QVT Fund LP v. Eurohypo Capital Funding LLC, C.A. No. 5881-VCP (Del. Ch. July 8, 2011), read opinion here.
Issues Addressed: Whether a first-filed lawsuit in German courts would be a sufficient basis to dismiss a Delaware proceeding under either the first-filed rule or forum non conveniens principles in light of key witnesses being located in Germany and at least some issues being governed by German law.
The Short Answer: No.
This case was brought against a German bank and its two Delaware subsidiaries. The bank is the controlling member of both LLCs that were formed in Delaware. The amended complaint claims breach of contract, breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing, as well as a declaratory judgment under 10 Del. C. Section 6501.
The Court applied standard announced in the United States Supreme Court decision in Bell Atlantic v. Twombly, 550 U.S. 544, 555-56 (2007), to this motion to dismiss under Rule 12(b)(6). As noted previously on this blog, e.g., here, the Delaware Court of Chancery has previously applied the federal standard for motions to dismiss but this and other decisions make it clear that the federal standard governs motions to dismiss under Delaware state law.
The Court also referred to the familiar rule that if a Court considers matters beyond the complaint in a motion to dismiss, the motion will be treated as one for summary judgment under Rule 56 and the Court must give the parties a reasonable opportunity to take discovery and present all material relevant to the summary judgment motion. See footnotes 15 through 19 and accompanying text. However, the Court noted exceptions where the Court may consider documents such as SEC filings which are beyond the complaint but which will not convert a motion to dismiss into one for summary judgment.
Short Overview of Key Rulings
The Court discussed the internal affairs doctrine (“IAD”) and its application to the facts of this case to determine whether certain issues would be governed by Delaware law or German law. Although the Court found that to a limited extent German law would apply, the Court explained in detail why the primary issues would be governed by Delaware law pursuant to the IAD.
This is also one of the relatively rare decisions which denied a motion to dismiss a claim based on the implied covenant of good faith and fair dealing–and even the Court recognized that such claims are “rarely invoked successfully . . ..” See footnote 68.
The Court also explains the first-filed rule, otherwise known as the McWane doctrine, based on the Delaware Supreme Court decision in McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng’g Co., 263 A.2d 281, 283 (Del. 1970). The Court explained that the central questions before the Court require the application of Delaware law and are different from those issues to be decided in the earlier-filed German litigation and thus this case should not be stayed. The Court also reasoned that the claims in the Delaware action were not substantially or functionally identical to the claims in the German litigation.
The Court also explained why it rejected an argument to dismiss based on forum non conveniens. In addition to the several factors typically applied, the Court explained that “most corporate litigation in the Court of Chancery involves companies and documents located outside Delaware, and this mere inconvenience, without more, does not warrant a stay or dismissal.” See footnote 85.