Court Opinion

ID: 6323510
Source: CourtListenerOpinion
Date Created: 2022-03-15 19:03:01.905578+00
Date Added: 2024-06-11T09:20:45.475683
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

SHAREHOLDER REPRESENTATIVE         )
SERVICES LLC, solely in its capacity as
                                   )
the Representative of the Stockholders,
                                   )
                                   )
          Plaintiff,               )
                                   )
      v.                           )               C.A. No. 2021-0465-KSJM
                                   )
DC CAPITAL PARTNERS FUND II, L.P., )
and CALIBURN HOLDINGS LLC (F/K/A )
JANUS HOLDCO LLC),                 )
                                   )
          Defendants.              )

                  ORDER CERTIFYING INTERLOCUTORY APPEAL

         1.     This order certifies interlocutory appeal from a Memorandum Opinion dated

February 14, 2022 (the “Opinion”). The Opinion interprets Section 111 of the Delaware

General Corporation Law, which vests this court with subject matter jurisdiction over

actions comprising a significant and growing portion of this court’s docket. The Opinion

held that this court lacks discretion to deny jurisdiction over cases within the scope of

Section 111, and thus denied the defendants’ motion to dismiss for lack of subject matter

jurisdiction. In my view, as discussed further below, the Opinion resolved a substantial

issue of material importance and the substantial benefits of interlocutory appeal outweigh

the costs.

         2.     Section 111 provides that “[a]ny civil action” within the categories listed in

the statute “may be brought in the Court of Chancery.”1 When moving to dismiss, the

1
    8 Del. C. § 111(a).
defendants did not dispute that this action falls within the categories described in Section

111. They instead argued that Section 111 grants the court discretion to decline jurisdiction

over the categories of claims described in the statute where those claims do not otherwise

implicate the court’s subject matter.        The Opinion rejected this argument, and the

defendants moved for certification of interlocutory appeal.

         3.      Supreme Court Rule 42 permits certification of interlocutory appeals when

“the order of the trial court decides a substantial issue of material importance that merits

appellate review before a final judgment.”2 If the “substantial issue” requirement is met,

this court will then analyze eight factors concerning whether “there are substantial benefits

that will outweigh the certain costs that accompany an interlocutory appeal.”3

         4.      The Opinion resolves a substantial issue, although this conclusion is not

necessarily an obvious one. As commonly articulated, the substantial-issue requirement is

met when a decision speaks to the merits of the case.4 Yet, in practice, the Supreme Court

has accepted interlocutory appeals of non-merits-based issues such as subject matter

jurisdiction.5 This practice suggests that the definition of a “substantial” issue extends

2
    Supr. Ct. R. 42(b)(i).
3
    Supr. Ct. R. 42(b)(ii); see Supr. Ct. R. 42(b)(iii)(A)–(H).
4
  See, e.g., Sprint Nextel Corp. v iPCS, Inc., 2008 WL 2861717, at *1 (Del. Ch. July 22,
2008) (stating that “[t]he substantial issue requirement is met when an interlocutory order
decides a main question of law which relates to the merits of the case, and not to collateral
matters” (internal quotation marks and citation omitted)); see generally Donald J. Wolfe,
Jr. & Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of
Chancery § 18.04[b] (2021) [hereinafter Wolfe & Pittenger] (listing issues over which the
Supreme Court has accepted interlocutory appeal).
5
  See, e.g., Daskin v. Knowles, 193 A.3d 717, 719 (Del. 2018) (accepting interlocutory
appeal in divorce proceeding where petitioner alleged, in part, the Family Court lacked
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more broadly than the definition of a “merits” issue. Put differently, a merits issue is

necessarily a substantial issue; a substantial issue is not necessarily a merits issue.

         5.        In American Appliance, Inc. v. State, for example, the Supreme Court

accepted an interlocutory appeal to resolve a dispute over the Superior Court’s subject

matter jurisdiction.6 The statute at issue delegated subject matter jurisdiction to a “state

court of competent jurisdiction.”7 On appeal, the Supreme Court concluded that the

Attorney General could bring an action for civil penalties under the statute in the Superior

Court, even though the statute did not identify the court by name. The Supreme Court went

on to clarify that where the Attorney General pursued injunctive relief authorized by the

statute, the Court of Chancery could exercise subject matter jurisdiction over the action.8

subject matter jurisdiction over the claim); Sanders v. Sanders, 570 A.2d 1189, 1190 (Del.
1990) (accepting “interlocutory appeal to consider whether the Family Court has
jurisdiction to hear a petition to rescind a property division agreement not merged into a
divorce decree”); Am. Appliance, Inc. v. State, 712 A.2d 1001, 1001 (Del. 1998) (accepting
interlocutory appeal to resolve a dispute over whether a statutory consumer fraud claim fell
within the Superior Court’s subject matter jurisdiction); Loc. Union 199, Laborers’ Inter’l
Union of N. Am. v. Plant, 297 A.2d 37, 38 (Del. 1972) (accepting interlocutory appeal of a
ruling that “established jurisdiction over the parties and the subject matter, i.e., the right of
the plaintiff to sue the defendant in the Superior Court”); see also Wolfe & Pittenger §
18.04[b] (stating that “[t]he amendments to Rule 42 in 2015 did not alter prior law generally
finding such matters not to rise to the level of a substantial issue and the Delaware courts
have continued to rely on pre-amendment case law addressing this issue”).
6
    712 A.2d at 1002–03.
7
    Id. at 1001.
8
    Id. at 1003.

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         6.     It is true that, as the plaintiff argues, few decisions resolving forum issues

will warrant interlocutory appeal.9 That is because, under Rule 42, “[i]nterlocutory appeals

should be exceptional, not routine.”10 Decisions interpreting the effect of an arbitration

clause on subject matter jurisdiction, for example, are routine and typically do not rise to

the level of material importance warranting interlocutory appeal.11          But here, as in

American Appliance, the Opinion informs the parameters of one trial court’s statutory

jurisdiction vis a vis another, resolving whether the Court of Chancery is required to accept

jurisdiction over actions under Section 111 when the Superior Court has concurrent

jurisdiction. Such an issue is exceptional and not routine.

         7.     Because the substantial-issue requirement is satisfied, this analysis turns to

whether there are substantial benefits outweighing the costs of an interlocutory appeal.12

Rule 42 supplies eight factors to consider when conducting this balancing analysis. Of

those eight factors, the defendants rely on the following four:

9
  See Dkt. 22, Pl.’s Opp’n to Defs.’ Appl. For Certification Of Interloc. Appeal at 2–5
(discussing cases).
10
   Supr. Ct. R. 42 (b)(ii); see also Vick v. Khan, 204 A.3d 1266, 2019 WL 856599, at *1
(Del. Feb. 21, 2019) (TABLE) (observing that applications for interlocutory review are
addressed to the discretion of the court and are granted only in “exceptional
circumstances”); Pirestani v. Regean, 187 A.3d 1249, 2018 WL 2948198, at *1 (Del. June
11, 2018) (TABLE) (same); Contour Energy Co. v. W. Fin. Co., 755 A.2d 387, 2000 WL
975115, at *1 (Del. June 9, 2000) (TABLE) (same).
11
   See, e.g., Isr. Disc. Bank of N.Y. v. First State Depository Co., LLC, 2012 WL 5359296,
at *2 (Del. Ch. Oct. 31, 2021) (observing that the “Supreme Court and this Court repeatedly
have found that determinations of arbitrability do not relate to the merits of a claim and,
thus, do not establish a substantial issue under Rule 42” (citation omitted)).
12
     See Supr. Ct. R. 42(b)(ii); Supr. Ct. R. 42(b)(iii)(A)–(H).

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                (B) The decisions of the trial courts are conflicting upon the
                question of law;

                (C) The question of law relates to the constitutionality,
                construction, or application of a statute of this State, which has
                not been, but should be, settled by this Court in advance of an
                appeal from a final order;

                (D) The interlocutory order has sustained the controverted
                jurisdiction of the trial court;

                (H) Review of the interlocutory order may serve considerations
                of justice.13

         8.     Of these four factors, the last three—(C), (D), and (H)—provide strong

support for certifying interlocutory appeal. Section 111 has never been interpreted by the

Supreme Court. The Opinion sustained the controverted jurisdiction of the trial court.

Since that interpretation of the statute goes to the jurisdiction of Delaware’s trial courts,

the benefits of settling that matter serve considerations of justice.

         9.     Factor (B) does not weigh in favor of interlocutory appeal. The defendants

argue that the decisions of trial courts are conflicting as to whether Section 111 grants the

Court of Chancery the discretion to deny interlocutory appeal.14 The Opinion previously

rejected this argument, while acknowledging that the defendants’ points were fair.15 This

order does not repeat that analysis, which is set out in detail in the Opinion itself.

         10.    To bolster this argument in their motion, the defendants contend that the

Opinion should have addressed a transcript ruling cited by the defendants, B&C Holdings,

13
  Supr. Ct. R. 42(b)(iii)(B), (C), (D), (H). By ignoring the other four, the defendants
concede that those factors weigh against or are neutral as to interlocutory appeal.
14
     See Dkt. 20, Defs.’ Appl. For Certification Of Interloc. Appeal at 6–8.
15
     See Op. at 8–10 & n.22.

                                                5
Inc. v. Temperatsure Holdings, LLC.16 But B&C does not inform the analysis for a few

reasons. For starters, this court is reticent to place precedential value on transcript rulings,17

although they are often informative. Also, the parties in B&C disputed whether the

plaintiffs’ claim fell within the scope of the LLC Act’s analogue to Section 111, 6 Del. C.

§ 18-111. Because Section 18-111 is narrower than Section 111, cases informing Section

18-111 are of limited utility to the scope of this court’s jurisdiction under Section 111. 18

Most importantly, B&C did not address the issue at hand. In B&C, the court held that the

plaintiffs had not properly invoked Section 18-111, because the claims were, in substance,

creditor claims.19 The parties in B&C did not raise, and thus the court did not reach, the

issue of whether this court has the discretion to deny jurisdiction over claims properly

asserted under 6 Del. C. § 18-111. As such, the court found no need to comment on B&C

in the Opinion.

16
     C.A. No. 2018-0645-JTL (Del. Ch. Feb. 8, 2019) (TRANSCRIPT).
17
  See Day v. Diligence, Inc., 2020 WL 2214377, at *1 (Del. Ch. May 7, 2020) (holding
that “[t]ranscript [r]ulings generally have no precedential value in this Court and they
should ordinarily not be relied on as precedent—at most they offer persuasive authority”
(emphasis in original)).
18
  See Wolfe & Pittenger § 2.02[d] n.92 (commenting that “[6 Del. C. § 15-122 (DRUPA);
6 Del. C. § 17-111 (DRULPA); 6 Del. C. § 18-111 (DLLCA)] . . . appear to be somewhat
narrower than 8 Del. C. § 111(a)” and stating that “[f] or example, the analogous provisions
of DRUPA, DRULPA, and DLLCA do not explicitly confer jurisdiction as to certificates
of merger, conversion, or domestication”); see also Sun Life Assurance Co. of Can. – U.S.
Operations Hldgs., Inc. v. Gp. One Thousand One, LLC, 206 A.3d 261, 269 (Del. Super.
Ct. 2019).
19
     B&C, C.A. No. 2018-0645-JTL, at 18:21–19:8.

                                                6
         11.    The defendants further argue that the Opinion should have addressed two

cases cited in their reply brief in support of their motion to dismiss, Goicuria v. Industrial

Accident Board,20 and Williams v. Dowd.21 The defendants cite to these cases for the

uncontroversial position that the Court of Chancery should decline to exercise jurisdiction

where a remedy at law is adequate. But both cases predate the enactment of Section 111,

and thus neither case speaks to the issue at hand. As such, the court found no need to

comment on these decisions in the Opinion.

         12.    That said, and although the trial court decisions can be reconciled, the tension

resolved by the Opinion has been lingering in dicta in the decisions of this court and the

Superior Court.22 This reality, coupled with the strong support for granting interlocutory

appeal under factors (C), (D), and (H), weigh in favor of granting the defendants’ request

for certification of interlocutory appeal. As always, if the Supreme Court disagrees, “it

need only decline to accept the appeal.”23

20
   1997 WL 599514, at *1–3 (Del. Ch. Aug. 28, 1997) (declining to exercise jurisdiction
over FOIA action where the underlying Industrial Accidental Board decision was
statutorily appealable to the Superior Court).
21
   1982 WL 525139, at *1 (Del. Ch. Jan. 11, 1982) (exercising concurrent jurisdiction over
fraud action brought in the Court of Chancery).
22
     See Op. at 10 n.22.
23
  In re Terraform Power, Inc. S’holder Litig., 2020 WL 6889189, at *2 (Del. Ch. Nov. 24,
2020).

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      13.    For the foregoing reasons, the Opinion is hereby certified to the Supreme

Court of the State of Delaware for disposition in accordance with Rule 42 of that Court.

                                         /s/ Kathaleen St. J. McCormick
                                         Chancellor Kathaleen St. J. McCormick
                                         Dated: March 15, 2022

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