In late February, Delaware’s Supreme Court issued a Standing Order permitting Delaware Superior Court Judges currently serving in the Complex Commercial Litigation Division (CCLD) to sit as Vice-Chancellors in certain cases, upon approval of the Chancellor and President Judge of the Superior Court. A copy of the Order, entitled “In Re: Designation of Actions Filed Pursuant to 8 Del. C. 111, can be found here. The five judges currently sitting in the CCLD are Judges Meghan A. Adams, Eric M. Davis, Abigail M. LeGrow, Sheldon K. Rennie, and Paul R. Wallace. The Order itself is subtitled, “Cross-Designation Order.”
The Order provides for a one-year experiment, where the Chancellor and President Judge can “confer and assign breach of contract cases filed in the Court of Chancery under Section 111 to be assigned to CCLD judges to help alleviate the workload of the [Chancery] Court….”
Shortly after issuing this Order, the Supreme Court published “Guidelines for Requesting Special Designation of Judicial Officers in Court of Chancery Actions.” While these Guidelines describe circumstances and means for appointment of Superior Court judges to sit in Chancery cases, the Guidelines make clear they “are not intended to apply to special designations made pursuant to the Supreme Court’s Standing Order.”
Underlying the need to cross-designate CCLD judges is the expanded subject matter jurisdiction given to the Chancery Court via 8 Del. C. § 111, originally passed in 1999. The Order implies that litigants extensive use of this statute to initiate contract actions in Chancery, that otherwise would have been contract actions in the Superior Court, has raised case volume in Chancery to untenable levels. This excess caseload affects Chancery’s ability to maintain its very high standards, and to meet the needs of all litigants within its traditional jurisdiction. This August 8, 2022 Reuters article, Delaware General Corporation Law Section 111: a gateway to Chancery?, provides a summary of section 111’s history and effect on the Chancery Court. The full text of section 111 is set out at the end of this post.
In 2022, Chancellor McCormick issued an opinion holding that cases filed in Chancery under section 111 had to proceed in Chancery, as the statute did not give the Chancery Court any discretion to send these cases over to the Superior Court. See Shareholder Representative Services LLC v. DC Capital Partners Fund II, L.P. Later decisions follow that ruling. Thus, the Chancery Court cannot manage its own docket congestion by filtering down the number of section 111 cases.
Notably for our purposes, the most recent Chancery Court order following the DC Capital Partners ruling that section 111 jurisdiction is non-discretionary was issued in Seva Holdings, Inc. v. Octo Platform Equity Holdings, LLC. CCLD Judge Paul R. Wallace authored that Order last month. Per footnote 22 of that Order, Judge Wallace was “[s]itting as a Vice Chancellor of the Court of Chancery of the State of Delaware by designation of the Chief Justice of the Supreme Court of Delaware pursuant to In re Designation of Actions Filed Pursuant to 8 Del. C. § 111 (Del. Feb. 23, 2023) (ORDER).”
The Supreme Court’s Order describes these case load issues, in supporting the need for CCLD cross-designations. Section 111 was adopted in 1999, and the CCLD did not come into existence until 2010. Section 111’s history and the new Standing Order strongly suggest that these section 111 matters involve case types that could have fallen within the CCLD’s jurisdiction (assuming at least $1,000,000 in controversy), if the parties did not otherwise choose to file in Chancery under the right given via section 111. Put another way, these are case types the CCLD was designed to handle when it was created in 2010.
The Supreme Court’s Order states that the CCLD has “developed a reputation for resolving complex breach of contract actions seeking damages in a timely and skillful manner, such that the Chief Justice has often designated CCLD judges to preside over cases filed in the Chancery Court ….” Moreover, it was the Chancellor and President Judge of the Superior Court who requested the Supreme Court implement the changes found in the Order.
In 2019, CCLD Judge Abigail LeGrow addressed an argument that 6 Del. C. § 18-111 gave the Chancery Court jurisdiction over all contract disputes involving an LLC. The case was Sun Life Assurance Company of Canada v. Group One Thousand One, LLC, 206 A.3d 261 (Del. Super. 2019).
That statute provides: “Any action to interpret, apply or enforce the provisions of a limited liability company agreement, or the duties, obligations or liabilities of a limited liability company to the members or managers of the limited liability company, or the duties, obligations or liabilities among members or managers and of members or managers to the limited liability company, or the rights or powers of, or restrictions on, the limited liability company, members or managers, or any provision of this chapter, or any other instrument, document, agreement or certificate contemplated by any provision of this chapter, may be brought in the Court of Chancery.”
Judge LeGrow rejected the argument for an all-encompassing Chancery Court jurisdiction, finding it would lead to absurd results, as set forth in more detail in my blog post of May 14, 2019, here. To the instant issue, Judge LeGrow stated, “Had the General Assembly intended to confer jurisdiction over nearly any matter in which an LLC is a party, it would have done so more clearly. Such an unprecedented expansion of the Court of Chancery’s jurisdiction, however, would contravene the General Assembly’s consistent effort to preserve that Court’s historically limited jurisdiction and its reputation as the preeminent forum to resolve corporate disputes.”[Emphasis added]
This new Supreme Court Cross-Designation Order is generally in line with the concept that the Court of Chancery functions best when its jurisdiction has clear limits, or at least when its case load is within sustainable limits.
[Note on possible misperceptions about Superior Court and Chancery Court judges. Superior Court and Chancery Court jurists do no exist as wholly distinct categories of judges in two separate universes that never overlap. Rather, it is not unusual for Superior Court Judges to join the Chancery Court. Presumably, they are the same people in Chancery that they were in the Superior Court when it comes to decision making.
For example, former Delaware Chief Justice Myron T. Steele served on both the Superior Court and the Chancery Court before leading Delaware’s Supreme Court. The late Justice William T. Quillen likewise served on the Superior Court and Chancery Court before becoming a member of Delaware’s Supreme Court. Former Chancellor William B. Chandler III was President Judge of the Superior Court before becoming a Vice-Chancellor and then Chancellor. Retired Vice-Chancellor Joseph R. Slights III served on the Superior Court, and was the first CCLD judge, before becoming a Vice-Chancellor. The Honorable Bernard Balick sat on the Superior Court for nearly two decades before becoming a Vice-Chancellor. Former Vice-Chancellor Joseph T. Walsh served on the Superior Court before serving on the Chancery Court. (Former Chancellor Grover C. Brown had earlier served on Delaware’s Family Court.)]
8 Del. C. § 111 provides, in full:
111. Jurisdiction to interpret, apply, enforce or determine the validity of corporate instruments and provisions of this title.
(a) Any civil action to interpret, apply, enforce or determine the validity of the provisions of:
(1) The certificate of incorporation or the bylaws of a corporation;
(2) Any instrument, document or agreement (i) by which a corporation creates or sells, or offers to create or sell, any of its stock, or any rights or options respecting its stock, or (ii) to which a corporation and 1 or more holders of its stock are parties, and pursuant to which any such holder or holders sell or offer to sell any of such stock, or (iii) by which a corporation agrees to sell, lease or exchange any of its property or assets, and which by its terms provides that 1 or more holders of its stock approve of or consent to such sale, lease or exchange;
(3) Any written restrictions on the transfer, registration of transfer or ownership of securities under § 202 of this title;
(4) Any proxy under § 212 or § 215 of this title;
(5) Any voting trust or other voting agreement under § 218 of this title;
(6) Any agreement, certificate of merger or consolidation, or certificate of ownership and merger governed by §§ 251-253, §§ 255-258, §§ 263-264, or § 267 of this title;
(7) Any certificate of conversion under § 265 or § 266 of this title;
(8) Any certificate of domestication, transfer or continuance under § 388, § 389 or § 390 of this title; or
(9) Any other instrument, document, agreement, or certificate required by any provision of this title;
may be brought in the Court of Chancery, except to the extent that a statute confers exclusive jurisdiction on a court, agency or tribunal other than the Court of Chancery.
(b) Any civil action to interpret, apply or enforce any provision of this title may be brought in the Court of Chancery.
Posted by Lee Applebaum
