Judge LeGrow Denies Defendant’s Motion to Dismiss

May 16, 2019

Publication

In Sun Life Assurance Company of Canada − U.S. Operations Holdings, Inc. v. Group One Thousand One, LLC f/k/a Delaware Life Holdings, LLC, C.A. No. N18C-07-173 AML CCLD, Judge LeGrow denied the defendant’s motion to dismiss or, in the alternative, to transfer finding that the Superior Court had jurisdiction over the plaintiff’s breach of contract action. The plaintiff initiated the action, arguing that the defendant failed to pay a tax refund pursuant to the parties’ stock purchase agreement.

The defendant moved to dismiss or transfer the action under the stock purchase agreement’s forum selection clause, which designated the Delaware Court of Chancery as the parties’ first choice of forum for any action arising out of the agreement. In its motion to dismiss, the defendant argued that (i) 6 Del. C. § 18-111(5) conferred jurisdiction on the Court of Chancery because that statute grants the Court of Chancery jurisdiction over contract disputes involving an LLC; and (ii) the Court of Chancery had jurisdiction over this dispute because the plaintiff sought equitable relief—specifically, an order of specific performance directing one of the subsidiaries to pay over the refund.

The Court concluded that the Court of Chancery did not have jurisdiction over the dispute pursuant to Section 18-111(5), which gives the Court of Chancery jurisdiction to hear disputes involving any provision of the LLC Act or any other instrument, document, agreement, or certificate “contemplated” by any provision of the LLC Act. In its analysis, the Court found the defendant’s literal interpretation of “contemplated” erroneous and concluded that Section 18-111 was ambiguous. The Court determined that the only reasonable interpretation of the statutory language was that the General Assembly intended it to apply to a document or instrument expressly or explicitly contemplated by the Act. Any broader interpretation of the statute would permit the Court of Chancery to hear disputes involving LLC employment agreements, vendor contracts, consumer disputes, and debt collection.

Finally, the Court determined that the plaintiff was not seeking equitable relief. In so holding, the Court reasoned that the defendant, not the subsidiary, was the contractually obligated party. Additionally, the Court noted that there was nothing in the record indicating that the tax refund was being held in a separated or segregated account or that the collection of a money judgment would be improbable.

Analysis: One of the many reasons for the creation of the Superior Court’s CCLD was to create a business court equivalent to the Court of Chancery designed to handle disputes involving purely money damages. “In Delaware, common law and statute limit the jurisdiction of the Court of Chancery.” Int’l Bus. Machs. Corp. v. Comdisco, Inc., 602 A.2d 74, 78 (Del. Ch. 1991). Although the defendant tried to argue that Section 18-111(5) vested the Court of Chancery with jurisdiction over the dispute because an LLC was involved, the Superior Court disagreed in what both parties acknowledged was the first case to interpret the statute. Perhaps most important, this case also highlights long-standing Delaware law that parties cannot by agreement vest the Court of Chancery with jurisdiction. Nat’l Indus. Group (Holding) v. Carlyle Inv. Mgmt. L.L.C., 67 A.3d 373, 382 (Del. 2013). Because the parties’ dispute involved purely claims for money damages, the dispute will be resolved by the Superior Court.