Reed Smith Client Alerts

The Delaware Court of Chancery recently granted a motion for summary judgment based on “quintessential laches,” holding that failure to prosecute a prior books and records action expeditiously precludes tolling of limitations periods during its pendency, and that significant delays in prosecuting plenary claims cause obvious prejudice to the defendant.

Case background

The plaintiffs in Edward Deane, et al. v. Robert A. Maginn, Jr. and New Media Investors II-C, LLC, C.A. No. 2017-0346-LWW, (Del. Ch. Mar. 2, 2022) were investors in non-party New Media Investors II-B LLC (New Media II-B). The plaintiffs brought suit against defendant Maginn, New Media II-B’s managing member. New Media II-B was a vehicle formed for the purpose of investing in non-party Jenzabar, Inc., which was founded by Maginn.

The lawsuit arose from a decade-long dispute between the plaintiffs and Maginn, and the procedural history of the litigation spanned many years (having been presided over by three different members of the Court of Chancery ‒ two of whom have since retired).

A books and records action was filed in July 2014. That action lingered for seventeen months before a trial took place in October 2015. A plenary lawsuit was then filed in the Delaware Superior Court in December 2016, nearly a year after the books and records action concluded. The lawsuit was transferred to the Court of Chancery five months later. After a motion for summary judgment in that case was denied, the litigation sat largely idle for over two years. In June 2020, the Court of Chancery requested a status report on why the matter should not be dismissed for failure to prosecute. The Court of Chancery entered a scheduling order in August 2020 and scheduled a September 2021 trial to ensure that the matter moved forward, emphasizing that no further extensions would be given.

In May 2021, after deposing defendant Maginn, the plaintiffs said that they had learned of new information in discovery that required amendments to their pleading. An amended complaint was filed in June 2021 ‒ almost seven years after the first books and records action was brought. The plaintiffs’ original theory was that Maginn breached his fiduciary duties by allowing unexercised warrants to expire. In their amended complaint, the plaintiffs alleged new theories, including that Maginn usurped a New Media II-B investment opportunity and orchestrated a series of transactions that caused certain New Media II-B investments to disappear.

Maginn moved to dismiss the amended complaint, which was converted to a motion for summary judgment, arguing in relevant part that the plaintiffs’ claims were time-barred. The plaintiffs opposed the motion, arguing that the limitation period was tolled during the books and records action and that they could not have known of their claims.