throbber
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
`
`D1 JASPER HOLDINGS LP, D1 SPV
`JL MASTER LP, JAY BLOCKER
`LTD., JAY DOMESTIC LLC, GCCU II
`LLC, TOCU XX LLC, OC II FIE VIII LP,
`JL SPV HOLDINGS, LLC, EMS JINV
`LLC, DISRUPTIVE TECHNOLOGY
`SOLUTIONS XIV, LLC, DISRUPTIVE
`TECHNOLOGY SOLUTIONS XVI,
`LLC–SERIES A, DISRUPTIVE
`TECHNOLOGY SOLUTIONS XVI,
`LLC–SERIES B, and DISRUPTIVE
`TECHNOLOGY SOLUTIONS XVI,
`LLC–SERIES C,
`
`Plaintiffs,
`
`v.
`
`JUUL LABS, INC. and JL TAO LLC,
`
`Defendants.
`
`C.A. No. 2023-1060-NAC
`
`PUBLIC VERSION
`EFILED JUNE 11, 2024
`
`DEFENDANTS’ MOTION TO SUPPLEMENT THE RECORD
`
`Defendants JUUL Labs, Inc. (“JLI”) and JL Tao LLC, by and through
`
`their undersigned counsel, hereby move for an order to supplement the trial record
`
`for a limited purpose. Specifically, Defendants seek to introduce two documents for
`
`the purpose of disproving Plaintiffs’ contentions regarding JLI’s “cap tables” and
`
`specifically the assertions, raised for the first time in Plaintiffs’ Post-Trial Opening
`
`Brief, that “no one ever even mentioned the Insiders’ entities to the prospective
`
`noteholders,” and that Plaintiffs had no way to know the identities of JLI’s
`
`EFiled: Jun 11 2024 03:29PM EDT
`Transaction ID 73365158
`Case No. 2023-1060-NAC
`
`

`

`stockholders in 2019 and 2020.1 Plaintiffs rely on these erroneous assertions in
`
`support of their claims that JLI’s treatment of the Transaction 2 as a Qualified
`
`Financing violates the implied covenant of good faith and fair dealing, and that Nick
`
`Pritzker controls JL Tao and JL Special.3
`
`The two documents Defendants seek to introduce refute Plaintiffs’
`
`assertions. This evidence shows that D1 knew the identities of JLI’s major
`
`stockholders—including Ploom Investment, LLC, Ploom Investment II, LLC, and
`
`JL Special, LLC—well before D1 negotiated the relevant contractual language in
`
`the NPA and NWPA. It therefore undermines Plaintiffs’ implied covenant argument
`
`as well as their inferences about JL Tao and JL Special.
`
`Defendants’ proposed new exhibits consist of (i) a capitalization table,
`
`provided by JLI to D1 in May 2018 in connection with D1’s equity investment in
`
`the Company that preceded its investment in the convertible notes, which listed the
`
`
`1
`D.I. 279 at 50, 62-63 (“Had Plaintiffs foreseen that the Insiders would try to hide
`behind investment vehicles and complex wealth management estates that JUUL had
`never mentioned . . . then they would have contracted specifically around these tactics.”).
`
`2
`Unless otherwise defined herein, capitalized terms have the meanings set forth in
`Defendants’ Post-Trial Answering Brief filed herewith. This motion employs the citation
`form to the Trial transcript adopted in Defendants’ Post-Trial Answering Brief.
`
`3
`
`D.I. 279 at 62-63, 33, 11.
`
`2
`
`
`
`
`
`

`

`very entities that Plaintiffs assert JLI “never mentioned” 4 —Ploom Investment,
`
`Ploom Investment II, and JL Special (Exhibit A); and (ii) a draft waiver of
`
`preemptive rights provided by JLI to D1 in January 2020, which identified Ploom
`
`Investment and JL Special as major JLI stockholders, and reminded D1 of the 2018
`
`Investors’ Rights Agreement (“IRA”) to which D1, Ploom Investment, Ploom
`
`Investment II, and JL Special are all parties (“Exhibit B,” and with Exhibit A, the
`
`“Exhibits”).5 While the IRA itself (JX-00025 in this Action) disproves Plaintiffs’
`
`new contentions, Exhibit B—sent to D1 in the midst of the NWPA negotiations—
`
`removes all doubt.
`
`BACKGROUND
`
`1.
`
`The parties spent months in expedited discovery in this action to resolve
`
`a single, narrow issue at trial—whether the Transaction was a Qualified Financing
`
`under the NPA and NWPA, such that the Notes were automatically converted on
`
`October 27, 2023.6 Discovery was tailored to that issue.
`
`Id. at 63, 50.
`
`
`
`See JX-00025 at -68602-03.
`
`4
`
`5
`
`6
`D.I. 234 ¶¶ 5, 69 (Pre-Trial Order); D.I. 55 at 2 (Stip. and Order Governing
`Injunction Through Final Resolution on the Merits).
`
`3
`
`
`
`
`
`

`

`2.
`
`At trial, Plaintiffs introduced evidence outside of the scope of that
`
`question, including evidence purporting to show that the “Insiders’” identities were
`
`somehow hidden from Plaintiffs.7 Plaintiffs have doubled down on that limited
`
`evidence in post-trial briefing, now asserting that JLI “never mentioned” its
`
`stockholders and provided only summary management reports that identified Riaz
`
`Valani (rather than Ploom) and Pritzker (rather than JL Special) as major
`
`stockholders.8
`
`3.
`
`Plaintiffs make this assertion in support of their implied covenant
`
`argument that, “had Plaintiffs foreseen that the Insiders would try to hide behind
`
`investment vehicles and complex wealth management estates that JUUL had never
`
`mentioned . . . then they would have contracted specifically around these tactics.”9
`
`Plaintiffs also use their feigned ignorance of the existence of JL Special to insist that
`
`“Pritzker remains in control” of JL Tao as well as JL Special.10
`
`
`See, e.g., Sundheim Tr. 23:11-26:14; Goldstein Tr. 260:11-18, 270:11-24.
`
`D.I. 279 at 62-63.
`
`Id. at 63.
`
`7
`
`8
`
`9
`
`10
`
`Id. at 31, 33, 11.
`
`4
`
`
`
`
`
`

`

`4.
`
` To demonstrate that Plaintiffs’ contentions that they were misled
`
`about JLI’s major stockholders are baseless, JLI should be permitted to introduce
`
`the two Exhibits.
`
`ARGUMENT
`
`5.
`
`“A motion to reopen or supplement the record is addressed to the sound
`
`discretion of the Court.” 11 In determining whether the interests of fairness and
`
`justice warrant admission of new evidence, the Court considers:
`
`[T]he materiality of the evidence to be admitted; the moving party’s
`ability to have introduced the evidence at trial; the length of time that
`has passed between the conclusion of trial and the request to reopen the
`record; the need for judicial efficiency; and prejudice to the opposing
`party.12
`
`
`
`6.
`
`The Exhibits satisfy these criteria. First, the Exhibits are material
`
`because they directly rebut Plaintiffs’ assertion that “no one ever even mentioned”
`
`JLI’s stockholders to noteholders, and their arguments premised on that false
`
`assertion.13 Plaintiffs first argue that their alleged ignorance of JLI’s stockholders
`
`
`11
`Vianix Del. LLC v. Nuance Commc’ns, Inc., 2011 WL 487588, at *3 (Del. Ch.
`Feb. 9, 2011); El Paso Natural Gas Co. v. Amoco Prod. Co., 1992 WL 43925, at *10
`n.15 (Del. Ch. Mar. 4, 1992) (“The decision to reopen the record is within the trial court’s
`discretion.”).
`
`12
`Lola Cars Inter. Ltd v. Krohn Racing, LLC, 2010 WL 1818907 at *1 (Del. Ch.
`Apr. 23, 2010).
`
`13
`
`D.I. 279 at 50; 33, 63.
`
`5
`
`
`
`
`
`

`

`reveals a gap in the NWPA to be filled by the implied covenant, writing that “they
`
`would have contracted” differently “had they foreseen” JLI’s actual stockholders.14
`
`The implied covenant “only applies to developments that could not be anticipated,”
`
`not to “provide contractual protections that parties failed to secure for themselves at
`
`the bargaining table.”15 Exhibit A confirms that, in 2018 if not earlier, JLI made
`
`Plaintiffs aware that Ploom Investment, Ploom Investment II, and JL Special were
`
`among JLI’s shareholders. As Exhibit B demonstrates, JLI provided the names of
`
`those entities to Plaintiffs again in 2020. The two Exhibits therefore confirm that
`
`Plaintiffs cannot identify a gap in the NWPA, as Plaintiffs were aware of the very
`
`information they claim to have lacked. Plaintiffs next argue that JLI’s alleged failure
`
`to identify its stockholders somehow shows that Pritzker controls JL Tao and JL
`
`Special.16 That is a non sequitur, but the Exhibits prove that Plaintiffs’ premise is
`
`false in any event: JLI identified its stockholders long before the Agreements, and
`
`D1 contracted with Ploom Investment, Ploom Investment II, and JL Special. If the
`
`Court is inclined to give any weight to Plaintiffs’ cap table arguments—which are
`
`14
`
`Id. at 63.
`
`
`
`15
`Chordia v. Lee, 2024 WL 49850, at *35 (Del. Ch. Jan. 4, 2024) (emphasis added)
`(citation omitted).
`
`16
`
`D.I. 279 at 31, 33, 11.
`
`6
`
`
`
`
`
`

`

`irrelevant to the Parties’ contractual dispute—then the Court would benefit from
`
`evidence that Plaintiffs’ statements are false.
`
`7.
`
`Second, Defendants had no reason to introduce the Exhibits at trial
`
`because whether JLI ever identified its stockholders to prospective noteholders is
`
`irrelevant to whether the Transaction was Qualified. Indeed, Exhibit A was not
`
`produced during discovery by either side because both agreed that the Relevant Time
`
`Period for the start of document discovery was in 2019; neither side considered pre-
`
`2019 communications about JLI’s stockholders, or Plaintiffs’ knowledge of JLI’s
`
`stockholders, to be relevant to the agreed scope of discovery.17 Similarly, neither
`
`party raised this as an issue to be tried, and Plaintiffs did not contend they were
`
`ignorant of the identity of JLI’s major stockholders in pre-trial briefing. Plaintiffs
`
`made this argument only after it became clear at trial that they could not carry their
`
`burden to establish a breach under the plain language of the contract. Accordingly,
`
`only now does JLI have reason to introduce the Exhibits, to rebut Plaintiffs’ new
`
`claims.
`
`8.
`
`Third,
`
`this motion
`
`is
`
`timely because Defendants submit
`
`it
`
`contemporaneously with Defendants’ post-trial brief, just as Plaintiffs submitted a
`
`
`17
`JX-1451 at 8, 9, 14; JX-1461 at 6, 22, 24 (parties’ respective responses and
`objections to requests for production).
`
`7
`
`
`
`
`
`

`

`motion to supplement the record contemporaneously with their post-trial brief.18
`
`Defendants consented to that motion. And to avoid burdening the Court, Defendants
`
`asked Plaintiffs to agree that the consent be mutual and for the parties to stipulate to
`
`the admission of JLI’s Exhibits as well as the exhibits cited in Plaintiffs’ own motion.
`
`Plaintiffs declined Defendants’ offer, thereby necessitating the filing of this motion.
`
`9.
`
`Fourth, judicial efficiency is served by the admission of these two
`
`Exhibits, which directly rebut Plaintiffs’ erroneous factual contentions. As judges
`
`of this Court have oft observed, “it is better to have a full and complete factual
`
`record.”19
`
`10. Fifth, Plaintiffs will not be prejudiced. D1 has possessed the Exhibits
`
`since it received them from JLI in 2018 and 2020, respectively, and D1 actually
`
`contracted with each of Ploom Investment, Ploom Investment II, and JL Special in
`
`the Investors’ Rights Agreement it executed in 2018. Moreover, Plaintiffs have been
`
`aware of Defendants’ intention to seek to supplement the record with the Exhibits
`
`since May 13, 2024. As noted above, the only reason Exhibit A was not produced
`
`in discovery in this action is because it predated the agreed-upon Relevant Time
`
`
`See D.I. 278; D.I. 279.
`
`18
`
`19
`See Techmer Accel Holdings, LLC v. Amer, 2010 WL 3025575, at *1 (Del. Ch.
`July 27, 2010).
`
`8
`
`
`
`
`
`

`

`Period for the start of document discovery.20 Plaintiffs’ long-standing access to
`
`these documents dismisses any concern of prejudice. Further, to the extent Plaintiffs
`
`wish to respond to the Exhibits, they have the opportunity to do so in their Reply
`
`brief.
`
`CONCLUSION
`
`Defendants respectfully request that, in the interests of fairness and
`
`justice, the Court grant the motion and supplement the trial record to include the
`
`documents attached as Exhibits A–B, as JX-01508 and JX-01509, respectively.
`
`
`
`
`
`
`20
`E.g., JX-01451 at 8, 9, 14; JX-01461 at 6, 22, 24 (parties’ respective responses and
`objections to requests for production).
`
`9
`
`
`
`
`
`

`

`
`
`
`
`OF COUNSEL:
`
`Roger A. Cooper
`Lina Bensman
`CLEARY GOTTLIEB STEEN
`& HAMILTON LLP
`One Liberty Plaza
`New York, New York 10006
`(212) 225-2000
`
`
`
`
`
`
`
`
`
`OF COUNSEL:
`
`Robert A. Weikert
`Andrew H. Winetroub
`NIXON PEABODY LLP
`One Embarcadero Center, 32nd Floor
`San Francisco, California 94111
`(415) 984-8200
`
`
`June 4, 2024
`
`
`
`
`MORRIS NICHOLS ARSHT &
` TUNNELL LLP
`
`
`/s/ David J. Teklits
`David J. Teklits (#3221)
`Alexandra M. Cumings (#6146)
`Grant E. Michl (#7088)
`Kirk C. Andersen (#7156)
`1201 North Market Street, 16th Floor
`Wilmington, DE 19801
`(302) 658-9200
`
`Attorneys for JUUL Labs, Inc.
`
`
`
`
`
`RICHARDS, LAYTON & FINGER, P.A.
`
`
`/s/ Richard P. Rollo
`Richard P. Rollo (#3994)
`Susan Hannigan Cohen (#5342)
`Travis S. Hunter (#5350)
`John M. O’Toole (#6448)
`920 North King Street
`Wilmington, Delaware 19801
`(302) 651-7700
`
`Attorneys for JL Tao LLC
`
`Words: 1,638/3,000
`
`10
`
`
`
`
`
`

`

`CERTIFICATE OF SERVICE
`
`I hereby certify that on June 11, 2024, a copy of the foregoing [Public
`
`Version] Defendants’ Motion to Supplement the Record was served via
`
`File&ServeXpress on the following attorneys of record:
`
`Daniel A. Mason
`Sabrina M. Hendershot
`Elizabeth Wang
`PAUL, WEISS, RIFKIND,
` WHARTON & GARRISON LLP
`1313 N. Market Street, Suite 806
`Wilmington, DE 19801
`
`Richard P. Rollo
`Travis S. Hunter
`John M. O’Toole
`Alexander M. Krischik
`RICHARDS, LAYTON
` & FINGER, P.A.
`One Rodney Square
`920 North King Street
`Wilmington, DE 19801
`
`
`
`
`
`
`
`
`/s/ Grant E. Michl
`Grant E. Michl (#7088)
`
`
`
`

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