Brookstone Partners Acquisition XVI, LLC v. Tanus, C.A. No. 7533-VCN (Del. Ch. Aug. 22, 2012) (Noble, V.C.)
In this letter opinion, the Delaware Court of Chancery denied plaintiff Brookstone Partners Acquisition XVI, LLC’s (“Brookstone”) motion to expedite, finding that Brookstone unreasonably delayed in seeking expedition of its claims brought against Abraham Tanus. Brookstone is a member of Woodcrafters Home Products Holdings, LLC (the “Company”), a Delaware limited liability company governed by a board of managers. Tanus is alleged to have been a manager of the Company at all relevant times. Tanus is also the Chief Executive Officer of Woodcrafters Home Products, LLC (“WHP”), which is fully-owned by the Company.
On May 1, 2012, Tanus initiated suit against Brookstone and other parties in the District Court of the 139th Judicial District of Hidalgo County, Texas (the “Texas Action”). Tanus seeks a declaratory judgment in the Texas Action that he did not breach his employment agreement or Woodcrafters’ Amended and Restated Limited Liability Company Agreement (the “LLC Agreement”) in connection with the acquisition of Design Imaging, LLC (“Design Imaging”), by an affiliate of Tanus, TruStone Products LLC (“TruStone”). Design Imaging is one of the Company’s most important suppliers and their business relationship is governed by a licensing agreement (the “Licensing Agreement”) set to expire by its own terms on October 15, 2012.
On May 15, 2012, Brookstone brought suit in the Delaware Court of Chancery, alleging that Tanus’ involvement in the Design Imaging transaction was a breach of his employment agreement, the LLC Agreement, and his fiduciary duties (the “Delaware Action”). The Delaware Action is founded on Brookstone’s allegation that Tanus is causing Design Imaging to refuse to extend the Licensing Agreement in order to devalue the Company. Brookstone has an option to sell the Company to a third party after February 2013, but such option is subject to a right of first refusal held by companies allegedly controlled by Tanus. Accordingly, Brookstone contends that Tanus’ efforts to devalue the Company will similarly devalue Brookstone’s option to sell the Company while permitting entities controlled by Tanus to exercise their right of first refusal at an artificially deflated price. Brookstone did not seek expedition at the time of filing its complaint in the Delaware Action.
On July 25, 2012, Brookstone and Tanus, along with the other parties to the Texas Action, participated in a teleconference with the Texas Court for the purpose of scheduling a trial date. The Texas Court originally offered a trial date in February 2013. However, after one of Brookstone’s attorneys requested that the trial be pushed back to June 2013, the parties ultimately agreed on an April 2013 trial date. On August 3, 2012, Brookstone moved to expedite the Delaware Action.
Notably, in considering Brookstone’s motion to expedite, the Chancery Court found that Brookstone was substantially aware that it was dealing with a finite amount of time at the initiation of the Delaware Action given that the Licensing Agreement is set to expire on its own terms on October 15, 2012. For this reason the Chancery Court found Brookstone’s delay prejudicial.
In denying Brookstone’s motion to expedite the Chancery Court acknowledged the result may have been different if Brookstone had moved for expedition at the initiation of the Delaware Action of shortly thereafter. Indeed, the Chancery Court reiterated that parties seeking expedition should do so with all alacrity.