Court Opinion

ID: 6318028
Source: CourtListenerOpinion
Date Created: 2022-02-28 17:01:59.996926+00
Date Added: 2024-06-11T09:01:34.280414
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

250 EXECUTIVE, LLC,                             )
                                                )
               Petitioner,                      )
                                                )
       v.                                       )   C.A. No. 2021-0411-JTL
                                                )
CHRISTINA SCHOOL DISTRICT,                      )
and CHRISTINA SCHOOL                            )
DISTRICT BOARD OF EDUCATION,                    )
                                                )
               Respondents.                     )

                              MEMORANDUM OPINION

                             Date Submitted: February 14, 2022
                              Date Decided: February 28, 2022

Daniel F. McAllister, TARABICOS, GROSSO & HOFFMAN LLP, New Castle,
Delaware; Counsel for Petitioner.

David H. Williams, Michelle G. Bounds, MORRIS JAMES LLP, Wilmington, Delaware;
Counsel for Respondents.

LASTER, V.C.
       Petitioner 250 Executive, LLC (the “Owner”) owns a parcel of real estate located in

the Christina School District (the “District”). The Owner seeks a refund of an allegedly

excessive amount of school taxes that the Owner paid to the District. The Owner contends

that it paid excess taxes to the District because New Castle County (the “County”) erred

when measuring the square footage of a building on the parcel when assessing its value for

tax purposes. The County has admitted its error and refunded the excess taxes that the

Owner paid to the County. The only taxes that remain in dispute are those that the Owner

paid to the District based on the County’s erroneous assessment.

       The Owner submitted a tax refund request to the District. The Owner contends that

by statute, the District must forward the request to the County. Instead, the Board of

Education for the District (the “Board”) held a hearing and denied the Owner’s request.

       The Owner filed this lawsuit seeking a declaratory judgment that the District was

required by statute to forward the refund request to the County and that the District violated

the applicable statute by denying the request. The Owner seeks a mandatory injunction to

enforce the declaratory judgment that it hopes to obtain.

       The District and the Board have moved to dismiss the petition for lack of subject

matter jurisdiction under Court of Chancery Rule 12(b)(1). This decision grants their

motion. The case is dismissed, subject to the Owner’s right to elect to transfer the case to

the Superior Court.
                              I.   FACTUAL BACKGROUND

       The facts are drawn from the petition and the documents it incorporates by

reference. At this stage of the proceedings, the allegations of the petition are accepted as

true, and the petitioner is entitled to all reasonable inferences that the allegations support.

A.     The Owner’s Tax Payments

       The Owner is a Delaware limited liability company that owns the real estate located

at 250 Executive Drive in Newark, Delaware (the “Property”). The improvements to the

Property include a commercial building (the “Building”) and a parking lot.

       The Property is located within the District. The Board has the authority to administer

and supervise the District. The petition names both the District and the Board as

respondents. For simplicity, this decision generally refers only to the District.

       A school district has authority to levy taxes on real estate located within its borders.

When levying taxes, a school district uses the assessments prepared by the county in which

the real estate is located.

       The Property is located within the County. Between 2006 and 2019, the County

assessed the value of the Building for tax purposes based on the Building having 79,600

square feet of space. In connection with the 2019 assessment, the Owner sought to verify

the measurement and determined that the Building only had 63,000 square feet of space.

In 2020, the County re-measured the Building, confirmed that its prior measurement was

inaccurate, and agreed with the Owner’s measurement.

       The reduction in square footage reduced the assessed value of the Building from

$1,569,100.00 to $1,293,500.00. Between 2006 and 2019, the Owner paid school taxes and

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real estate taxes based on the erroneous assessments. During this period, the Owner paid

(i) $24,016.03 in excess real estate taxes to the County, (ii) $5,112.10 in excess school

taxes to the New Castle County Vocational-Technical School District (the “Vo-Tech

District”), and (iii) $69,244.52 in excess school taxes to the District.

B.     The Refund Requests

       In May 2020, the Owner sent a refund request to the District. The Owner sent similar

requests to the County and to the Vo-Tech District.

       In submitting its request to the District, the Owner invoked Section 1921 of Title 14

of the Delaware Code. That section states:

       Local county school taxes paid through error or by mistake may be refunded
       by the school district to which the taxes were paid as follows:

              (1) The person claiming a refund of taxes shall file with the board of
              the school district a request for refund under oath or affirmation
              stating the payment of the taxes, the person, firm, corporation or
              association by whom the taxes were paid, and the date of payment and
              stating why it is believed the taxes were paid in error;

              (2) The school board shall submit the request for refund to the receiver
              of taxes of the county for the receiver’s approval of the payment of
              the refund and shall make no refund unless the receiver of taxes
              approves the refund in writing, except that capitation taxes may be
              refunded without such approval;

              (3) The school board and the receiver of taxes shall keep a record of
              all refunds for at least 3 years, which record shall be open for public
              inspection during regular business hours.

14 Del. C. § 1921. By submitting its request, the Owner sought to comply with the

requirements of Section 1921(1) and initiate the refund procedure contemplated by statute.

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       By letter dated July 2, 2020, the District acknowledged receipt of the refund request.

But the District did not “submit the request for refund to the receiver of taxes of the county

for the receiver’s approval of the payment of the refund,” as contemplated by Section

1921(2). Instead, the District’s letter noted that the Owner had submitted a similar refund

request to the County and asked the Owner to submit a copy of the County’s determination

once it was received. The District noted that the Board would hold a hearing on the refund

request once it had received a copy of the County’s determination.

       On January 12, 2021, the County adopted Resolution 21-004, which approved a tax

credit for the Owner in the amount of $24,016.03 (the “Resolution”). The Resolution

acknowledged the County’s mistake and noted that the incorrect assessment had caused

the Owner to pay excessive school taxes to the Vo-Tech District and the District. Based on

the Resolution, both the County and the Vo-Tech District refunded the overpayments.

       By letter dated January 22, 2021, the Owner provided the Resolution to the District

and reiterated its request for a refund. Once again, the District did not “submit the request

for refund to the receiver of taxes of the county for the receiver’s approval of the payment

of the refund” as contemplated by Section 1921(2). Instead, during a meeting on April 13,

2021, the Board denied the request.

       As a result of the vote, the Board did not submit the Owner’s request to the County.

C.     This Litigation

       On May 11, 2021, the Owner commenced this action by filing a petition. The lone

substantive count in the petition seeks a series of declaratory judgments.

                                              4
       In its principal request, the Owner seeks a declaration that Section 1921 requires the

District to submit the refund request to the County. Redundantly, the Owner seeks a

declaration that the District must comply with Section 1921.

       In an alternative request, the Owner seeks a declaration that the Resolution amounts

to the approval of the refund request. As an adjunct to that declaration, the Owner seeks a

determination that the District must pay the refund.

       The only other count in the petition seeks an injunction that would require the

District to comply with the court’s interpretation of Section 1921 by forwarding the request

for a refund to the receiver of taxes. The Owner contends that an injunction is necessary

because Section 1921 provides the exclusive mechanism for obtaining a refund of school

taxes paid in error, and the District has failed to comply with Section 1921 to date.

       On June 7, 2021, the District moved to dismiss the petition for lack of subject matter

jurisdiction under Court of Chancery Rule 12(b)(1). The Owner cross-moved for judgment

on the pleadings under Court of Chancery Rule 12(c) or, in the alternative, for summary

judgment under Court of Chancery Rule 56.

       This decision grants the motion to dismiss under Rule 12(b)(1) for lack of subject

matter jurisdiction. It does not reach the other motions.

                               II.    LEGAL ANALYSIS

       The District has moved to dismiss the petition for lack of subject matter jurisdiction

under Court of Chancery Rule 12(b)(1). The Court of Chancery is a court of limited

jurisdiction. El Paso Nat. Gas Co. v. TransAmerican Nat. Gas Corp., 669 A.2d 36, 39 (Del.

1995). “The Court of Chancery will grant a motion to dismiss under Rule 12(b)(1) if it

                                              5
appears from the record that the Court does not have jurisdiction over the claim.” AFSCME

Locs. 1102 & 320 v. City of Wilmington, 858 A.2d 962, 965 (Del. Ch. 2004).

       The Court of Chancery can exercise subject matter jurisdiction over a case that falls

into one of three buckets. See generally Candlewood Timber Grp., LLC v. Pan Am. Energy,

LLC, 859 A.2d 989, 997 (Del. 2004). First, jurisdiction exists if a plaintiff asserts a claim

sounding in equity. See 10 Del. C. § 341. Second, jurisdiction exists if the plaintiff seeks

equitable relief and there is no adequate remedy at law. See 10 Del. C. §§ 341, 342. Third,

jurisdiction exists by statute. See, e.g., 8 Del. C. § 111.

       At the pleading stage, “[e]quitable jurisdiction must be determined from the face of

the complaint as of the time of filing, with all material factual allegations viewed as true.”

Intl Bus. Machs. Corp. v. Comdisco, Inc., 602 A.2d 74, 78 (Del. Ch. 1991). If a defendant

challenges the existence of jurisdiction by relying on material extrinsic to the pleadings,

then the motion is treated as one for summary judgment, and the plaintiff must support the

allegations establishing jurisdiction “with competent proof.” Pitts v. City of Wilmington,

2009 WL 1204492, at *5 (Del. Ch. Apr. 27, 2009) (cleaned up). Here, the challenge rests

on the face of the complaint.

       When a plaintiff seeks to ground jurisdiction on the need for an equitable remedy,

the court “must look beyond the remedies nominally being sought, and focus upon the

allegations of the complaint in light of what the plaintiff really seeks to gain by bringing

his or her claim.” Candlewood, 859 A.2d at 997. “A litigant cannot gain access to the Court

of Chancery simply by adding a claim for equitable relief to an otherwise legal claim.”

Reed v. Brady, 2002 WL 1402238, at *3 (Del. Ch. June 21, 2002), aff’d, 818 A.2d 150

                                               6
(Del. 2003). The plaintiff must also show that the plaintiff lacks an adequate remedy at

law. See El Paso, 669 A.2d at 39. A remedy at law is adequate if it “will afford the plaintiffs

full, fair and complete relief.” Hughes Tool Co. v. Fawcett Publ’ns, Inc., 315 A.2d 577,

579 (Del. 1974).

A.     Count I: The Request For Declaratory Relief

       In Count I of the petition, the Owner seeks a declaration regarding the proper

interpretation of Section 1921. The parties disagree about whether Section 1921 confers

any discretion on the District. The Owner contends that Section 1921 requires the District

to submit a refund request to the County. The District contends that Section 1921 grants

the Board discretion over a refund request.

       Although neither party has cited the Delaware Declaratory Judgment Act, that

statute provides the starting point for analyzing whether the court has jurisdiction over this

claim. The pertinent provision states:

       Except where the Constitution of this State provides otherwise, courts of
       record within their respective jurisdictions shall have power to declare rights,
       status and other legal relations whether or not further relief is or could be
       claimed. No action or proceeding shall be open to objection on the ground
       that a declaratory judgment or decree is prayed for. The declaration may be
       either affirmative or negative in form and effect, and such declaration shall
       have the force and effect of a final judgment or decree.

10 Del. C. § 6501.

       The Delaware Declaratory Judgment Act empowers the “courts of record” to issue

declaratory judgments “within their respective jurisdictions.” Id. It does not provide an

independent basis for jurisdiction that would not otherwise exist. See Diebold Comput.

Leasing, Inc. v. Com. Credit Corp., 267 A.2d 586, 591 (Del. 1970). The Delaware

                                              7
Declaratory Judgment Act does not create substantive rights of any sort; it merely offers

“a procedural means for securing judicial relief in an expeditious and comprehensive

manner.” Hoechst Celanese v. Nat’l Union Fire Ins. Co., 623 A.2d 1133, 1136 (Del. Super.

1992).

         When evaluating whether equitable jurisdiction exists in a declaratory judgment

action, the question is therefore whether “there is any underlying basis for equity

jurisdiction measured by traditional standards.” Diebold, 267 A.2d at 591. The Owner’s

core claim is the assertion that the District failed to comply with Section 1921. That

assertion presents a question of statutory interpretation.

         “Issues of statutory and constitutional interpretation are, beyond question, legal

issues capable of resolution by the Superior Court, and declaratory relief is available there

. . . .” Reed, 2002 WL 1402238, at *9 n.7. A request for a declaratory judgment regarding

the interpretation of a Delaware statute therefore does not give rise to an equitable claim

that could confer jurisdiction under the first bucket. Such a request, standing alone, only

will confer jurisdiction if the General Assembly has given the Court of Chancery

jurisdiction over issues relating to the statute in question, thereby invoking the third

jurisdictional bucket. Here, the General Assembly has not granted jurisdiction to the Court

of Chancery to entertain disputes under Section 1921. Jurisdiction therefore does not exist

under the first or third buckets.

         In response, the Owner relies on McGinnes v. Department of Finance (McGinnes

Chancery), 377 A.2d 16 (Del. Ch. 1977), in which this court issued a decision on remand

from the Delaware Supreme Court’s decision in McGinnes v. Department of Finance

                                              8
(McGinnes Supreme), 359 A.2d 166 (Del. 1976). In that litigation, a property owner

contended that a school district had improperly added 10% to the rate of taxation approved

by taxpayers. McGinnes Supreme, 359 A.2d at 167. The property owner brought a class

action seeking refunds under Section 1921. McGinnes Chancery, 377 A.2d at 19, 22. This

court heard the case and denied the request, holding that the school board had calculated

the tax rate accurately. McGinnes Supreme, 359 A.2d at 167.

       The property owner appealed, and the Delaware Supreme Court reversed. Id. at 169.

The Delaware Supreme Court then remanded the case so that the Court of Chancery could

determine the appropriate scope of relief, including whether the relief would be prospective

only or also retroactive. See id. On remand, the Court of Chancery permitted the taxpayers

to invoke Section 1921 to recover refunds for prior years, thereby granting retroactive

relief. McGinnes Chancery, 377 A.2d at 21.

       To implement its ruling, the court directed the parties to submit “an order in

accordance with this opinion.” Id. The school district moved for reargument, and the court

stood by its ruling. Id. at 22. In doing so, the court addressed the school district’s argument

that the doctrines of laches and estoppel should bar any requests for refunds because the

requests would be disruptive to the day-to-day operations of the district. Id. The court

rejected this argument, explaining that “[a]ny disruptive effect of the judgments, which

here may be ultimately collected, on defendants’ financial affairs is irrelevant.” Id. By

referring to judgments that “may ultimately be collected,” the court plainly contemplated

enforceable judgments for money damages.

                                              9
       The Owner contends that the McGinnes litigation demonstrates that this court can

hear its suit, issue a declaration regarding the meaning of Section 1921, and enter an order

enforcing the statute. Neither of the extant McGinnes decisions, however, mentions the

issue of subject matter jurisdiction. There is no indication that any litigant raised it, and the

courts do not appear to have considered it.

       When a decision does not rule on an issue, the decision does not constitute binding

precedent on that subject. The Delaware Supreme Court follows the traditional definition

of “dictum,” describing it as a judicial statement on an issue that “would have no effect on

the outcome of [the] case.” Brown v. United Water Del., Inc., 3 A.3d 272, 276–77(Del.

2010). In Delaware, dictum is “without precedential effect.” Crown EMAK P’rs, LLC v.

Kurz, 992 A.2d 377, 398 (Del. 2010). “Thus, broad judicial statements, when taken out of

context, do not constitute binding holdings.” In re MFW S’holders Litig., 67 A.3d 496, 521

(Del. Ch. 2013), aff’d sub nom. Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014).

By parity of reasoning, a decision does not provide authority for a subject if the court did

not address it at all.

       The McGinnes decisions thus do not provide authority for the proposition that this

court has jurisdiction to hear an action under Section 1921.1 The claim for a declaratory

judgment will not support subject matter jurisdiction here.

       1
          In fairness to the Owner, a question about the existence of subject matter
jurisdiction is arguably different, because a court “has a duty to examine issues of subject
matter jurisdiction sua sponte.” See Crown Castle Fiber LLC v. City of Wilmington, 2021
WL 2838425, at *1 (Del. Ch. July 8, 2021). The McGinnes decisions did not raise the lack
of subject matter jurisdiction, which supports a weak inference that the courts believed they
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B.     Count II: The Request For Injunctive Relief

       The real question is whether jurisdiction exists under the second bucket, i.e. due to

the need for injunctive relief. This court will exercise jurisdiction over a request for a

declaratory judgment interpreting a statute if the petitioner can demonstrate a need for

equitable relief to implement the remedy. See Kraft v. WisdomTree Invs., Inc., 145 A.3d

969, 979 (Del. Ch. 2016). The Owner has attempted to establish jurisdiction on that basis

through Count II of the petition, which seeks an injunction compelling the District to

comply with the court’s interpretation of Section 1921.

       A tag-along injunction to enforce a declaratory judgment is generally insufficient to

confer equitable jurisdiction. “Declaratory judgments are self-executing and have the force

and effect of a final judgment or decree.” Reed, 2002 WL 1402238, at *3 (footnote and

internal quotation marks omitted). Parties are expected to comply with final judgments.

Consequently, unless there is reason to believe that a party will disregard the judgment,

there is no need for an add-on in injunction. Id.

       There are some settings where equitable relief may be necessary to implement a

declaratory judgment. Interim relief may be necessary. See Doe v. Coupe, 2015 WL

4239484, at *1 (Del. Ch. July 14, 2015) (finding equitable jurisdiction existed where

plaintiff sought both preliminary and permanent injunctive relief). Or the implementation

could exercise jurisdiction over that type of case. Although the duty to examine subject
matter jurisdiction exists, a busy trial court may not spot a potential jurisdictional flaw, and
a busy appellate court may not notice the issue either. The McGinnes litigation took place
over four decades ago, and it is difficult in hindsight to draw an inference from silence.

                                              11
of a decree could involve a complex undertaking that would necessitate a receiver or other

equitable mechanisms and interventions. See Delawareans for Educ. Opportunity v.

Carney, 2018 WL 4849935, at *8 (Del. Ch. Oct. 5, 2018). The relief also could require the

reallocation of property rights. See, e.g., Highlights for Child., Inc. v. Crown, 193 A.2d

205, 206 (Del. Ch. 1963) (finding equitable jurisdiction existed where implementation of

declaratory judgment required cancellation of shares); Kraft, 145 A.3d at 987 (finding

equitable jurisdiction existed where plaintiff’s requested relief was “functionally similar to

an equitable cancellation of shares”). Under those circumstances, jurisdiction may exist in

equity under the second bucket.

       Nothing about this case suggests a need for injunctive relief. The Owner complains

that the District has not complied with the statute to date, but that is because the District

interprets the statue differently. At present, there is no reason to think that the District

would fail to comply with a binding judicial declaration. The prayer for an injunction is

therefore not sufficient at this stage to support equitable jurisdiction. See Tunnell Cos., L.P.

v. Del. Div. of Revenue, 2009 WL 2217746, at *1 (Del. Ch. July 13, 2009); Reed, 2002 WL

1402238, at *3.

       Should this prediction prove inaccurate, and if it turns out that equitable relief is

necessary, then mechanisms exist by which the Owner can obtain equitable relief after the

declaratory judgment has issued. See Reed, 2002 WL 1402238, at *3. At that point, the

Owner could file suit in this court seeking equitable relief, or the Owner could ask to have

the judge presiding over the case empowered to act as a Vice Chancellor pro hac vice. Del.

Const. art. IV, § 13(2).

                                              12
       It also should be possible for the Owner to obtain relief as a matter of law. As noted

previously, the McGinnes court contemplated an enforceable judgment for money damages

on which property holders could collect. McGinnes Chancery, 377 A.2d at 21. The

Delaware Superior Court can award that form of relief. It is true that a taxpayer has no

cognizable legal claim for the recovery of voluntarily paid taxes in the absence of a statute

conferring that right. Id. at 19–20. But if the Owner is correct in its interpretation of Section

1921, then the statute provides a basis to recover an enforceable judgment, comparable to

the relief contemplated in the McGinnes case.

                                   III.    CONCLUSION

       The Owner has not shown grounds for the existence of equitable jurisdiction. The

case is dismissed, subject to the Owner’s right to elect under 10 Del. C. § 1902 to have the

claim transferred to the Superior Court of Delaware.

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