Another Good Reason Not to Oppose a Motion to Amend a Pleading in the Delaware Court of Chancery

By Jay McMillan

For good reason, it is unusual for a party in litigation in the Delaware Court of Chancery to oppose a motion to amend a complaint or other pleading. Under the Court’s Guidelines to Help Lawyers Practicing in the Court of Chancery (available here), parties are urged to agree to the filing of amended pleadings, but may reserve the right to file motions to dismiss the amended pleadings once filed. Following that procedure, the party opposing the amended pleading on a motion to dismiss (typically the defendant) gets to submit two briefs, one opening brief in support of the motion to dismiss and a reply brief in response to the plaintiff’s opposition brief. If the defendant chooses to oppose the amendment at the outset, it gets only one brief, an answering brief in opposition to the plaintiff’s motion to amend. Since two briefs are better than one, the defendant will typically follow the Court’s Guidelines and stipulate to the amendment, then move to dismiss the amended pleading. From the Court’s point of view, this procedure also precludes the defendant from taking two bites at the apple by first opposing the motion to amend, then filing a motion to dismiss if the plaintiff’s motion to amend is granted.

A motion to amend can be denied where amendment would be futile, that is, where the amended pleading would be dismissed under Rule 12(b)(6) for failure to state a claim upon which relief could be granted. Unless the party opposing amendment demonstrates that it will be prejudiced, a motion to amend may be reviewed under the same standard as a motion to dismiss. See Paine Webber v. Centocor, 1997 WL 30216, at *1, *3 (Del. Ch. Jan. 15, 1997) (Steele, V.C.). A defendant that stipulates to a motion to amend may thus assume that the standard for futility of amendment is the same as that for a motion to dismiss under Rule 12(b)(6).

A recent, unusual case provides another reason not to oppose a motion to amend a pleading, because there may in fact be a difference in the standards for futility of amendment and failure to state a claim. In a Final Report issued on September 22, 2017, in Apogee Investments, Inc. v. Summit Equities LLC, Civil Action No. 12897-MZ, Master in Chancery Morgan Zurn recommended that the Court grant a stockholder’s motion to amend a complaint in a books-and-records action. Master Zurn quoted NACCO Industries, Inc. v. Applica, Inc., 2008 WL 2082145, at *1 (Del. Ch. May 7, 2008), for the principle that a motion to amend may be denied under Court of Chancery Rule 15(a) “if the amendment would be futile, in the sense that the legal insufficiency of the amendment is obvious on its face.”

In Delaware, “legal insufficiency” under Rule 12(b)(6) occurs when relief could not be granted under any “reasonably conceivable” set of circumstances. See Central Mortgage v. Morgan Stanley Mortgage Capital Holdings, 27 A.3d 531, 536-37 (Del. 2011). If a motion to amend can only be denied where legal insufficiency is “obvious on its face,” that presents a lower hurdle for a motion to amend. Thus, it is possible for an amendment to clear the hurdle for a motion to amend and not clear the hurdle for a motion to dismiss. While the legal insufficiency of an amendment may not be “obvious on its face,” it may appear upon closer scrutiny on a motion to dismiss.

Given that the Court may be less receptive to a defendant’s motion to dismiss after it has granted a motion to amend over the defendant’s opposition, the defendant would be well advised to stipulate to the amendment and present its opposition to the amended complaint where the plaintiff faces the higher hurdle, on a motion to dismiss. Delaware’s “reasonably conceivable” standard is a low enough hurdle for a pleading party; legal insufficiency being “obvious on its face” is even lower. In Apogee Investments, Master Zurn found that the allegations of the proposed amendment were not “so obviously deficient on their face as to be deemed futile.” She concluded that the defendant’s opposition to the proposed amendment failed to overcome the “compounded liberal standards” for a motion to amend.

In short, it does not pay to oppose a motion to amend a pleading in the Delaware Court of Chancery. The Court may apply an extremely liberal standard to the motion, the opposing party is limited to a single brief in opposition to the motion, and the opposing party may be less likely to prevail on a subsequent motion to dismiss than it would be if it had stipulated to the amendment and reserved the right to move to dismiss.

 

James G. (Jay) McMillan is a partner in the Wilmington, Delaware office of Halloran Farkas + Kittila LLP. He concentrates his practice in complex corporate and commercial matters, with a particular focus on litigation in the Delaware Court of Chancery. For more information on the firm, visit hfk.law.

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