In a 14 page decision released May 12, 2015, Judge Sontchi of the Delaware Bankruptcy Court illustrated why even perfect motions to dismiss may not be worth filing. Judge Sontchi’s opinion is available here (the “Opinion”). The Opinion was issued in the adversary proceeding Alamo Group, LLC and Kirin Alamo, LLC v. A&G Realty Partners, LLC, et al., Case No. 14-50103. In this adversary proceeding the plaintiffs alleged fraudulent misrepresentation, but failed to allege materiality, a necessary element of a Delaware common law fraud claim. Opinion at *2. Because the plaintiffs failed to plead materiality, Judge Sontchi held that “there [was] no need to detail the remaining elements of a Delaware common law fraud claim. Plaintiffs’ Complaint fails on these grounds.” Opinion at *14. Yet, even with what amounted to a perfect motion to dismiss, Judge Sontchi concluded his Opinion with a statement that “Plaintiffs will be given an opportunity to amend the Complaint within 30 days…” Opinion at *14.
Background and Ruling
This adversary proceeding was filed on March 26, 2014. On May 19, 2014 the motion to dismiss was filed. Nearly one year later, the Opinion was released. While the motion to dismiss was not the most heavily litigated motion I have seen, there are currently only 44 docket entries in the adversary proceeding including the Opinion, I don’t doubt that it was still relatively expensive to have heard. Additionally, it delayed reaching a final resolution in this case by approximately one year. Because the Plaintiffs has 30 days to amend their complaint to correct this deficiency, it will have taken more than one year to litigate and resolve this single motion, and the parties are in almost the exact same position they were in prior to the filing of the motion to dismiss. If that was part of the Defendants’ strategy, then it was a job well done.
As we have seen numerous times, opinions issued pursuant to a motion to dismiss, in this Bankruptcy Court, almost always contain a provision allowing the plaintiff an opportunity to amend their complaint. By way of example, please review these posts:
Tri-Valley Corp. Bankruptcy – Preference Complaint Dismissed – Leave to Amend Granted
Decision in Ultimate Acquisition Grants Motion to Dismiss, But Also Grants Leave to Amend the Preference Complaint
But lest you think a motion to dismiss is entirely pointless, plaintiffs need to make sure they get it right when they have a do-over. The second motion to dismiss can work:
You Don’t Get Three Strikes when Filing a Complaint – Lessons from Tropicana