Delaware’s Complex Commercial Litigation Division Finds no Intent to give Chancery Court Jurisdiction Over all Matters Relating to LLCs, which would Dilute Chancery’s Jurisdiction and Reputation as the Preeminent Forum for Corporate Dispute Resolution

Plaintiff brought the case in the Delaware Superior Court’s Complex Commercial Litigation Division (CCLD), Delaware’s law-side business court. The defendant move to transfer the case to the Chancery Court, relying on a forum selection clause in the parties’ agreement.

Since parties cannot create jurisdiction in the Chancery Court if there is no statutory basis for that jurisdiction or the claim is not in equity, the CCLD judge had to determine if the dispute fell within the scope of Chancery’s mandate, before reaching the forum selection clause. Judge Legrow found the Chancery Court did not have jurisdiction over the instant claim under either (1) the statute setting out Chancery’s jurisdiction in LLC related disputes, or (2) the theory that the dispute was equitable in nature.

This contract dispute arises out of defendant’s purchase of plaintiff’s subsidiaries, and the alleged failure to pay over a tax refund in connection with that Stock Purchase Agreement.

The bulk of the opinion addresses whether 6 Del. Code § 18-111, which gives the Chancery Court jurisdiction over certain aspects of limited liability company agreements, applied in this case. Judge Legrow’s close analysis sets forth why section 18-111 did not encompass this breach of contract claim between parties for money damages (which she also concluded was not equitable in nature).

The statute provides five categories that fall within Chancery Court jurisdiction. Of particular interest here is Judge Legrow’s discussion of the fifth category, providing Chancery Court jurisdiction over: “[5] any other instrument, document, agreement or certificate contemplated by any provision of this chapter [Limited Liability Company Act]….” [Emphasis added]

Defendant essentially argued that this fifth category gave Chancery jurisdiction over all contracts an LLC might enter with other parties. In rejecting the notion that the term “contemplated” created exhaustive jurisdiction in the Chancery over all things LLC related, the CCLD reasoned, among other things, that this would lead to an absurd application of the statute’s language, stating:

It is a recognized cannon of statutory interpretation, however, that if the literal interpretation of the statute would be absurd, the statute is ambiguous. Here, the literal interpretation … is absurd because it would grant the Court of Chancery unfettered jurisdiction over every action touching, however tangentially, any contract involving an LLC.

Under that literal interpretation, actions involving employment agreements, vendor contracts, consumer disputes, and debt collection all would fall under the Court of Chancery’s jurisdiction simply because one of the parties to the contract was an LLC. The same actions involving a corporation as the contracting party, however, would not fall within the Court of Chancery’s jurisdiction. Had the General Assembly intended to confer jurisdiction over nearly any matter in which an LLC is a party, it would have done so more clearly. Such an unprecedented expansion of the Court of Chancery’s jurisdiction, however, would contravene the General Assembly’s consistent effort to preserve that Court’s historically limited jurisdiction and its reputation as the preeminent forum to resolve corporate disputes. [Emphasis added]

Additionally, it is unlikely the General Assembly intended this interpretation because allowing an LLC to litigate basic contract or consumer actions in the Court of Chancery would eliminate the right to a jury trial in those cases. It would be absurd to conclude that the General Assembly intended to work a sea-change in the Court of Chancery’s jurisdiction simply by using the word “contemplates.”

The decision in Sun Life Assurance Company of Canada v. Group One Thousand One, LLC can be found here.

Posted by Lee Applebaum