TAFEEN v. HOMESTORE, INC., 023-N (Del.Ch. 2004)

Civil Action No. 023-N.Court of Chancery of Delaware.Submitted: April 20, 2004.
Decided: April 27, 2004.

William M. Lafferty, Charles D. Reed, Morris, Nichols, Arsht
Tunnell, Wilmington, DE.

William D. Johnston, Sara Beth Reyburn, Young Conaway Stargatt Taylor, Wilmington, DE.

WILLIAM B. CHANDLER III, Chancellor

Dear Counsel:

In a March 22, 2004, opinion on cross-motions for summary judgment as to plaintiff Tafeen’s entitlement to advancement, I denied defendant Homestore’s motion for summary judgment as to all defenses but its unclean hands defense.[1] Although I did not grant Homestore’s motion with regard to that defense, I denied plaintiff’s motion for summary judgment because I decided that trial is necessary on the merits of Homestore’s unclean hands defense. This letter contains my decision on plaintiff’s later motion for reargument. In this letter, I also address concerns raised by plaintiff regarding discovery requests served on him.

Plaintiff has moved for reargument pursuant to Court of Chancery Rule 59(f).[2] In evaluating this motion, the Court considers whether it “overlooked a decision or principle of law that would have a controlling effect or [whether] the court has misapprehended the law or the facts so that the outcome of the decision would be affected.”[3]

Since an unclean hands defense is an affirmative defense, defendant would have the burden of proof as to this defense at trial.[4] As plaintiff notes, “[i]t is well settled that where the opponent of summary judgment has the burden of proof at trial, he must show specific facts demonstrating a plausible ground for his claim, and cannot rely merely upon allegations in the pleadings or conclusory assertions in affidavits” in order to avoid summary judgment being granted in favor of the proponent of the motion.[5] Defendant has met this burden by “adduc[ing] evidence to establish prima facie each element of its claim.”[6]

Plaintiff states that “[t]he only affidavit or evidence to support Homestore’s unclean hands theory is the single `information and belief assertion by Michael Douglas. . . .”[7]
This is simply not true. Without deciding whether this assertion in the affidavit is properly considered under Court of Chancery Rule 56,[8] other evidence submitted on the summary judgment motion establishes defendant’s prima facie
case.

First, Douglas, in sworn testimony undoubtedly within the scope of that contemplated by Rule 56, stated, “On December 21, 2001, Homestore announced that the Audit Committee of the Company’s Board of Directors was conducting an inquiry into potential improprieties in the Company’s accounting practices and financial statements.”[9] The Board’s inquiry revealed that Homestore had overstated its revenues by $41.4 million for the 2000 fiscal year and by $199 million for the first three quarters of the 2001 fiscal year.[10] Tafeen “was employed by Homestore during the period September 22, 1997 through November 30, 2001,” the very time period that Homestore overstated its earnings.[11] An exhibit submitted to the Court by the plaintiff shows that Tafeen purchased a home in Florida recorded on June 29, 2001.[12] The purchase price, according to this exhibit, was $1.45 million and the property does fall within Florida’s Homestead exception for tax purposes.[13]
Finally, the parties agree that Florida’s Homestead laws are extremely protective.

In evaluating a motion for summary judgment, all reasonable inferences that can be drawn from the court submissions will be drawn in favor of the nonmoving party.[14] Based on the above facts, one may infer that Tafeen, as a high-level officer of Homestore during the time the company overstated its revenues, and seeing other corporate officers being prosecuted in connection with similar overstatements, decided to protect his assets by buying the home in Florida.[15] The question of Tafeen’s intent in buying the house is a triable issue of fact. Homestore, as a nonmoving party that would have the burden of proof at trial, satisfied its requirement to “show specific facts demonstrating a plausible ground for [its] claim” under In re Tri-Star Pictures, Inc. Litigation.[16] Tafeen, as the moving party, had the burden to establish that there was no material triable question of fact. He did not do so. Plaintiff’s motion for reargument is therefore denied.[17]

In the interest of judicial economy, I also address letters sent to this Court regarding defendant’s discovery requests. In defendant’s briefing to the Court, its unclean hands defense was tied specifically to Tafeen’s purchase of a home in Florida. Indeed, the Court’s March 22 opinion states, “Specifically the [unclean hands] defense [is] based on the allegation that `Tafeen purchased an expensive home in Florida, a state that has extremely protective “homestead” provisions against creditor claims,’ in order to shelter assets, thus avoiding repayment should Tafeen’s claims ultimately be found to be nonindemnifiable.”[18] Having tied its unclean hands defense to the purchase of the home, and having only presented affidavits related to that purchase, the Court will not permit Homestore to undertake a fishing expedition regarding its recently raised allegations about Tafeen’s purported disposition of other assets. Defendant’s discovery requests shall be limited to its allegation that Tafeen purchased his home in Florida
with the intent to shelter assets from Homestore.

Finally, I acknowledge Tafeen’s seeming offer of compromise in his motion to reargue. I take this opportunity to impress upon both parties the time and expense even limited discovery and expedited proceedings present. Although I express no opinion on substantive issues other than those discussed above, I remind Homestore that the mere fact that it satisfied its burden of production at the summary judgment stage does not necessarily mean that it will ultimately satisfy its burden of persuasion at trial and, if it fails to meet that burden, it may also incur expenses beyond its own as per the Supreme Court’s teachings i Stifel Financial Corporation v. Cochran.[19]

The parties shall confer and inform the Court, within ten days from the date of this letter, whether a protective order need be entered and whether a compromise has been reached or a scheduling order filed.

IT IS SO ORDERED.