In ODN Holding Corp., et al., v. Hsu, et al., C. A No. 6790-VCN (March 30, 2012), a dispute arose as to plaintiff Ng’s sale of a majority of the common stock (“Stock Sale”) of plaintiff ODN Holding Corporation (“ODN”) to plaintiff Oak Hill Capital Partners III, L.P. and plaintiff Oak Hill Capital Management Partners III, L.P. ODN is a Delaware corporation that owns and operates Oversee.net, a California corporation that engages in online marketing and advertising, specializing in selling, developing, and registering internet domain names. In 2000, plaintiff Ng and defendant Hsu created Oversee and from the beginning until December 2007, Oversee was owned solely by Ng and Hsu (or family trusts controlled by them). On October 22, 2009, Hsu sent a notice to ODN indicating his interest in selling the ODN stock he controlled. At the same time, Hsu filed a single count complaint in Delaware against Ng and ODN to enjoin the Stock Sale. After the Stock Sale closed, Hsu voluntarily dismissed the Delaware action. Approximately two years later, Hsu, and three other plaintiffs filed a three-count complaint in California which arose out of the same operative facts and circumstances as the claims in Delaware but was broader than the Delaware action. Allegations in the California complaint related to breaches of fiduciary duties, an investor agreement and certain stock option agreements. Three weeks after the California complaint was filed, ODN and Oak Hill filed a five-count complaint in Delaware alleging that most of the claims Hsu asserted in the California action either were asserted or should have been asserted in the first Delaware action, and because that action was dismissed with prejudice, most of the California claims were barred by either res judicata or collateral estoppel.
Court Denies Motion to Dismiss
Hsu moved to dismiss the second Delaware action arguing that the Delaware court did not have subject matter jurisdiction over Count I of that Delaware complaint, which sought to enjoin Hsu from prosecuting the California Action. Hsu argued that Count I:
[i]s not based on an equitable right and that it does not involve a subject matter that has been committed to this Court’s jurisdiction by statute. Therefore, Hsu argues that this Court can only exercise jurisdiction over Count I if, in that count, the Delaware Plaintiffs seek an equitable remedy. Although in Count I of the Second Delaware Complaint, the Delaware Plaintiffs seek an injunction, a remedy that Hsu admits is equitable, Hsu explains that a plaintiff is only entitled to an equitable remedy if she has no adequate remedy at law.
In finding that the Court had jurisdiction over Count I, the Court stated “[t]his Court has the authority to issue an injunction in aid of its jurisdiction even when an action filed in Delaware is the last-filed of two or more similar actions filed in different jurisdictions.”
Court Grants Motion to Stay Delaware Action
With respect to the motion to stay the second Delaware action, the Court noted that under McWane and its progeny:
[i]f the foreign action is the first-filed action, ‘principles of fairness, comity, judicial economy and the possibility of inconsistent results generally favor the granting of a stay.’ On the other hand, when a Delaware action is considered first-filed or when multiple actions are contemporaneously filed, this Court examines a motion to stay under the traditional forum non conveniens framework without regard to a McWane-type preference of one action over the other.
In granting the motion to stay, the Court focused on the following findings: (i) Hsu abandoned his first action in Delaware; (ii) the California action was significantly broader than the first Delaware action; and (iii) the California court was capable of providing prompt and complete justice. With respect to the capability of the California courts addressing this dispute, the Court noted that on matters of Delaware corporate law, those issues are best resolved by Delaware courts, but the Delaware corporate law issues in this case were garden variety issues (what is the preclusive effect of a dismissal with prejudice; what do certain contract provisions mean; did certain fiduciaries breach their duties in connection with the Stock Sale?) and so there was “no reason to think that the California Superior Court is not fully capable of addressing those issues.”