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JPMorgan Chase Bank, N.A. v. Ballard

JPMorgan Chase Bank, N.A. v. Ballard

Court of Chancery of Delaware

April 11, 2019, Submitted; July 11, 2019, Decided

C.A. No. 2018-0274-AGB

Opinion

 [*1215]  BOUCHARD, C.

In June 2005, JPMorgan Chase Bank, N.A., ("J.P. Morgan") and Data Treasury Corporation ("DTC") entered into a licensing agreement to settle a patent infringement lawsuit. In exchange for a license on DTC's check imaging patents, J.P. Morgan paid $70 million to DTC, subject to J.P. Morgan's right to receive a refund if DTC licensed the same patents to someone else on more favorable terms.

Beginning in January 2006, DTC licensed its patents to many other companies for a small fraction [**2]  of what J.P. Morgan had paid for its license without telling J.P. Morgan, in violation of DTC's obligation to do so. After catching wind of this, J.P. Morgan sued DTC and obtained a final judgment against DTC for $69 million in June 2015. The judgment was affirmed on appeal in 2016 but remains unpaid.

J.P. Morgan brings this action in aid of its efforts to collect on its judgment. J.P. Morgan asserts claims against DTC, its directors at relevant times, and certain affiliates to recover two categories of distributions that DTC allegedly made unlawfully to evade its liability for the refund it owed to J.P. Morgan: (i) dividends DTC paid its stockholders from 2006 to 2010, and (ii) other payments DTC made to certain insiders from 2011 to 2013. J.P. Morgan's two main claims are that DTC's directors should be personally liable for the dividends DTC paid from 2006 to 2010 under 8 Del. C. § 174, and that J.P. Morgan is entitled to recover all of the distributions at issue (both the dividends and other payments) because they were fraudulent transfers under the Delaware Uniform Fraudulent Transfer Act.

DTC moved to dismiss all of J.P. Morgan's claims on a variety of grounds. The motion implicates two questions [**3]  of first impression concerning Section 174 of the Delaware General Corporation Law, and a third question of first impression concerning a limitations period in the Delaware Uniform Fraudulent Transfer Act.

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213 A.3d 1211 *; 2019 Del. Ch. LEXIS 254 **; 2019 WL 3022338

JPMORGAN CHASE BANK, N.A., individually, and on behalf of itself and other creditors similarly situated, Plaintiff, v. CLAUDIO BALLARD, KEITH DELUCIA, GARY KNUTSEN, SHEPHARD LANE, PETER LUPOLI, IRA LEEMON, JOHN KIDD, CELESTIAL PARTNERS, LLC, ZAAH TECHNOLOGIES, INC., VEEDIMS, LLC, POTENS PARTNERS LLC, AND DATATREASURY CORPORATION, Defendants.

Subsequent History: Motion denied by JPMorgan Chase Bank, N.A. v. Ballard, 214 A.3d 449, 2019 Del. Ch. LEXIS 299, 2019 WL 3729389 (Del. Ch., Aug. 7, 2019)

Appeal denied by Ballard v. JPMorgan Chase Bank, N.A., 214 A.3d 448, 2019 Del. LEXIS 394, 2019 WL 3852525 (Del., Aug. 16, 2019)

Prior History: JP Morgan Chase Bank, N.A. v. Datatreasury Corp., 79 F. Supp. 3d 643, 2015 U.S. Dist. LEXIS 72204 (E.D. Tex., Feb. 5, 2015)

CORE TERMS

dividend, Transfers, license, license agreement, six-year, fraudulent transfer, statute of repose, statute of limitations, discovery, notice, patents, tolling, documents, alleges, time period, insolvent, district court, defendants', fraudulent, six years, provisions, parties, paying, limitations period, questions, stock, time limit, jointly, terms, motion to dismiss

Business & Corporate Law, Directors & Officers, Management Duties & Liabilities, Causes of Action, Corporate Finance, Dividends & Reacquisition of Shares, Declaration & Distribution of Dividends, Governments, Legislation, Statute of Repose, Civil Procedure, Judgments, Enforcement & Execution, Fraudulent Transfers, Statute of Limitations, Tolling, Responses, Defenses, Demurrers & Objections, Motions to Dismiss, Pleading & Practice, Pleadings, Rule Application & Interpretation, Motions to Dismiss, Failure to State Claim, Complaints, Requirements for Complaint, Heightened Pleading Requirements, Fraud Claims, Mistake, Preclusion of Judgments, Estoppel, Judicial Estoppel, Justiciability, Standing, Personal Stake, Corporations, Dissolution & Receivership, Involuntary Dissolution, Interpretation, Enforcement & Execution, Causes of Action & Remedies, Breach of Fiduciary Duty, Statute of Limitations, Time Limitations, Motion Practice, Content & Form, Evidence, Burdens of Proof, Allocation, Constructive Dividends