Chancery Exercises Jurisdiction in Dispute Among Shareholders of Foreign Corporation

Darby Emerging Market Fund, L.P. v. Ryan,  Consol. C.A. No. 8381-VCP (Del. Ch. Nov. 27, 2013).

This Chancery decision addressed whether the Court had equitable jurisdiction over a dispute among shareholders of a foreign entity. Delaware’s court of equity relied on the well-worn “clean up doctrine”, which allows it to exercise equitable jurisdiction over an entire case even if less than all of the claims are equitable in nature.

In addition to outlining the historical basis for its limited jurisdiction, this opinion examined DGCL Section 111 which gives it jurisdiction over disputes regarding the terms of a corporation’s charter and related disputes among shareholders. The synopsis of the legislative bill that became Section 111 was reviewed to support the view that the statute was intended to deal with disputes regarding the charters of Delaware corporations. See footnote 31. But for purposes of a motion to dismiss under Rule 12(b)(1) the court did not definitely or conclusively rule on the issue of whether it might apply to non-Delaware corporations in other cases.

Section 111 was not the basis for the court’s exercise of jurisdiction. Rather, the clean-up doctrine enabled it to retain the case and address claims for specific performance and related contract issues. In connection with those issues, the Court denied a motion to dismiss under Rule 12(b)(6) based on the reasonable conceivability (possibility) standard.

An unusual procedural aspect of this case was that a related, similar  suit involving the same parties was filed the same day in Delaware Superior Court. The Superior Court determined that it did not have jurisdiction over that companion case, which it viewed as seeking equitable relief, and therefore that related case was transferred to the Court of Chancery pursuant to 10 Del. C. Section 1902 , where it was consolidated with the instant case.