We've talked a lot about Chief Judge Connolly's standing orders on disclosure and litigation compliance, including about how he recently ordered in-person hearings regarding compliance with those orders in a fairly large number of cases.
Chief Judge Connolly's standing order on Rule 7.1 statements requires disclosure of all individual or corporate owners of certain entities, going all of the way up the chain and including indirect owners:
[I]n all cases assigned to Judge Connolly where a party is a nongovemmental joint venture, limited liability corporation, partnership, or limited liability partnership, that the party must include in its disclosure statement filed pursuant to Federal Rule of Civil Procedure 7.1 the name of every owner, member, and partner of the party, proceeding up the chain of ownership until the name of every individual and corporation with a direct or indirect interest in the party has been identified.
Standing Order Regarding Disclosure Statements Required by Federal Rule of Civil Procedure 7.1 (D. Del. April 18, 2022).
We wrote about one instance, in VLSI Technology LLC v. Intel Corporation, C.A. No. 18-966 (D. Del.), where the Court ordered the plaintiff to confirm compliance with its standing order, and stayed the case when the plaintiff filed an inadequate response.
Now we have an update on that case. After the order staying the case, the plaintiff pushed back, offering a declaration from its CEO claiming that the entity simply did not know its owners:
In its August 1, 2022 Order, the Court stated “[the CEO] Mr. Stolarski says that he ‘[is] informed’ that one of the seven LLCs ‘is wholly owned by a closed end investment fund family comprised of six individual funds,’ but he does not identify those six funds or say that the funds are corporations. . . . Mr. Stolarski says that the remaining six LLCs and three partnerships ‘are investment funds,’ but he does not identify the funds or their legal status. . . .” To the best of my knowledge after a diligent search, VLSI does not have the additional information that is requested by the Court’s August 1, 2022 Order. In particular, beyond what is stated in my July 18, 2022 declaration and what is already in the record before the Court, with one minor exception, VLSI does not have further information concerning either (a) the various entities that are investors in FCOF IV UST LLC, or (b) the other entities that have invested in VLSI’s parent company, CF VLSI Holdings LLC (“VLSI Holdings”).
He goes on to explain that what little additional information he does have was learned during a previous litigation.
The defendant responded, pointing out that the plaintiff, VLSI, has a close relationship with its parent entity, Fortress Investment Group, and arguing that Fortress should not be able to hide behind VLSI:
Fortress should not be able to selectively reveal information that it deems favorable, while shielding all other information required by the Court. . . . Fortress created VLSI in 2016, and two of the three members of VLSI’s board are Fortress employees. . . . VLSI was formed by Fortress, maintains a close relationship with Fortress, and is represented by the same attorneys who have also represented Fortress as a third party in this suit. Despite this, VLSI appears to have chosen only to disclose to the Court, to Intel, and to the public the information that was selectively provided to its CEO. This is an improper attempt to absolve itself of its responsibilities as a plaintiff in this Court.
Today, the Court issued an order setting a hearing on plaintiff's response to the Court's last order—and requesting briefing on some related topics:
The Court will hear on December 14, 2022 at 1:00 p.m. in Courtroom 4B oral argument on VLSI's response to the Court's August 1, 2022 Order. The parties are invited to submit on or before December 2, 2022 supplemental briefs of no more than 7,500 words and to address in their briefing, among other things, the following questions:
1. Did the Court have the authority to issue its April 18, 2022 Standing Order Regarding Disclosure Statements Required by Federal Rule of Civil Procedure 7.1?
2. Without knowing the identity of the true owners of VLSI, how can the Court assure itself that it does not have a conflict of interest that precludes it from presiding over the case?
3. Without knowing the identity of the true owners of VLSI, how can the Court assure itself that its presiding over the case will not create an appearance of impropriety?
4. Should the Court dismiss the case because of VLSI's failure to provide the information required by the Court's April 18, 2022 Standing Order Regarding Disclosure Statements Required by Federal Rule of Civil Procedure 7.1? See Doe v. Megless, 654 F .3d 404, 412 (3d Cir. 2011 ); see also Cowley v. Pulsifer, 137 Mass. 392,394 (1884) (Holmes, J.) ("It is desirable that the trial of causes should take place under the public eye, not because the controversies of one citizen with another are of public concern, but because it is of the highest moment that those who administer justice should always act under the sense of public responsibility, and that every citizen should be able to satisfy himself with his own eyes as to the mode in which a public duty is performed.").
It should be interesting to see the parties responses here. As to the first and last questions, with a very active defendant on the other side (Intel), I imagine they'll come up with many reasons why the Court has authority to do what it did, and why it should take the next step of dismissing the case.
The second and third questions suggest two of the bases for these orders: addressing conflicts and the appearance of impropriety—which can be a big deal.
We'll likely have updates here as these cases progress. And, as a reminder, the next in-person hearing on standing order compliance (that I know of) is set for 10AM ET on November 10, 2022 in Courtroom 4B. No update on whether the Court will provide popcorn.
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