EFiled: Jun 09 2020 07:42PM EDT

Transaction ID 65687640
Case No. 2019-0848-PWG
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

JAMES RIVEST, )
)
Plaintiff, )
) C.A. No.: 2019-0848-PWG
v. )
)
HAUPPAUGE DIGITAL INC., )
)
Defendant. )

DEFENDANT’S MOTION
TO VACATE OR AMEND DEFAULT JUDGMENT

1. Defendant, Hauppauge Digital Inc. (“Small Business”), moves this

Court, pursuant to Ct. Ch. R. 60(b)(1), to vacate the Order granting Default

Judgment, dated April 24, 2020. Trans. ID 65597967. In the alternative, Small

Business moves to amend the subject Order, pursuant to Ct. Ch. R. 59(e), to include

a requirement that disclosure is subject to reasonable confidentiality protections.

2. In accordance with the strong policy in favor of deciding cases on the

merits, this Court has broad discretion to relieve a party from an Order due to:

“[m]istake, inadvertence, surprise, or excusable neglect.” Ct. Ch. R. 60(b)(1).

3. The interests of justice will be served by granting the instant

application, because Small Business, which is operating at a fraction of its ordinary

workforce, was mistaken when it mailed its response to Plaintiff’s Motion for

Default on the filing deadline, while in the absence of Delaware Counsel.

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 4. Alternatively, this Court may alter or amend its order where the movant

demonstrates “the need to correct a clear error of law or to prevent manifest

injustice.” Ct. Ch. R. 59(e). The interests of justice will also be served, seemingly

in a more cost-effective manner,1 if the subject Order were to be amended to limit

disclosure to those reasonably related to Plaintiff’s stated purpose of stock valuation.

FACTUAL AND PROCEDURAL HISTORY

5. This is an action, pursuant to 8 Del. C. § 220, in which Plaintiff seeks

corporate disclosure of financial statements and reports for FY 2016, 2017 and 2018,

as well as appraisals and valuations to “ascertain the value of Plaintiff’s stock.”

Trans. ID 64349914 (“Complaint”).

6. Annexed to the Complaint is an inspection demand, dated October 8,

2019, where Plaintiff articulates a willingness to implement “appropriate and

reasonable confidentiality terms in connection with the review of these documents.”

Id. (emphases added).

7. Without receiving a formal response from Small Business, Plaintiff

moved for default. The Court scheduled a Hearing on Plaintiff’s application for

April 15, 2020. Trans. ID 64712608, at para. 2 (providing that Small Business could

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The undersigned invited Plaintiff’s Counsel to meet and confer to conserve both
Clients’ (and the Court’s) resources; to date, no response has been received.

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appear at the Hearing and oppose Plaintiff’s application “with or without any

attorney….”).

8. On March 30, 2020, the Court issued a letter cancelling the Hearing due

to the COVID-19 epidemic. Trans. ID. 65546535. That letter instructs Small

Business to “file a written response to the Motion with the Court, no later than April

20, 2020” and noted the “[f]ailure to do so may result in the Court considering the

motion as unopposed and may grant the relief requested.” Id.

Mistaken Timing of Written Response

and Sensitivity of Information Sought

9. Despite having delegated the responsibility of responding to Plaintiff to

another individual - - whose employment was subsequently furloughed - - Ken

Plotkin, Chief Executive Officer, stepped in and, on April 20, 2020, prepared a

written response and mailed it to the Court, with copy to Plaintiff’s Counsel.

10. Mr. Plotkin, who oversees macro-operations of Small Business, which

has become more complicated due to employee furlough, believed he had complied

with the Court’s instructions by mailing the Response on the date instructed - - this

was a mistake.

11. On April 24, 2020 at 9:50 a.m., the Court issued the subject Order

granting Plaintiff’s Motion for Default. Trans. ID 65597967. The Response from

Small Business was received, then filed and uploaded to the Court’s docket on 2:30

p.m. that same day. Trans. ID 65599254.

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 12. Notwithstanding, in an attempt to take immediate and unfair advantage

of an unrepresented party, also on that same day, Plaintiff privately sent Small

Business a letter demanding disclosure, per the Default Judgment, of not just the FY

2016, 2017 and 2018 materials, but a litany of “additional books and records” that

are not sought in the Complaint before this Court. 2

13. The Parties have since battled over whether there should be, at least,

some degree of confidentiality protections afforded the struggling, small enterprise

in connection with its disclosure of non-public, financial information. Small

Business has invited Plaintiff to provide a Confidentiality Agreement to facilitate

the disclosure requested in the Complaint; yet, Plaintiff has been uncooperative.

14. Of note, the cause for this disclosure battle is Plaintiff’s change of

course on confidentiality; Plaintiff is now attempting to extort extra-pleading, public

disclosure using the Default Judgment, unfairly, as leverage. Compare Trans. ID

64349914 (acknowledging confidential treatment of FY 2016, 2017 and 2018

information as “appropriate and reasonable”) with Exh. A (demanding same, as well

as unpled FY 2019 and 2020 information, to be disclosed without any protection to

Small Business).

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Attached as Exhibit “A” is a true and accurate copy of that letter, in which Plaintiff
demands cumbersome disclosure of corporate information from FY 2019 and 2020.
This is being disclosed to the Court, for the first time, by Counsel for Small Business.

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 15. Unbeknownst to Plaintiff, industry competitors of Small Business have,

in the past, weaponized poor performance displayed on financial statements, as well

as representations alluding to or summarizing that information, causing a loss in

business with reputable, large-scale sale platforms including Best Buy for audio-

visual and technology products. The books and records sought in this action are

non-public,3 containing similarly sensitive information, where public disclosure

could result in further competitive disadvantage, business loss and irreparable harm.

ARGUMENT

16. The grounds for relief set forth in Rule 60(b) are liberally construed

because of the policy favoring trials on the merits. Keener v. Isken, 58 A.3d 407,

409–10 (Del. 2013). “In furtherance of this policy, the Court will resolve any doubts

raised by the motion [to vacate] in favor of the moving party.” OneWest Bank, F.S.B.

v. Feeney, 2013 WL 5977066, at *3 (Del. Ch. June 27, 2013).

17. Mistake or excusable neglect exists “if the moving party has valid

reasons … showing that the [conduct] may have been the act of a reasonably prudent

person under the circumstances.” Keener, 58 A.3d at 409–10. “The court may

consider all surrounding circumstances in deciding whether the conduct was

excusable.” Id., at 410.

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Exhibit “B”, Certification and Notice of Termination of Registration (revoking
registration of securities and noticing intent to cease public filing).

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 18. Here, the mistaken pro se Response filing is excusable. To be clear,

this is not a case where a Defendant disregarded the Court and filed nothing. Mr.

Plotkin submitted a written response and, to his mind - - while juggling additional

work responsibilities due to the pandemic and mistakenly believing his company

could appear “without counsel” - - complied with the Court’s instructions by mailing

the Response on April 20, 2020.

19. The surrounding circumstances support a finding that the Response

filing was excusable. Mr. Plotkin had tasked another individual at Small Business,

C.F.O., Gerald Tucciarone, with the responsibility of responding to Plaintiff.

20. As of March 15, 2020, due to the unprecedented COVID-19 epidemic,

several employees at Small Business, including Mr. Tucciarone, were furloughed.

This has caused strain upon operations and an expansion of responsibilities of all

non-furloughed employees (and fiduciaries) endeavoring to keep the business as a

going concern.

21. Mr. Plotkin then attempted to comply with the Court’s instructions.

The Response displays a good faith effort, under constrained circumstances, to

address the issues raised, albeit without the assistance of Delaware Counsel.

22. In addition to showing the existence of a circumstance listed in Rule

60(b)(1), such as mistake or excusable neglect, a movant must also show that: (1)

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the outcome may be different if the motion were heard on the merits; and (2) the

Plaintiff would not suffer substantial prejudice. Keener, 58 A.3d at 410.

23. Here, the outcome may (and should) be different if the merits of the

information privacy issues were squarely before the Court. At present, Plaintiff

relies upon the Default Judgment to demand unrestricted public disclosure of

financial information (Exh. A.); that is, without even light-handed safeguards to

protect the company from industry competitors, who have, in the past, used less-

than-stellar financial reports to lure business opportunities away from Small

Business, resulting in a loss of customers.

24. Plaintiff further relies upon the Default Judgment to unfairly leverage -

- outside of the Court’s vision - - an unauthorized scope of disclosure. Indeed,

Plaintiff demands public disclosure of FY 2019 and 2020 books and records, which

are neither pled in the Complaint nor addressed in the Default Judgment. Exh. A.

25. To make matters worse, this litigation tactic was implemented, with

premeditation, against what was believed to be an unrepresented party.

26. Plaintiff will not suffer substantial prejudice if the merits of the

confidentiality issues are litigated (or resolved via amendment to the Default

Judgment).4 This is so, for two reasons: first, Plaintiff originally indicated that

confidentiality protection over the financial disclosures was “appropriate and

4
See infra.

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reasonable.” Trans. ID 64349914 (Exh. A).5 Therefore, by espousing a hypocritical

position with disagreeability as to negotiating a confidentiality agreement, any delay

would be of Plaintiff’s own making.

27. Second, the conduct that caused the Default Judgment to be entered,

was a filing of a mere five hours late in the same day as the default judgment was

issued. 6 Any prejudice that Plaintiff may suffer would be insubstantial.

28. Accordingly, as the mistaken timing of Response filing by Small

Business is excusable, the Order granting Default Judgment should be vacated.

29. In the alternative, the subject Order should be amended to protect Small

Business from unsavory market competition and stock devaluation. On a motion

under Rule 59(e), this Court may alter or amend its Order where the movant

demonstrates “the need to correct a clear error of law or to prevent manifest

injustice.” Ravenswood Inv. Co. L.P. v. Estate of Winmill, 2018 WL 1989469, at *1

(Del. Ch. Apr. 27, 2018)(emphasis added).

30. Manifest injustice would result if Small Business is compelled to

disclose non-public (see Exh. B), sensitive financial and business information

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This change of course invokes notions of estoppel, where Plaintiff is held to his
original position. Or, at bottom, a loss of credibility in the representations made by
Plaintiff before this Court.
6
The entry of a default judgment is an “extreme remedy” the use of which is
disfavored. E.g., Greystone Digital Tech., Inc. v. Alvarez, 2007 WL 2088859, at *2
(Del. Ch. July 20, 2007)(citations omitted).

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concerning Small Business, which is experiencing financial difficulties. Small

Business has already experienced detriment due to a competitor’s use of its

financials, which resulted in a loss of business with reputable, large-scale sale

platforms including Best Buy for its audio-visual and technology products.

31. In its present state of financial vulnerability, unrestricted disclosure of

the books and records sought by Plaintiff, in the estimation of management, would

subject Small Business to further competitive disadvantage, business loss and

irreparable harm - - which is misaligned with management’s fiduciary duties.

32. On the other hand, receiving disclosure of the books and records

identified in the Default Judgment, subject to the reasonable confidentiality

restrictions contained in the proposed Order that accompanies this motion, would

not cause any imposition to Plaintiff in “ascertain[ing] the value of Plaintiff’s stock”.

33. Indeed, if Plaintiff has exercised candor in his stated purpose to this

Tribunal, a confidentiality provision would be to Plaintiff’s benefit (as well as Small

Business), because public disclosure leading to competitive disadvantage and

business opportunity loss would result in a lowering of the value of Plaintiff’s stock.7

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The more that Plaintiff expresses an unwillingness to agree to a confidentiality
provision, the more the Court should consider his stated purpose with suspicion.

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 34. Accordingly, as implementation of reasonable confidentiality

restrictions would prevent manifest injustice, the Order granting Default Judgment

should be amended.

CONCLUSION

35. Therefore, Defendant, Hauppauge Digital Inc., respectfully requests

that, in the interests of justice, the Court: (1) vacate the Default Judgment, dated

April 24, 2020; or, in the alternative, (2) amend the Order granting the Default

Judgment to include the reasonable confidentiality provisions in the Proposed Order;

as well as, (3) any such other and further relief the Court deems just, reasonable and

equitable under the circumstances.

KOLLIAS LAW, LLC

/s/ Douglas J. Cummings, Jr.

Douglas J. Cummings, Jr., Esq. (#5675)
Kollias Law, LLC
3513 Concord Pike, Ste. 3300
Wilmington, Delaware 19803
(302) 444-8140
dcummings@kolliaslaw.com
Words: 2018

Attorneys for Defendant

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Dated: June 9, 2020 Hauppauge Digital Inc.

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This motion was filed under Seal yesterday, June 8, 2020, but rejected while a
request for confidential treatment under Rule 5.1 was pending. Small Business has
elected to forego Rule 5.1 briefing, presently, in an effort to bring this litigation to a
more immediate and cost-effective manner. It is respectfully requested that the
Court consider this filing nunc pro tunc as of yesterday’s date.

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EFiled: Jun 09 2020 07:42PM EDT
Transaction ID 65687640
Case No. 2019-0848-PWG
EFiled: Jun 09 2020 07:42PM EDT
Transaction ID 65687640
Case No. 2019-0848-PWG
 EFiled: Jun 09 2020 07:42PM EDT
Transaction ID 65687640
Case No. 2019-0848-PWG
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

JAMES RIVEST, )
)
Plaintiff, )
) C.A. No.: 2019-0848-PWG
v. )
)
HAUPPAUGE DIGITAL INC., )
)
Defendant. )

[PROPOSED] ORDER

WHEREAS, Defendant, Hauppauge Digital Inc., having moved the Court,

under Ch. Ct. R. 60(b)(1) and 59(e), to vacate or amend the Default Judgment

entered against it in this Action;

WHEREAS, the Court having considered that application, as well as the

response thereto by Plaintiff, if any;

IT IS HEREBY ORDERED this ____ day of _______, 2020, that Defendant’s

motion is GRANTED.

IT IS HEREBY ORDERED FURTHER that the Order granting Default

Judgment, dated April 24, 2020 (Trans. ID 65597967), is vacated in full, or, in the

alternative;

IT IS HEREBY ORDERED FURTHER that the Order granting Default

Judgment, dated April 24, 2020 (Trans. ID 65597967), is amended, such that the

following paragraph is inserted as the fifth enumerated paragraph:

5. Plaintiff shall keep the books and records disclosed pursuant to
this Order to be confidential and may only disclose, summarize,
publish, communicate or transmit, in whole or in part, any of said
disclosures to Plaintiff’s legal, financial and tax advisors for the
purpose of ascertaining the value of Plaintiff’s stock. Plaintiff shall not
disclose, summarize, publish, communicate or transmit, in whole or in
part, any of said disclosures to any competitor of Small Business or
employees or advisors of such competitors. As used in this paragraph,
the term “Plaintiff’ includes any of his attorneys or advisors.

__________________________
Master Griffin
 EFiled: Jun 09 2020 07:42PM EDT
Transaction ID 65687640
Case No. 2019-0848-PWG
CERTIFICATE OF SERVICE

I hereby certify that, on the 9th day of June 2020, true and correct copies of

the foregoing were caused to be served on counsel of record at the following address

as indicated:

By File&Serve Xpress

Marcus E. Montejo (#4890)

Jason W. Rigby (#6458)
PRICKETT JONES & ELLIOTT, P.A.
1310 King Street, Suite 303
P.O. Box 1328
Wilmington, Delaware 19899
Attorneys for Plaintiff

Kollias Law, LLC

/s/ Douglas J. Cummings, Jr.

DATED: June 9, 2020
Douglas J. Cummings, Jr., Esq. (#5675)
3513 Concord Pike, Ste. 3300
Wilmington, Delaware 19803
(302) 444-8140
Attorneys for Defendant