global I LLC et al

Filing 112

MEMORANDUM ORDER: Defendant Starman's motion for issuance of a letter of request (D.I. 91 ) is GRANTED. Signed by Judge Richard G. Andrews on 7/26/2019. (nms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

COMP AGNIE DES GRANDS HOTELS
d' AFRIQUE S.A.,
Plaintiff,
C.A. No.: 18-00654 RGA
V.

STARMAN HOTEL HOLDINGS LLC,
Defendant.

MEMORANDUM ORDER
Defendant filed a Motion for Issuance of a Letter of Request to obtain evidence in the
United Kingdom of Great Britain and Northern Ireland. (D.I. 91). Plaintiff opposes this motion.
(D.I. 97).
I.

Factual and Procedural History
On August 6, 2013 , Plaintiff Compagnie des Grands Hotels d' Afrique S.A. ("CGHA'')

commenced an arbitration proceeding (the "Arbitration") through the International Chamber of
Commerce ("ICC") against Woodman Maroc S.a.r.l. ("Woodman") and Travelodge Hotels Ltd.
("Travelodge"). (D.I. 82-1 at 4; D.I. 91 at 2). Woodman is a former subsidiary of Defendant
Starwood Capital Group Global I LLC ("SCG") and Defendant Starman Hotel Holdings LLC
("Starman"). (D.I. 82-1). Travelodge Hotels Ltd. is the Guarantor of the management agreement.
(D.I. 91 at 2). CGHA voluntarily dismissed Travelodge from the Arbitration, proceeding solely
against Woodman. (Id.). The basis of this Arbitration was that, after Woodman was obtained by
1

the Meridian Group ("Meridian") in 2005, Woodman failed to properly invest in CGHA's hotel,
the Royal Mansour Hotel (the "Hotel"). (Id.). By 2005 , Travelodge had obtained the Guarantor
and assumed its place in the relevant agreement. (D.I. 91 at 2). Woodman was contracted with
for the purpose of managing the Hotel. (Id.). Ten months after CGHA commenced the
Arbitration, Starman sold Woodman's parent company and Woodman to a United Kingdom
entity, Maquay Investments Ltd. ("Maquay"). (Id. at 4). Maquay then placed Woodman's parent
into insolvency proceedings. (Id.). Woodman formally withdrew from the Arbitration, citing
insolvency and inability to pay any judgment or award. (Id.). CGHA requested and received an
interim order from the Arbitrators directing Woodman (1) to return possession and operation of
the Hotel to CGHA, (2) to account for payments it had made after ceasing to pay the minimum
fee of the Arbitration award, and (3) to cease making payments to third parties. (Id. at 4-5).
CGHA was awarded approximately $60 million in damages from Woodman in the Arbitration.
(Id. at 5). The Arbitrators also found that Starman had acted in the place of Woodman under the

management agreement, that CGHA was led to believe that it could rely on Starman assuming all
of Woodman' s responsibilities under the agreement, and that Maquay had been formed solely to
receive the shares of Woodman's parent and place it into voluntary liquidation. (Id.). This
judgment was recognized in a court tribunal in Morocco on December 14, 2016. (Id.).
The Arbitration was decided against Woodman and, because of the insolvency
proceedings, Woodman is now unable or unwilling to pay the award. (Id.). CGHA brought the
present action against Starman in order to collect the award from it, rather than Woodman. (D.I.
83 at 3). CGHA initially claimed that Starman could be held liable for Woodman's actions based
either on agency theory or alter ego theory. (Id.). This Court dismissed the agency cause of
action on January 9, 2019, but allowed CGHA to proceed with the alter ego claim. (Id. at 2).

2

Defendant Starman filed a motion for a letter of request seeking information from
Travelodge in the United Kingdom. (D.I. 91 at 4). Plaintiff CGHA opposes the issuance ofthis
letter because the information sought is either irrelevant or could be obtained more easily from
Plaintiff. (D.I. 97 at 2). As this evidence is sought in the United Kingdom, a letter of request
must be issued in accordance with the Hague Convention on the Taking of Evidence Abroad in
Civil or Commercial Matters ("Hague Convention"). (D.I. 91 at 1). Both the United States and
the United Kingdom are signatories to the Hague Convention. (Id.). This order addresses whether
to issue this letter of request.

II.

Legal Standard
a. Standard for the Issuance of Letters of Request
As both the United States and the United Kingdom are signatories of the Hague

Convention, there is a mutual commitment between the nations to provide evidence for use in the
other's legal proceedings. (Id.). Courts "routinely issue such letters where the movant makes a
reasonable showing that the evidence sought may be material or may lead to the discovery of
material evidence." Netherby Ltd. v. Jones Apparel Grp. , Inc., 2005 WL 1214345, at* 1
(S .D.N.Y. May 18, 2005); see Tulip Computers Intern. B. V v. Dell Computer Corp., 254 F.
Supp.2d 469, 4 74 (D. Del. 2003). The "burden is not great" for a party seeking a letter of request
because "the Convention procedures are available whenever they will facilitate the gathering of
evidence by the means authorized in the [Hague] Convention." Tulip Computers Intern. B. V, 254
F. Supp.2d at 474. However, " [w]here the relevancy or materiality of the [discovery] sought is
doubtful, the court should not grant the application for letters of request." Merck Sharp & Dahme

Corp. v. Sandoz, Inc. , 2013 WL 12203112, at *3 (D.N .J. June 7, 2013) (quoting United States v.
Rosen, 240 F.R.D. 204, 215 (E.D. Va. 2007)). Only " [f]acts germane to any claim or defense in

3

the pleadings are properly the subject of discovery." In re Intel Corp. Microprocessor Antitrust

Litig. , 2007 WL 137152, at *7 (D. Del. Jan. 12, 2007).

b. Evidence Sought to Prove Alter Ego Theory
In order to prove alter ego liability, a plaintiff "must show (1) that the corporation and its
shareholders operated as a single economic entity, and (2) that an overall element of injustice or
unfairness is present." Trevino v. Merscorp, Inc., 583 F. Supp.2d 521 , 528 (D. Del. 2008).
Undercapitalization of the subsidiary can prove the first element required of alter ego liability.

Radaszewski ex rel. Radaszewski v. Telecom Corp. , 981 F.2d 305,3 10 (8th Cir. 1992). "If the
subsidiary is financially responsible, whether by means of insurance or otherwise," then it is not
undercapitalized. Id. at 309. The second element requires plaintiffs to prove that defendants ' "use
of the corporate form would, if left unchecked, work as a fraud or something in the nature of a
fraud." Mobil Oil Corp. v. Linear Films, Inc., 718 F. Supp. 260,267 (D. Del. 1989). The
evidence sought with the letters of request must relate to at least one of the two elements of alter
ego liability.

III.

Discussion
The parties disagree as to whether to issue a letter of request to obtain evidence from

Travelodge in the United Kingdom. (D.I. 91 at 4; D.I. 97 at 4). Defendant Starman filed a motion
for a letter ofrequest seeking (1) communications between Travelodge and CGHA and its
owners and representatives, (2) communications relating to the negotiation of the management
agreement to which Travelodge is a party, (3) documents about the arbitration from which
CGHA voluntarily dismissed Travelodge, (4) communications relating to the Hotel, and (5)
communications about claims made by CGHA in Travelodge's insolvency proceedings. (D.I. 91
at 4).

4

Starman argues that this letter of request should be issued because the documents sought
"[were] designed to protect against undercapitalization [and] are plainly relevant to determining
whether CGHA could meet its burden of proof of [the first element of] its alter ego claim." (D.I.
91 at 4). Starman also argues that FED. R. Crv. P. 26(b)(l) dictates that "information within this
scope of discovery need not be admissible in evidence to be discoverable." (D.I. 99 at 2).
Further, Starman argues that information from Travelodge could disprove the necessary elements
of fraud and injustice. (Id. at 3). Starman also argues that CGHA, by making the equitable claim
of alter ego liability, has opened itself up to equitable defenses, such as laches, waiver,
acquiescence, ratification, and unclean hands. (Id.) . Finally, Starman argues that CGHA
conceded that the documents sought are relevant in its response, while also claiming that the
request is overbroad and irrelevant. (Id. at 4).
CGHA opposes the motion for issuance of a letter of request based primarily on the
evidence sought being (1) irrelevant to the alter ego theory, (2) more easily obtained from
CGHA, or (3) a collateral attack on the Arbitration award. (D.I. 97 at 1-2). CGHA argues that the
request for Travelodge' s communications make no sense in the context of an action to enforce
the Arbitration award against Starman on an alter ego theory of liability. (Id. at 5). CGHA says
that the documents are irrelevant to whether Starman and Woodman operated as a single
economic entity or whether Starman perpetrated an injustice or unfairness against CGHA. (Id. at
7). CGHA alleges that Starman' s requests to Travelodge seek to shift the spotlight away from
Starman's actions and towards the financial responsibility, actions, and interactions of
Travelodge, Trusthouse, and Starman. (Id. at 6). CGHA finally alleges that this request, even if
arguably relevant to Starman' s defenses, could be more easily obtained from CGHA. (Id. at 7).

5

There is no need to burden a foreign court or foreign non-party when the same information can
be more easily obtained from a party. Merck Sharp & Dahme Corp., 2013 WL 12203112, at *4.
So long as Starman made "a reasonable showing that the evidence sought may be
material or may lead to the discovery of material evidence," the letter ofrequest should be
issued. Netherby Ltd. , 2005 WL 1214345, at *1; see Tulip Computers Intern. B. V , 254 F.
Supp.2d at 474. It would be reasonable to conclude that documents possessed by Travelodge, the
Guarantor, would contain information relevant to potential undercapitalization of Woodman, as
protection from undercapitalization is a specific feature of Travelodge's involvement in the
management agreement. (D.I. 91 at 4). If the information obtained through this request is not
relevant and material, it need not be admitted into evidence. Although there is a possibility that
the evidence found will be irrelevant or duplicative, there is still a reasonable possibility that it
will refute the alter ego elements of undercapitalization, fraud, or injustice. Therefore, Starman's
motion is GRANTED.

IV.

Conclusion
For the foregoing reasons, Defendant Starman' s motion for issuance of a letter ofrequest

will be GRANTED.
IT IS SO ORDERED this26iay of July 2019.

6