IN THE SUPREME COURT OF THE STATE OF DELAWARE
CLAUDIO BALLARD, KEITH § DELUCIA, GARY KNUTSEN, § SHEPHARD LANE, PETER § LUPOLI, IRA LEEMON, JOHN § No. 337, 2019 KIDD, CELESTIAL PARTNERS, § LLC, VEEDIMS, LLC, § Court Below–Court of Chancery § of the State of Delaware Defendants Below– § Appellants, § C.A. No. 2018-0274 § v. § § JPMORGAN CHASE BANK, N.A., § individually, and on behalf of itself § and other creditors similarly situated, § § Plaintiff Below– § Appellee. §
Submitted: August 8, 2019 Decided: August 16, 2019
Before STRINE, Chief Justice; VAUGHN, and TRAYNOR, Justices.
ORDER
Upon consideration of the notice of interlocutory appeal, the supplemental
notice of appeal, their exhibits, and the Court of Chancery’s order denying
Defendants’ motion or certification of an interlocutory appeal, it appears to the
Court that:
(1) This appeal arises from a Court of Chancery decision granting in part
and denying in part a motion to dismiss filed by Data Treasury Corporation (“DTC”), its directors, and certain affiliates (collectively, “Defendants”). The
following events preceded this ruling.
(2) On June 2, 2015, the United States District Court for the Eastern
District of Texas entered a judgment awarding JPMorgan Chase Bank, N.A.
(“JPMorgan”) damages in the amount of sixty-nine million dollars against DTC for
its breach of a licensing agreement (the “Judgment”). The Judgment was affirmed
on appeal1 but remains unpaid.
(3) JPMorgan filed two complaints in the Court of Chancery in aid of its
efforts to collect on the Judgment. The actions challenge DTC’s payment of
dividends, in different years, as unlawful under Sections 170, 172, 173, and 174 of
the Delaware General Corporation Law.2 In particular, JPMorgan alleges that
Defendants, knowing that DTC owed JPMorgan a large refund under the licensing
agreement, illegally issued dividends to stockholders and transferred funds to
insiders and affiliates in an effort to avoid paying JPMorgan.
(4) In the first action, JPMorgan seeks to recover under Section 174 for
dividends DTC paid in 2011 and 2012. Discovery is presently underway in that
action, and it is not at issue in this appeal.
(5) In the second action, which is the subject of this appeal, JPMorgan
sued Defendants to recover two categories of distributions that DTC allegedly
1 823 F.3d 1006 (5th Cir. 2016). 2 8 Del. C. §§ 170-74.
2 made unlawfully to evade its liability to JPMorgan: (i) dividends DTC paid from
2006 to 2010; and (ii) other individual transfers DTC made to insiders from 2011
to 2013.
(6) Defendants moved to dismiss the complaint, arguing that JPMorgan
lacked standing under Section 174 to challenge the payments of dividends from
2006 to 2010 because it was not a creditor at that time. Defendants also argued
that JPMorgan’s fraudulent-transfer claims were untimely under the one-year
discovery period applicable to claims filed more than four years after a challenged
transfer under Section 1309(1) of the Delaware Uniform Fraudulent Transfer Act
(“DUFTA”)3 and that its unlawful-dividend claims were untimely under the six-
year limitations period in Section 174.4
(7) On July 11, 2019, the Court of Chancery issued an opinion granting in
part and denying in part Defendants’ motion to dismiss and, on July 19, 2019,
entered an implementing order. The Court of Chancery held that: (i) JPMorgan
had standing to assert a claim as a creditor of DTC under Section 174; (ii) the six-
year limitations period in Section 174 is a statute of repose, to which tolling
principles do not apply and, therefore, JPMorgan’s unlawful dividend claim with
3 A cause of action with respect to a fraudulent transfer with actual intent to hinder, delay, or defraud a creditor is extinguished unless it is brought “within 4 years after the transfer was made or the obligation was incurred or, if later, within 1 year after the transfer or obligation was or could reasonably have been discovered by the claimant.” 6 Del. C. § 1309(1). 4 Under 8 Del. C. § 174(a), “[i]n case of any wilful or negligent violation of… § 173 of this title, the directors under whose administration the same may happen shall be jointly and severally liable, at any time within 6 years after paying such unlawful dividend… .”
3 respect to dividends that were paid from 2006 to 2010 was untimely; and (iii) the
one-year discovery period in Section 1309(1) begins to run when the fraudulent
nature of a challenged transfer—as opposed to the mere occurrence of the
transfer—is or could reasonably have been discovered and, therefore, JPMorgan
had timely filed claims challenging as fraudulent the dividends paid from 2006 to
2010 and the individual payments made to insiders from 2011 to 2013.
(8) On June 26, 2019, Defendants asked the Court of Chancery to certify
an interlocutory appeal from the court’s opinion and implementing order.
Defendants maintained that the opinion and order decided a substantial issue of
material importance because they permit JPMorgan’s challenge to Defendants’
dividends and other transfers, however old, to proceed under DUFTA. Defendants
further argued that the following Supreme Court Rule 42(b)(iii) factors weighed in
favor of granting interlocutory review: the opinion decided an issue of first
impression;5 the Court of Chancery’s interpretation of DUFTA conflicts with the
decisions of other Delaware trial courts;6 the question of law relates to the
construction or application of DUFTA, which has not been, but should be, settled
by this Court in advance of an appeal from a final order;7 review of the
interlocutory order may terminate the litigation;8 and review of the interlocutory
5 Del. Supr. Ct. R. 42(b)(iii)(A). 6 Del. Supr. Ct. R. 42(b)(iii)(B). 7 Del. Supr. Ct. R. 42(b)(iii)(C). 8 Del. Supr. Ct. R. 42(b)(iii)(G).
4 order may serve considerations of justice.9 JPMorgan opposed the request for
certification but, in the alternative and in the event that the court were to certify the
appeal, cross-moved for certification of an interlocutory cross-appeal of the Court
of Chancery’s ruling that Section 174 is a statute of repose and that JPMorgan’s
Section 174(a) claim was untimely.
(9) On August 7, 2019, the Court of Chancery denied Defendants’
application for certification of an interlocutory appeal. Although the Court of
Chancery agreed that its decision decided three substantial issues of material
importance—a threshold consideration under Rule 42(b)(i)—it nevertheless
concluded that interlocutory review was not warranted, a conclusion the court
reached only after a careful balancing of the Rule 42(b)(iii) factors upon which
Defendants rely. We agree.
(10) The Court of Chancery rejected—rightly, in our view—Defendants’
contention that review of the interlocutory order may terminate the litigation, a
relevant factor under Rule 42(b)(iii)(G). In particular, the court recognized that,
even if its holding concerning Section 1309(1)’s one-year discovery period were
reversed, at least some of JPMorgan’s claims would nevertheless survive. This is
so because the record suggests that JPMorgan did not know about the 2006 and
2007 dividends until February of 2018, less than one year before it filed suit.
Moreover, discovery is likely to shed light on a currently murky record regarding
9 Del. Supr. Ct.
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IN THE SUPREME COURT OF THE STATE OF DELAWARE
CLAUDIO BALLARD, KEITH § DELUCIA, GARY KNUTSEN, § SHEPHARD LANE, PETER § LUPOLI, IRA LEEMON, JOHN § No. 337, 2019 KIDD, CELESTIAL PARTNERS, § LLC, VEEDIMS, LLC, § Court Below–Court of Chancery § of the State of Delaware Defendants Below– § Appellants, § C.A. No. 2018-0274 § v. § § JPMORGAN CHASE BANK, N.A., § individually, and on behalf of itself § and other creditors similarly situated, § § Plaintiff Below– § Appellee. §
Submitted: August 8, 2019 Decided: August 16, 2019
Before STRINE, Chief Justice; VAUGHN, and TRAYNOR, Justices.
ORDER
Upon consideration of the notice of interlocutory appeal, the supplemental
notice of appeal, their exhibits, and the Court of Chancery’s order denying
Defendants’ motion or certification of an interlocutory appeal, it appears to the
Court that:
(1) This appeal arises from a Court of Chancery decision granting in part
and denying in part a motion to dismiss filed by Data Treasury Corporation (“DTC”), its directors, and certain affiliates (collectively, “Defendants”). The
following events preceded this ruling.
(2) On June 2, 2015, the United States District Court for the Eastern
District of Texas entered a judgment awarding JPMorgan Chase Bank, N.A.
(“JPMorgan”) damages in the amount of sixty-nine million dollars against DTC for
its breach of a licensing agreement (the “Judgment”). The Judgment was affirmed
on appeal1 but remains unpaid.
(3) JPMorgan filed two complaints in the Court of Chancery in aid of its
efforts to collect on the Judgment. The actions challenge DTC’s payment of
dividends, in different years, as unlawful under Sections 170, 172, 173, and 174 of
the Delaware General Corporation Law.2 In particular, JPMorgan alleges that
Defendants, knowing that DTC owed JPMorgan a large refund under the licensing
agreement, illegally issued dividends to stockholders and transferred funds to
insiders and affiliates in an effort to avoid paying JPMorgan.
(4) In the first action, JPMorgan seeks to recover under Section 174 for
dividends DTC paid in 2011 and 2012. Discovery is presently underway in that
action, and it is not at issue in this appeal.
(5) In the second action, which is the subject of this appeal, JPMorgan
sued Defendants to recover two categories of distributions that DTC allegedly
1 823 F.3d 1006 (5th Cir. 2016). 2 8 Del. C. §§ 170-74.
2 made unlawfully to evade its liability to JPMorgan: (i) dividends DTC paid from
2006 to 2010; and (ii) other individual transfers DTC made to insiders from 2011
to 2013.
(6) Defendants moved to dismiss the complaint, arguing that JPMorgan
lacked standing under Section 174 to challenge the payments of dividends from
2006 to 2010 because it was not a creditor at that time. Defendants also argued
that JPMorgan’s fraudulent-transfer claims were untimely under the one-year
discovery period applicable to claims filed more than four years after a challenged
transfer under Section 1309(1) of the Delaware Uniform Fraudulent Transfer Act
(“DUFTA”)3 and that its unlawful-dividend claims were untimely under the six-
year limitations period in Section 174.4
(7) On July 11, 2019, the Court of Chancery issued an opinion granting in
part and denying in part Defendants’ motion to dismiss and, on July 19, 2019,
entered an implementing order. The Court of Chancery held that: (i) JPMorgan
had standing to assert a claim as a creditor of DTC under Section 174; (ii) the six-
year limitations period in Section 174 is a statute of repose, to which tolling
principles do not apply and, therefore, JPMorgan’s unlawful dividend claim with
3 A cause of action with respect to a fraudulent transfer with actual intent to hinder, delay, or defraud a creditor is extinguished unless it is brought “within 4 years after the transfer was made or the obligation was incurred or, if later, within 1 year after the transfer or obligation was or could reasonably have been discovered by the claimant.” 6 Del. C. § 1309(1). 4 Under 8 Del. C. § 174(a), “[i]n case of any wilful or negligent violation of… § 173 of this title, the directors under whose administration the same may happen shall be jointly and severally liable, at any time within 6 years after paying such unlawful dividend… .”
3 respect to dividends that were paid from 2006 to 2010 was untimely; and (iii) the
one-year discovery period in Section 1309(1) begins to run when the fraudulent
nature of a challenged transfer—as opposed to the mere occurrence of the
transfer—is or could reasonably have been discovered and, therefore, JPMorgan
had timely filed claims challenging as fraudulent the dividends paid from 2006 to
2010 and the individual payments made to insiders from 2011 to 2013.
(8) On June 26, 2019, Defendants asked the Court of Chancery to certify
an interlocutory appeal from the court’s opinion and implementing order.
Defendants maintained that the opinion and order decided a substantial issue of
material importance because they permit JPMorgan’s challenge to Defendants’
dividends and other transfers, however old, to proceed under DUFTA. Defendants
further argued that the following Supreme Court Rule 42(b)(iii) factors weighed in
favor of granting interlocutory review: the opinion decided an issue of first
impression;5 the Court of Chancery’s interpretation of DUFTA conflicts with the
decisions of other Delaware trial courts;6 the question of law relates to the
construction or application of DUFTA, which has not been, but should be, settled
by this Court in advance of an appeal from a final order;7 review of the
interlocutory order may terminate the litigation;8 and review of the interlocutory
5 Del. Supr. Ct. R. 42(b)(iii)(A). 6 Del. Supr. Ct. R. 42(b)(iii)(B). 7 Del. Supr. Ct. R. 42(b)(iii)(C). 8 Del. Supr. Ct. R. 42(b)(iii)(G).
4 order may serve considerations of justice.9 JPMorgan opposed the request for
certification but, in the alternative and in the event that the court were to certify the
appeal, cross-moved for certification of an interlocutory cross-appeal of the Court
of Chancery’s ruling that Section 174 is a statute of repose and that JPMorgan’s
Section 174(a) claim was untimely.
(9) On August 7, 2019, the Court of Chancery denied Defendants’
application for certification of an interlocutory appeal. Although the Court of
Chancery agreed that its decision decided three substantial issues of material
importance—a threshold consideration under Rule 42(b)(i)—it nevertheless
concluded that interlocutory review was not warranted, a conclusion the court
reached only after a careful balancing of the Rule 42(b)(iii) factors upon which
Defendants rely. We agree.
(10) The Court of Chancery rejected—rightly, in our view—Defendants’
contention that review of the interlocutory order may terminate the litigation, a
relevant factor under Rule 42(b)(iii)(G). In particular, the court recognized that,
even if its holding concerning Section 1309(1)’s one-year discovery period were
reversed, at least some of JPMorgan’s claims would nevertheless survive. This is
so because the record suggests that JPMorgan did not know about the 2006 and
2007 dividends until February of 2018, less than one year before it filed suit.
Moreover, discovery is likely to shed light on a currently murky record regarding
9 Del. Supr. Ct. R. 42(b)(iii)(H).
5 when JPMorgan learned of the dividends paid between 2008 and 2010 and, in turn,
whether the claims relating to those dividends would survive the more restrictive
reading of Section 1309(1) advocated by Defendants. Add to this possibility the
fact that the first action JPMorgan filed challenging the 2011 and 2012
dividends—according to the Court of Chancery, a likely candidate for
consolidation—will not be abated by appellate review in this action and we are
compelled to agree with the Court of Chancery’s conclusion that the Rule
42(b)(iii)(G) factor does not weigh in favor of interlocutory review.
(11) Relatedly, the Court of Chancery further concluded that appellate
review of some or all of the issues decided in the opinion may never be necessary,
dependent upon the outcome of discovery. For example, after the completion of
discovery, it may be that some or all of JPMorgan’s fraudulent-transfer claims
survive because no evidence is uncovered to show JPMorgan knew of certain
dividends paid more than a year prior to the filing of suit. As noted above, if that
were the case, these claims would survive even if the court’s decision concerning
the one-year discovery period in Section 1309(1) was reversed.
(12) The Court of Chancery also rejected Defendants’ contention, which
curiously attempted to draw support from a purported “split in jurisdictions outside
of Delaware,”10 that the court’s interpretation of Section 1309(1)’s one-year
10 Defendants’ Motion for Certification of Interlocutory Appeal, File & ServeXpress Transaction ID 63630142, at p. 9.
6 discovery period exception conflicts with other decisions of Delaware trial courts.
We agree with the Court of Chancery that there are no conflicts among Delaware
trial courts and that the key issues in this case appear to be of first impression in
Delaware.
(13) Similarly, the Court of Chancery expressed “concern[] that a delay of
discovery in this action would impede a fair disposition of the merits,” pointing to,
among other things, the age of the underlying transactions, the intervening death of
a key witness, and “the record in the Texas action reflect[ing] efforts by DTC to
obstruct and delay discovery.”11 This concern resonates with us and weighs against
interlocutory review.
(14) Applications for interlocutory review are addressed to the sound
discretion of the Court.12 Giving great weight to the trial court’s thoughtful and
thorough analysis and in the exercise of our discretion, this Court has concluded
that the application for interlocutory review does not meet the strict standards for
certification under Supreme Court Rule 42(b). Exceptional circumstances that
would merit interlocutory review of the Court of Chancery’s decision do not exist
in this case,13 and the potential benefits of interlocutory review do not outweigh the
inefficiency, disruption, and probable costs caused by an interlocutory appeal.14
11 JPMorgan Chase Bank, N.A. v. Ballard, 2019 WL 3729389, at *4 (Del. Ch. Aug. 7, 2019). 12 Del. Supr. Ct. R. 42(d)(v). 13 Del. Supr. Ct. R. 42(b)(ii). 14 Del. Supr. Ct. R. 42(b)(iii).
7 NOW, THEREFORE, IT IS ORDERED that the interlocutory appeal is
REFUSED.
BY THE COURT:
/s/ Gary F. Traynor Justice