Sean A. Meluney and Matthew D. Beebe mentioned in Law360 | “Pot Co. Litigant Says Data Wipes Not Worth $2.2 MillionFine”
By Leslie A. Pappas
Law360 (February 8, 2023, 4:32 PM EST) -- An investor who leveled fraud charges against the operator of California based cannabis venture Bloom Farms did not intentionally destroy evidence during his Delaware Chancery Court litigation and should not be forced to pay the company's $2.2 million attorney fees, his attorney told Delaware's Supreme Court Wednesday Since Jeff Menashe did not intend to undermine his opponent's case when he wiped company laptops and deleted text messages, he should not be sanctioned for destruction of evidence, or spoliation, his attorney Marina V. Bogorad of Gerard Fox Law PC told a three-justice panel during appeal arguments Wednesday. "Spoliation requires intent, and it requires prejudice, and neither is present here," she said. "In order for spoliation to exist, the destroyed evidence had to favor their case."
"How are they going to show that it favored their case if it had been destroyed?" Justice Gary F. Traynor asked.
The vigorous back-and-forth with Menashe's attorney continued through most of the arguments Wednesday, appealing the Chancery Court's punitive dismissal of Menashe's case and shifting of attorney fees.
Menashe and his investment firm, DG BF LLC, sued Bloom Farms' operator, American General Resources LLC, in June 2020, alleging that he had been duped into investing $5 million on the basis of shoddy information.
Vice Chancellor Morgan T. Zurn allowed some of the claims against AGR and board members Michael Ray and Vladimir Efros to move forward, but later canceled the trial and dismissed the case due to what she called "continued contumacious conduct" during discovery from Menashe and his counsel. The vice chancellor also ordered Menashe to reimburse AGR and director defendants for more than $2.2 million in attorney fees due to what she deemed bad faith litigation. Menashe made a frivolous claim of fraud, insisted the case be expedited, then missed every deadline and refused to turn over requested evidence from his cell phone, server, and laptop, an attorney for AGR's board told the justices Wednesday.
Menashe and Bogorad's co-counsel Gerard P. Fox acted "belligerently with no respect" to the trial court, said Sean A. Meluney of Meluney Alleman & Spence LLC. "We strongly believe the court acted well within reason when it dismissed the case and shifted fees," Meluney said. Bogorad argued that there was "no persistent non-compliance" with court orders. What about the extensive factual findings of "non-compliance with discovery obligations, bad faith deposition conduct, destruction of evidence and multiple attempts by the court to get your client's side of things on track?" Justice Karen L. Valihura asked. "You're not challenging any of those fact findings by the court of Chancery, are you?"
"We are, your honor," Bogorad replied."Having a counsel with the wrong attitude is not a valid reason for plaintiff to lose their claims." "Are we to believe that it really was just a personality conflict between the court and counsel?" Justice Traynor asked.
"Not 'just' but it was indicated as the main problem," Bogorad said. "It was cited specifically in her decision." Bogorad argued that there was no evidence of "subjective bad faith" because the emails and text messages that were destroyed were available to AGR through other means, and besides it was company policy to wipe laptops and delete text messages.
"That's not an excuse for not producing documents," Justice Valihura said. "You can't just say, well, we have a preexisting policy that says we can destroy our documents."
The Chancery Court's record shows that Menashe and his counsel repeatedly and blatantly ignored the court's orders "without any real appreciation that the conduct was wrong," Justice Valihura said. Justice James T. Vaughn Jr. was also on the panel and asked no questions.
The court took the matter under advisement and did not say when it would rule. None of the parties responded to Law360's requests for comment Wednesday. American General Resource LLC is represented by Perry J. Woodward and Jedidah Dooley of Hopkins & Carley; and David B. Anthony of Berger Harris LLP.
Michael Ray and Vladimir Efros are represented by Sean A. Meluney and Matthew D. Beebe of Meluney Alleman & Spence LLC.
Jeff A. Menashe and DG BG LLC are represented by Gerard P. Fox and Marina V. Bogorad of Gerard Fox Law PC; and Sean J. Bellew of Bellew LLC.
The current case is DG BF LLC, et al., v. Michael Ray, et al., case number 272,2002 in the Supreme Court of the State of Delaware. The underlying case is DG BF LLC et al. v. Ray et al., case number 2020-0459, in the Delaware Court of Chancery.
— Additional reporting by Sarah Jarvis, Rose Krebs, and Sam Reisman. Editing by Peter Rozovsky.
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