Title: Ballard, et al. v. JP Morgan Chase Bank, N.A.

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
CLAUDIO BALLARD, KEITH 
DELUCIA, GARY KNUTSEN, 
SHEPHARD LANE, PETER 
LUPOLI, IRA LEEMON, JOHN 
KIDD, CELESTIAL PARTNERS, 
LLC, VEEDIMS, LLC,  
 
Defendants Below– 
Appellants, 
 
v. 
 
JPMORGAN CHASE BANK, N.A., 
individually, and on behalf of itself 
and other creditors similarly situated,  
 
Plaintiff Below– 
Appellee. 
§ 
§   
§ 
§  No. 337, 2019 
§ 
§  Court Below–Court of Chancery 
§  of the State of Delaware 
§   
§  C.A. No. 2018-0274 
§   
§ 
§ 
§ 
§ 
§ 
§ 
§ 
§ 
 
 
 
 
 
 
 
 
Submitted: August 8, 2019 
 
 
 
 
   Decided: August 16, 2019 
 
Before STRINE, Chief Justice; VAUGHN, and TRAYNOR, Justices. 
 
ORDER 
 
 
Upon consideration of the notice of interlocutory appeal, the supplemental 
notice of appeal, their exhibits, and the Court of Chancery’s order denying 
Defendants’ motion or certification of an interlocutory appeal, it appears to the 
Court that: 
 
(1) 
This appeal arises from a Court of Chancery decision granting in part 
and denying in part a motion to dismiss filed by Data Treasury Corporation 
 
2 
(“DTC”), its directors, and certain affiliates (collectively, “Defendants”).  The 
following events preceded this ruling. 
(2) 
On June 2, 2015, the United States District Court for the Eastern 
District of Texas entered a judgment awarding JPMorgan Chase Bank, N.A. 
(“JPMorgan”) damages in the amount of sixty-nine million dollars against DTC for 
its breach of a licensing agreement (the “Judgment”).  The Judgment was affirmed 
on appeal1 but remains unpaid. 
(3) 
JPMorgan filed two complaints in the Court of Chancery in aid of its 
efforts to collect on the Judgment.  The actions challenge DTC’s payment of 
dividends, in different years, as unlawful under Sections 170, 172, 173, and 174 of 
the Delaware General Corporation Law.2  In particular, JPMorgan alleges that 
Defendants, knowing that DTC owed JPMorgan a large refund under the licensing 
agreement, illegally issued dividends to stockholders and transferred funds to 
insiders and affiliates in an effort to avoid paying JPMorgan. 
(4) 
In the first action, JPMorgan seeks to recover under Section 174 for 
dividends DTC paid in 2011 and 2012.  Discovery is presently underway in that 
action, and it is not at issue in this appeal. 
(5) 
In the second action, which is the subject of this appeal, JPMorgan 
sued Defendants to recover two categories of distributions that DTC allegedly 
                                                 
1 823 F.3d 1006 (5th Cir. 2016). 
2 8 Del. C. §§ 170-74. 
 
3 
made unlawfully to evade its liability to JPMorgan: (i) dividends DTC paid from 
2006 to 2010; and (ii) other individual transfers DTC made to insiders from 2011 
to 2013. 
(6) 
Defendants moved to dismiss the complaint, arguing that JPMorgan 
lacked standing under Section 174 to challenge the payments of dividends from 
2006 to 2010 because it was not a creditor at that time.  Defendants also argued 
that JPMorgan’s fraudulent-transfer claims were untimely under the one-year 
discovery period applicable to claims filed more than four years after a challenged 
transfer under Section 1309(1) of the Delaware Uniform Fraudulent Transfer Act 
(“DUFTA”)3 and that its unlawful-dividend claims were untimely under the six-
year limitations period in Section 174.4 
(7) 
On July 11, 2019, the Court of Chancery issued an opinion granting in 
part and denying in part Defendants’ motion to dismiss and, on July 19, 2019, 
entered an implementing order.  The Court of Chancery held that: (i) JPMorgan 
had standing to assert a claim as a creditor of DTC under Section 174; (ii) the six-
year limitations period in Section 174 is a statute of repose, to which tolling 
principles do not apply and, therefore, JPMorgan’s unlawful dividend claim with 
                                                 
3 A cause of action with respect to a fraudulent transfer with actual intent to hinder, delay, or 
defraud a creditor is extinguished unless it is brought “within 4 years after the transfer was made 
or the obligation was incurred or, if later, within 1 year after the transfer or obligation was or 
could reasonably have been discovered by the claimant.” 6 Del. C. § 1309(1). 
4 Under 8 Del. C. § 174(a), “[i]n case of any wilful or negligent violation of… § 173 of this title, 
the directors under whose administration the same may happen shall be jointly and severally 
liable, at any time within 6 years after paying such unlawful dividend… .” 
 
4 
respect to dividends that were paid from 2006 to 2010 was untimely; and (iii) the 
one-year discovery period in Section 1309(1) begins to run when the fraudulent 
nature of a challenged transfer—as opposed to the mere occurrence of the 
transfer—is or could reasonably have been discovered and, therefore, JPMorgan 
had timely filed claims challenging as fraudulent the dividends paid from 2006 to 
2010 and the individual payments made to insiders from 2011 to 2013. 
(8) 
On June 26, 2019, Defendants asked the Court of Chancery to certify 
an interlocutory appeal from the court’s opinion and implementing order.  
Defendants maintained that the opinion and order decided a substantial issue of 
material importance because they permit JPMorgan’s challenge to Defendants’ 
dividends and other transfers, however old, to proceed under DUFTA.  Defendants 
further argued that the following Supreme Court Rule 42(b)(iii) factors weighed in 
favor of granting interlocutory review: the opinion decided an issue of first 
impression;5 the Court of Chancery’s interpretation of DUFTA conflicts with the 
decisions of other Delaware trial courts;6 the question of law relates to the 
construction or application of DUFTA, which has not been, but should be, settled 
by this Court in advance of an appeal from a final order;7 review of the 
interlocutory order may terminate the litigation;8 and review of the interlocutory 
                                                 
5 Del. Supr. Ct. R. 42(b)(iii)(A). 
6 Del. Supr. Ct. R. 42(b)(iii)(B). 
7 Del. Supr. Ct. R. 42(b)(iii)(C). 
8 Del. Supr. Ct. R. 42(b)(iii)(G). 
 
5 
order may serve considerations of justice.9  JPMorgan opposed the request for 
certification but, in the alternative and in the event that the court were to certify the 
appeal, cross-moved for certification of an interlocutory cross-appeal of the Court 
of Chancery’s ruling that Section 174 is a statute of repose and that JPMorgan’s 
Section 174(a) claim was untimely. 
(9) 
On August 7, 2019, the Court of Chancery denied Defendants’ 
application for certification of an interlocutory appeal.  Although the Court of 
Chancery agreed that its decision decided three substantial issues of material 
importance—a threshold consideration under Rule 42(b)(i)—it nevertheless 
concluded that interlocutory review was not warranted, a conclusion the court 
reached only after a careful balancing of the Rule 42(b)(iii) factors upon which 
Defendants rely.  We agree. 
(10) The Court of Chancery rejected—rightly, in our view—Defendants’ 
contention that review of the interlocutory order may terminate the litigation, a 
relevant factor under Rule 42(b)(iii)(G).  In particular, the court recognized that, 
even if its holding concerning Section 1309(1)’s one-year discovery period were 
reversed, at least some of JPMorgan’s claims would nevertheless survive.  This is 
so because the record suggests that JPMorgan did not know about the 2006 and 
2007 dividends until February of 2018, less than one year before it filed suit.  
Moreover, discovery is likely to shed light on a currently murky record regarding 
                                                 
9 Del. Supr. Ct. R. 42(b)(iii)(H). 
 
6 
when JPMorgan learned of the dividends paid between 2008 and 2010 and, in turn, 
whether the claims relating to those dividends would survive the more restrictive 
reading of Section 1309(1) advocated by Defendants.  Add to this possibility the 
fact that the first action JPMorgan filed challenging the 2011 and 2012 
dividends—according to the Court of Chancery, a likely candidate for 
consolidation—will not be abated by appellate review in this action and we are 
compelled to agree with the Court of Chancery’s conclusion that the Rule 
42(b)(iii)(G) factor does not weigh in favor of interlocutory review. 
(11) Relatedly, the Court of Chancery further concluded that appellate 
review of some or all of the issues decided in the opinion may never be necessary, 
dependent upon the outcome of discovery.  For example, after the completion of 
discovery, it may be that some or all of JPMorgan’s fraudulent-transfer claims 
survive because no evidence is uncovered to show JPMorgan knew of certain 
dividends paid more than a year prior to the filing of suit.  As noted above, if that 
were the case, these claims would survive even if the court’s decision concerning 
the one-year discovery period in Section 1309(1) was reversed.   
(12) The Court of Chancery also rejected Defendants’ contention, which 
curiously attempted to draw support from a purported “split in jurisdictions outside 
of Delaware,”10 that the court’s interpretation of Section 1309(1)’s one-year 
                                                 
10  Defendants’ Motion for Certification of Interlocutory Appeal, File & ServeXpress 
Transaction ID 63630142, at p. 9. 
 
7 
discovery period exception conflicts with other decisions of Delaware trial courts.  
We agree with the Court of Chancery that there are no conflicts among Delaware 
trial courts and that the key issues in this case appear to be of first impression in 
Delaware. 
(13) Similarly, the Court of Chancery expressed “concern[] that a delay of 
discovery in this action would impede a fair disposition of the merits,” pointing to, 
among other things, the age of the underlying transactions, the intervening death of 
a key witness, and “the record in the Texas action reflect[ing] efforts by DTC to 
obstruct and delay discovery.”11  This concern resonates with us and weighs against 
interlocutory review. 
(14) Applications for interlocutory review are addressed to the sound 
discretion of the Court.12  Giving great weight to the trial court’s thoughtful and 
thorough analysis and in the exercise of our discretion, this Court has concluded 
that the application for interlocutory review does not meet the strict standards for 
certification under Supreme Court Rule 42(b).  Exceptional circumstances that 
would merit interlocutory review of the Court of Chancery’s decision do not exist 
in this case,13 and the potential benefits of interlocutory review do not outweigh the 
inefficiency, disruption, and probable costs caused by an interlocutory appeal.14 
                                                 
11 JPMorgan Chase Bank, N.A. v. Ballard, 2019 WL 3729389, at *4 (Del. Ch. Aug. 7, 2019). 
12 Del. Supr. Ct. R. 42(d)(v). 
13 Del. Supr. Ct. R. 42(b)(ii). 
14 Del. Supr. Ct. R. 42(b)(iii). 
 
8 
NOW, THEREFORE, IT IS ORDERED that the interlocutory appeal is 
REFUSED. 
 
 
 
 
 
 
BY THE COURT: 
 
 
 
 
 
 
 
 
/s/ Gary F. Traynor   
 
 
 
 
 
 
Justice