EFiled: May 13 2022 04:S4PEEDTS
`Case No.2022-0238-PAF (4xee,Dy
`Transaction ID 67620286
`(AAe y
`EXHIBIT 3
`eos
`
`EXHIBIT 3
`
`EFiled: May 13 2022 04:54PM EDT
`Transaction ID 67620286
`Case No. 2022-0238-PAF
`
`
`Case No.2022-0238-PAF (4xee,Dy
`Transaction ID 67620286
`(AAe y
`EXHIBIT 3
`eos
`
`EXHIBIT 3
`
`EFiled: May 13 2022 04:54PM EDT
`Transaction ID 67620286
`Case No. 2022-0238-PAF
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`
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`IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
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`C.A. No. N20J-00626-DJB
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`PRASSAS CAPITAL, LLC,
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` Plaintiff,
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` v.
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`BLUE SPHERE CORPORATION,
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` Defendant.
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`CONCORD ENERGY PARTNERS, LLC,
`and RHODE ISLAND ENERGY
`PARTNERS, LLC,
`
` Third-Party
`Garnishees/Interpleader
`Plaintiffs/Stakeholders,
`
` v.
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`BLUE SPHERE CORPORATION,
`PRASSAS CAPITAL, LLC and LEONITE
`CAPITAL, LLC,
`
`
`Interpleader
`Defendants/Claimants.
`
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`LEONITE CAPITAL, LLC’S MOTION FOR PROTECTIVE ORDER AND
`TO STRIKE PRASSAS CAPITAL, LLC’S AFFIRMATIVE DEFENSES
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`EFiled: Feb 07 2022 02:16PM EST
`Transaction ID 67296111
`Case No. N20J-00626 DJB
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`
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`Leonite Capital, LLC (“Leonite”), through its undersigned counsel, pursuant
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`to Rules 12 and 26 of Superior Court Civil Rules, hereby moves this Honorable
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`Court for an order dismissing or striking the Fourth and Fifth Affirmative Defenses
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`in Prassas Capital, LLC’s Answer to Leonite Capital, LLC’s Cross-Claims (the
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`“Answer”), and granting a protective order. In support of its Motion, Leonite
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`respectfully states as follows:
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`Preliminary Statement
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`1.
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`It has become abundantly clear that in this interpleader action, Prassas
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`Capital LLC (“Prassas”) is pursuing equitable “claims” over which this Court lacks
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`subject matter jurisdiction, and discovery related to those claims. For that reason,
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`Leonite seeks an order dismissing or striking the affirmative defenses of Prassas to
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`the extent those “defenses” require this Court to grant equitable relief or relief
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`against parties not before the Court. Leonite also seeks a protective order from
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`discovery related to those equitable claims.
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`Procedural and Factual Summary
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`2.
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`On June 29, 2020, the Stakeholders filed the Joint Cross-Complaint for
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`Interpleader of Third-Party Garnishees/Interpleader Plaintiffs Concord Energy
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`Partners, LLC and Rhode Island Energy Partners, LLC (the “Interpleader Cross-
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`Complaint”).
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`3.
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`In response, Leonite filed the Answer With Cross-Claims of
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`Interpleader Defendant/Claimant Leonite Capital, LLC, bringing cross-claims
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`EFiled: Feb 07 2022 02:16PM EST
`Transaction ID 67296111
`Case No. N20J-00626 DJB
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`against Blue Sphere Corporation (“Blue Sphere”) and Prassas. Leonite’s cross-
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`claims seek declarations that Blue Sphere is in default under certain notes in an
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`amount not less than the interpleaded funds on deposit with the Court (the “Stake”)
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`and that Leonite is entitled to the Stake as the senior lender, with a security interest
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`perfected before Prassas could have become a “lien creditor” based on its judgment
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`against Blue Sphere. Under the Uniform Commercial Code, only a lien creditor has
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`rights in a particular asset of a debtor against a perfected secured creditor, but not if
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`the secured creditor is perfected first.
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`4.
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`Blue Sphere defaulted. Prassas answered the Interpleader Cross
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`Complaint, but without asserting cross-claims seeking a declaration of its rights to
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`the Stake, instead asserting equitable affirmative defenses, namely that “Leonite’s
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`Cross-Claims must be dismissed because if it does have a security interest in Blue
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`Sphere, any interest is subordinated at law or in equity to Prassas’ interest” (the
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`“Fourth Affirmative Defense”); and “Leonite’s Cross Claims are barred, in whole or
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`in part, in accordance with the doctrines of waiver, estopped, and laches.” (the “Fifth
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`Affirmative Defense”) (emphases added).
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`5.
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`Blue Sphere is undoubtedly in default of its obligations to Leonite, and
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`there is no question that Leonite’s priority, perfected “all assets” security interest
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`covers the Stake. Unable to assert a legal basis to recover the Stake, Prassas’ only
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`“claim” to the Stake rests solely on an equitable theory – a theory asserted only in
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`2
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`EFiled: Feb 07 2022 02:16PM EST
`Transaction ID 67296111
`Case No. N20J-00626 DJB
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`affirmative defenses – that this Court can ignore, equitably subordinate and/or
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`recharacterize Leonite’s previously perfected claims and liens.1 This Court has no
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`subject matter jurisdiction over equitable claims, and should bar further discovery in
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`this matter related to those claims.
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`Argument
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`6.
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` This Court lacks subject matter jurisdiction over the so-called
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`“defenses” that Prassas asserts in an attempt to claim the Stake. The Fourth
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`Affirmative Defense plainly states that Prassas seeks to subordinate Leonite’s claims
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`on equitable grounds. The Fifth Affirmative Defense asserts the equitable doctrines
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`of waiver, estoppel and laches.
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`7.
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`In Columbus Life Ins. Co. v. Wilmington Trust Co., 2021 WL 537117,
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`*10 (Del. Super. 2021), the Superior Court recognized the distinction between legal
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`and equitable claims and the limited jurisdiction of the Superior Court. This Court
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`has the power to adjudicate legal rights and obligations, but it has no subject matter
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`jurisdiction to grant equitable relief, such as to “subordinate” or “recharacterize”
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`Leonite’s secured claims. See John Julian Const. Co. v. Monarch Builders, Inc.,
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`324 A.2d 208, 210 (Del. Supr. 1974). See also, USH Venture v. Global Telesystems,
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`1 The Sixth Affirmative Defense, of offset and recoupment, is inapplicable in view
`of the absence of mutual debt, or any other nexus, between Prassas and
`Leonite. However, should Prassas pursue the recoupment defense, it should be
`dismissed because it sounds in equity, and Leonite reserves all rights in this regard.
`3
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`EFiled: Feb 07 2022 02:16PM EST
`Transaction ID 67296111
`Case No. N20J-00626 DJB
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`796 A.2d 7, 20 (Del. Super. 2000); Reybold Venture Grp. XI-A, LLC v. Atl. Meridian
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`Crossing, LLC, 2009 WL 143107 (Del. Super. Jan. 20, 2009). See also, Prospect
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`Street Energy, LLC v. Bhargava, 2016 WL 446202 at *4 (Jan. 27, 2016) (“Dismissal
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`is proper where a claim amounts to a ‘purely equitable cause of action’ because the
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`‘Superior Court’s jurisdiction lies in matters of law, as opposed to the Court of
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`Chancery’s jurisdiction, which lies in matters of equity.’”).
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`8.
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`This interpleader action was commenced after Prassas sought to garnish
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`the Mechanical Completion Payments Blue Sphere earned from the Stakeholders.
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`As, so ordered by this Court, all parties agreed that these funds would be interpleaded
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`and the Court would determine their disposition.
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`9.
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`Apparently by way of explaining its failure to make cross-claims for
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`the Stake, Prassas contends that it nevertheless asserted such a claim via the writs fi.
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`fa. served on the Stakeholders, and via the Fourth Affirmative Defense. Prassas
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`Capital, LLC’s Opposition to Leonite Capital, LLC’s Motion to Strike Letters Filed
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`by Prassas, pp. 5-6. To the contrary, the writs are not “super-pleadings” as Prassas
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`contends; they are not even pleadings. Far from entitling Prassas to the Stake as
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`against Leonite, the writs were directed to the Stakeholders, and the Stakeholders
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`have now paid the Stake into the Court precisely so the Court can determine who
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`should get it. As for the Affirmative Defenses, they are equitable and should be
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`stricken as set forth herein.
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`4
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`EFiled: Feb 07 2022 02:16PM EST
`Transaction ID 67296111
`Case No. N20J-00626 DJB
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`10. Prassas has urged this Court to rely on Frierson v. United Farm Agency,
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`868 F.2d 302 (8th Cir. 1989) to subordinate or strip Leonite’s security interest.
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`Frierson, an 8th Circuit case applying Missouri law, actually upholds UCC priority
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`rules. It holds that a senior secured creditor could not stop a junior lien creditor from
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`executing on collateral, but makes clear that the junior creditor would take the
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`collateral subject to the secured creditor’s interest. It doesn’t hold that a junior lien
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`creditor can subordinate or recharacterize a senior secured creditor’s interest. In
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`sum, Frierson is not on point, is not binding on this Court, and does not give this
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`Court power to grant equitable relief.
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`11. Unable to attack the priority and perfection of Leonite’s security
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`interests, Prassas has engaged in a fishing expedition. Leonite has produced over
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`35,000 pages of documents, a witness for deposition, and a privilege log.
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`Unsatisfied, Prassas seeks to delay the summary judgment deadline by a month, has
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`subpoenaed third parties, has stated an intent to hold yet more depositions, and
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`demanded additional mountains of documents, apparently seeking to support
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`subordination or recharacterization of Leonite’s interests and/or unpleaded theories
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`(possibly fraudulent transfer and veil piercing); and/or relief against Leonite and
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`parties who are not before the Court and over whom this Court lacks jurisdiction.
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`12. The Court should not allow Prassas to continue down that road. This
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`Court lacks jurisdiction to grant the affirmative equitable relief that Prassas seeks.
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`5
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`EFiled: Feb 07 2022 02:16PM EST
`Transaction ID 67296111
`Case No. N20J-00626 DJB
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`Because its defenses and apparent claims cannot be heard in this Court, the related
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`discovery requests will impose expense and delay but are unlikely to lead to
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`discovery of admissible evidence.2 Therefore, the Court should also enter a
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`protective order protecting Leonite from further discovery related to these, or any
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`other, equitable claims or defenses. Under the Rules of this Court, “[t]he frequency
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`or extent of use of the discovery methods set forth in subdivision (a) shall be limited
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`by the Court if it determines that: (iii) the discovery is unduly burdensome or
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`expensive, taking into account the needs of the case, the amount in controversy,
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`limitations on the parties' resources, and the importance of the issues at stake in the
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`litigation.” Super. Ct. Civ. R. 26. The discovery requests are neither “proportional”
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`to the issues before the Court nor likely to lead to the discovery of evidence
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`admissible in the interpleader case.
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`WHEREFORE, Leonite prays for judgment and relief as follows:
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`A.
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`That the Court enter an Order dismissing the Fourth and Fifth
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`Affirmative Defenses; and
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`B.
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`That the Court enter a protective order stating that Leonite need not
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`respond to any further discovery requests, demands or deposition questions relating
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`in any way to the equitable defenses or claims of Prassas.
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`2 The theories that Prassas purports to prosecute with further discovery, even if they
`had merit, are completely unrelated to the issue of which party has a superior legal
`right to the Stake – an asset that is already in the possession of the Court.
`6
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`EFiled: Feb 07 2022 02:16PM EST
`Transaction ID 67296111
`Case No. N20J-00626 DJB
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`Dated: February 7, 2022
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`CROSS & SIMON, LLC
`
`
`/s/ Kevin S. Mann
`Christopher P. Simon (No. 3697)
`Kevin S. Mann (No. 4576)
`1105 North Market Street, Suite 901
`Wilmington, Delaware 19801
`302-777-4200
`csimon@crosslaw.com
`kmann@crosslaw.com
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`
`
`-and-
`
`Amy Shapiro, pro hac vice
`Harvey D. Mervis, pro hac vice
`Albert J. Millus, Jr., pro hac vice
`Hinman, Howard & Kattell, LLP
`80 Exchange Street
`Binghamton, NY 13901
`607-231-6741
`ashapiro@hhk.com
`hmervis@hhk.com
`amillus@hhk.com
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`Attorneys for Leonite Capital, LLC
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`7
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`EFiled: Feb 07 2022 02:16PM EST
`Transaction ID 67296111
`Case No. N20J-00626 DJB
`
`
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