United States: Chancery Defers Action On Motion For Sanctions

The recent opinion entered in Gonzales v. Cornerstone Legal Grp. LLC, C.A. No. 11034-VCG (Del. Ch. Dec. 4, 2015) demonstrates the (obvious) importance of candor and disclosing all material facts to the Court.

The matter involves Defendant's alleged violation of the Delaware Uniform Debt-Management Services Act (the "Act") and related actionable behavior in connection with provision of debt management services in this state.

Defendant filed a motion to dismiss due to a purportedly binding arbitration clause in the parties' operative contract.  Plaintiff filed a brief in opposition to the motion, pointing out that he had undertaken to void the arbitration provision (as he had the right to do under the Act) in light of the fact that Defendant is an unlicensed debt-management-services provider.  Plaintiff also noted that he made Defendant aware of the voiding of the arbitration provision prior to Defendant filing its motion to dismiss.

Plaintiff also moved for sanctions, seeking fees in connection with opposing the motion to dismiss, and alleging bad faith on the part of the Defendant. Defendant failed to file a reply brief contesting Plaintiff's assertions, and also failed to appear at oral argument on the motion (due to an inadvertent mistake).

Per the Court, "Defendant has not explained, however, how it could, in good faith, file a motion to dismiss based on an arbitration clause that it knew the Plaintiff had purported to make void, without disclosing and addressing that issue in seeking dismissal of the action in favor of arbitration."  However, the Court deferred its ruling on Plaintiff's pending motion for sanctions until the litigation has matured and the Court has "a better feeling for the good-faith grounds, if any, upon which the Defendant opposes the relief sought in the complaint."

This decision is a good reminder of the necessity for candor and full disclosure to the Court at all times, the lack of which will undoubtedly expose a party to fee-shifting and sanctions.

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