09/28/2010 08:12:00 AM EST
Chancery Refers Non-Equitable Case to Superior Court; Suggests New Complex Commercial Litigation Division
Massachusetts Mutual Life Insurance Company
v. Certain Underwriters at Lloyd's of London, C.A. No. 4791-VCL
(Del. Ch. Sept. 24, 2010), read opinion here.
A prior decision by the Court of Chancery in this case, which denied a
motion to dismiss on non-jurisdictional grounds, was highlighted here.
The Court of Chancery sua sponte transferred this
case to the Delaware Superior Court after determining that the plaintiffs have
an adequate remedy at law. The Court did so despite a "consensus among the
litigants that equitable jurisdiction exists" and notwithstanding a prior
ruling in this case by the Court on non-jurisdictional issues. Especially
noteworthy is the Court's suggestion that this case may be appropriate for the
new Complex Commercial Litigation Division of the Delaware Superior Court.
The Complex Commercial Litigation Division
of the Delaware Superior Court was highlighted on this blog here, and more information is available about
this new litigation option (designed to handle cases involving over $1 million
that are outside the scope of the limited equitable jurisdiction of the Court
of Chancery), on the Court's website here. Coincidentally,
at a seminar about this new division held on the same day this decision was
issued, one of the judges in this new division said that he would consider
scheduling trials in as quickly as a week if the parties requested it in an
appropriate case. The idea is to accommodate the handling
of major cases as quickly and expertly as Chancery handles equitable
matters, but for cases where only money damages are sought.
Short Discussion of Court's Analysis
Despite submissions by the parties exhorting the Court of
Chancery to retain jurisdiction, the Court concluded that this
case did not fall within the three major categories of subject matter
jurisdiction to which Delaware's court of equity is limited, and which the
parties cannot confer upon it regardless of their consent. The first category
includes those cases where the plaintiff states an equitable claim. The
second category allows cases where the plaintiff requests equitable relief for
which there is no adequate remedy at law. The third type of case is
allowed when subject matter jurisdiction is specifically conferred by
The Court determined that the heart of this case involved
a coverage dispute by D & O insurers and bond underwriters, based on
allegations that they did not fulfill their obligations under their respective
policies in connection with the Bernie Madoff debacle. The Court determined on
its own, despite the contrary arguments of the parties, that at bottom the case
involved a breach of contract for money damages, which is the traditional
province of the Superior Court. Pursuant to Section 1902 of Title 10 of the
Delaware Code, the Court of Chancery transferred this matter to the Delaware
Superior Court based on the determination that the parties had an adequate
remedy at law. See also 10 Del. C. Section 342.
The Court rejected the argument that a claim for
"equitable apportionment of defense costs between two insurance carriers"
allowed it to retain jurisdiction. In addition to recent cases, the Court
relied on cases from the 1800s involving contribution, for its recognition that
contribution can give rise to equitable jurisdiction, and recent decisions have
exercised that jurisdiction. However, jurisdiction over contribution claims
does not lie exclusively in a court of equity. It is often concurrent
jurisdiction. See Godsell Mgmt., Inc. v. Turner Promotions, Inc., 2009 Del. Ch. LEXIS 243 (Del. Ch. May 4, 2009). See generally J. Travis Laster &
Michelle D. Morris, Breach of Fiduciary Duty and the Delaware Uniform
Contribution Act., 11 Del. L. Rev. 71, 72-79 (2010). The Court cited to the
treatise called Pomeroy's Equity Jurisprudence, at Section 178, for the
principle that when equitable jurisdiction is concurrent such as in a matter of
contribution, the Court can decline jurisdiction when sufficient remedies are
available at law.
The Court also discussed at length the new Complex
Commercial Litigation Division ("CCLD") of the Superior Court which
is especially suited for hearing cases involving the allocation and
apportionment of liability among multiple insurers. See links above for
details about the new CCLD.
The Delaware Constitution at Article IV, Section 13(2)
allows the Chief Justice upon written request by the Chancellor, to "designate
one or more of the State Judges" to sit in the Court of Chancery. Many cases
where a Delaware Superior Court Judge has been designated to sit as a Vice
Chancellor to hear matters involving equitable jurisdiction as an alternative
to transferring the case back to the Court of Chancery were cited in the
opinion. Likewise, Section 1902 of Title 10 of the Delaware Code allows the
case to be transferred back to the Court of Chancery from the Superior Court if
that is later determined to be warranted.
Finally, the Court rejected the argument that it should
retain jurisdiction because D & O coverage cases resemble indemnification
and advancement cases which the Court of Chancery has jurisdiction over
pursuant to Section 145 of the Delaware General Corporation Law.
Read more Delaware business
litigation case summaries and commentary on Delaware
Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X.
Pileggi, of Fox Rothschild LLP.