Dias v. Purches, C.A. No. 7199-VCG (Del. Ch. March 5, 2012).
Whether Delaware should defer to a first-filed case in Florida involving essentially the same allegations challenging the same merger.
Short Answer: No.
The defendants filed a motion to stay against an action challenging an agreement by which defendant Perfumania Holdings Inc. would acquire Parlux Fragrances, Inc. Several weeks before the instant action was filed, a similar action was filed in Florida seeking to enjoin the takeover of Parlux and making similar allegations of inadequate disclosure and breach of fiduciary duty.
The motion by defendants to stay the Delaware action in favor of the previously filed Florida action was based on the first-filed rule, explained in the doctrine announced in the Delaware Supreme Court decision of McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co., 263 A.2d 281 (Del. 1970). That doctrine is based on principles of comity and the efficient administration of justice, but it is not a rigidly applied standard.
Rather, where multiple suits are filed around the same time alleging challenges to the same transaction, instead of the first-filed rule, Delaware has frequently applied the standard known as forum non conveniens. The Court reasoned that the standard was appropriate in this case instead of the first-filed rule, and cited in footnote 5 to many other decisions that have applied a similar analysis. See, e.g., Ryan v. Gifford, 918 A.2d 341, 349 (Del. Ch. 2007) (holding the adequacy of a complaint is a more important factor than the first-filed status in considering the stay of a derivative action). See also cases cited at footnote 8.
After reciting the six factors typically considered in a forum non conveniens analysis, the Court explained that the availability of witnesses and evidence is not a concern because most corporate litigation in a Court of Chancery involves companies with documents and witnesses located outside of Delaware. In addition, although the Court recognized that other states can and do apply Delaware law, familiarity with that law should tend to make the trial process less burdensome in the Delaware Court of Chancery.
The Court also emphasized that because this case involves a Delaware corporate citizen, the interest of Delaware in this case is great (citing cases at footnote 9 for the important public policy statement that “the development of Delaware law is quite properly the duty and responsibility of the Delaware Courts”). Moreover, the Court underscored the principle that Delaware Courts have a “significant and substantial interest in overseeing the conduct of those owing fiduciary duties to shareholders of Delaware corporations.” See footnote 10.
The Court rejected the argument that it give weight to the fact that the Florida Court had already performed a substantial work on the case, and observed that discovery was at an early stage in both jurisdictions. In addition, the Court was not persuaded by the fact that a motion for expedited discovery was granted in Florida because a motion to expedite was also granted in Delaware as well.
In sum, the Court found nothing to indicate that the matter should be stayed in deference to the Florida action. To the contrary, the Court highlighted the “interest in this state in the behavior of fiduciaries for its corporate citizens (that) convinces me that the Motion to Stay must be denied.”