It’s “Show Cause” Time in Delaware

June 18, 2022

In mid-April, District of Delaware Chief Judge Colm F. Connolly posted two new standing orders related to that courtroom’s disclosure requirements: one requiring litigants to disclose details related to any nonrecourse funding arrangements with third parties and a second requiring comprehensive disclosure of corporate control. The first has a time frame associated with its mandates, while the second is open ended; however, Judge Connolly has now handed down at least one “show cause” order taking a plaintiff to task for ignoring the new requirements for litigants assigned to his courtroom.

RPX has previously reported on the revelations that Judge Connolly’s standing orders have had on the operations of prolific monetization firm IP Edge LLC. However, IP Edge—and other litigants—have been less than comprehensive in their responses. On May 13, four days after an oral argument on a motion to dismiss, Judge Connolly directed Nimitz Technologies LLC (patent holding plaintiff) and CNET Media, Inc. (defendant) to “certify within five days that they have complied with Chief Judge Connolly's April 18, 2022 Standing Order Regarding Disclosure Statements”.

The defendant complied, on May 18, disclosing that:

CNET is a wholly-owned Delaware corporation. No public entity owns 10% or more of CNET’s stock. CNET is owned by Red Ventures Hermana UK Ltd, which is owned by Red Ventures Porto International UK Ltd, which is owned by Red Ventures International UK Ltd, which is owned by RV U.S. Pondview Inc, which is owned by New Imagitas, Inc. New Imagitas, Inc is owned by Red Ventures Intermediate, LLC. The sole member of Red Ventures Intermediate, LLC is Ruby Sub, LLC. The sole member of Ruby Sub, LLC is Ruby Intermediate 2, LLC. The members of Ruby Intermediate 2, LLC holding more than 5% of its stock are Ruby Intermediate 1, LLC and GA RV, LLC. The sole member of Ruby Intermediate 1 LLC is Red Ventures Holdco, LP.

Nimitz Technologies, on the other hand, filed nothing. On May 23, Judge Connolly handed down a show cause order providing the plaintiff three days to “show good cause why it should not be held in contempt for failing to comply with the Court’s May 13, 2022 order”. That order caught Nimitz’s attention. Toot suite, Nimitz filed an amended corporate disclosure indicating that Mark Hall is its sole owner and member, with the caveat that it “understands that the Court’s Standing Order Regarding Disclosure Statements Required By Federal Rule of Civil Procedure 7.1 requires parties to identify direct or indirect ownership interest, and does not require disclosure of entities who may have a financial interest in the outcome of the litigation (such as for example counsel contingency arrangements)”. (To explore the implications of such a disclosure, in line with others by IP Edge plaintiffs, see here.)

That same day, Nimitz also filed a statement certifying that it “has not entered into any arrangement with a Third-Party Funder, as defined in the Court’s Standing Order Regarding Third Party Litigation Funding Arrangements”. The plaintiff also responded to Judge Connolly’s show cause order, claiming that it simply and inadvertently missed the five-day deadline to update its disclosures in the earlier oral order as it “acted immediately to collect the information required to comply with the two Standing Orders”. (George Pazuniak of O’Kelly & O’Rourke, LLC submitted these filings on behalf of IP Edge’s Nimitz.)

IP Edge is not the only litigant to respond—voluntarily or under duress—to Judge Connolly’s new standing orders. For example, defendant Glanbia Nutritionals (NA), Inc. has made the following disclosure, detailing its ownership under Judge Connolly’s first standing order above: “Glanbia is wholly owned by Glanbia, Inc., which in turn is wholly owned by Glanbia plc, a public company listed on Euronext Dublin and the London Stock Exchange. Glanbia Co-operative Society Limited (owned by approximately 13,000 farmers) owns approximately 30% of Glanbia plc’s stock. No other shareholder or entity owns more than 5% of Glanbia plc’s stock”. The plaintiff in that case, Vitaworks IP, LLC, has yet to comply with either new standing order. Any event requiring Judge Connolly’s direct attention to that dispute might trigger another order to show cause for such noncompliance.

Many litigants have yet to address Judge Connolly’s standing orders, risking judicial wrath, while still others have complied—albeit initially under seal. Personal Audio, LLC, in a case pending against Alphabet (Google), disclosed on June 10 that it does have third-party litigation funding, from a redacted funder:

However, on June 17, following a status conference with Judge Connolly, Personal Audio filed a longer version of that disclosure, this time with no redactions. The unredacted filing identified its third-party funder as Medigo Associates, a New Jersey LLC “managed, directed and controlled by LexShares” via an investment fund. Per Personal Audio, LexShares is “a technology platform that enables investments in legal claims”. The filing also gives more insight into the plaintiff’s decision to seek funding—stating that Personal Audio did so to cover its litigation expenses “[d]ue to the unusual length of this case” and detailing the broader contours of its funding agreement with “Third-Party Funder” (a term not defined, but in context an apparent reference to Medigo Associates):

On January 23, 2019, Third-Party Funder purchased an interest to receive the greater of 2.5 times the purchase price or 20% of Personal Audio, LLC’s gross recovery in this case. In the event that Personal Audio does not prevail, Third-Party Funder will receive nothing. In exchange, Personal Audio received funds to be deployed for litigation costs and expenses. The funds may be used to “reimburse 100% of the reasonable out-of-pocket expenses actually incurred by the Attorney of Record,” including expert fees, deposition costs and travel expenses. The funds have not been used to pay lead counsel’s nor local counsel’s attorney’s fees.

While the full impact of Judge Connolly’s new standing orders on IP litigation remains to be seen, expect more such cases to draw his ire, prompting a minute order, or show cause order, a la those entered in the Nimitz case, as plaintiffs adjust to this new (and evolving) terrain.