Richard A. Graciano, Jr. as Sellers' Representative v. Abode Healthcare, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
RICHARD A. GRACIANO, JR. AS )
SELLERS’ REPRESENTATIVE, )
)
Plaintiff, )
)
v. ) C.A. No. 2022-0728-SG
)
ABODE HEALTHCARE, INC. and )
BRIGHTSPRING HEALTH SERVICES, )
INC., )
)
Defendants, )
)
and )
)
CITIBANK, N.A., )
)
Escrow Agent )
Nominal Defendant. )
MEMORANDUM OPINION
Date Submitted: November 29, 2023
Date Decided: March 4, 2024
Christopher J. Day, DAY LAW GROUP, LLC, Wilmington, Delaware, Attorney for
Plaintiff Richard A. Graciano.
Michael J. Maiomone and Gabriella Mouriz, BARNES & THORNBURG LLP,
Wilmington, Delaware, Attorneys for Defendants Abode Healthcare, Inc. and
BrightSpring Health Services, Inc.
GLASSCOCK, Vice Chancellor
Like its 18th century English predecessor, the Delaware Court of Chancery is
a court of limited jurisdiction. Setting aside jurisdiction derived from statute,1 this
Court may only act where complete relief is unavailable at law. That is the case
where the law courts do not recognize an (equitable) cause of action, as well as where
the cause of action is itself legal in nature, but where relief at law—money damages
or declaratory judgment—are insufficient to remedy a plaintiff’s injury.
The latter standard, in the hands of an artful pleader, is plastic; malleable to
the extent that, without vigilance on the part of the Court, the legal shrubbery would
soon overgrow the limited garden of equity. This matter requires such vigorous
jurisdictional topiary.
Here, Plaintiff, a seller’s representative under a purchase agreement, seeks to
vindicate contractual rights. These are legal rights implicating monetary relief.
Plaintiff points out, however, that the sellers’ right to payment, under the contract,
will come from an escrow fund. Plaintiff first argues that the contract itself requires
an order of specific performance to accomplish release of the funds in escrow, but a
reading of the plain contractual language makes it clear that a declaratory judgment
(combined with Plaintiff’s instruction to the escrow agent) is the only judicial action
required under the agreement. Plaintiff also posits that, if he succeeds on the contract
claims, the escrow agent may nonetheless balk at releasing the funds. But that would
1
The parties here have not suggested any statute confers subject matter jurisdiction.
1
likely entail a bad-faith refusal to comply with the agent’s contractual and fiduciary
obligations, and is in any case speculative. Speculation as to the need to employ
equity to vindicate a legal judgment does not, in my view, invoke equitable
jurisdiction, lest limited jurisdiction become a fiction. In the event that an equitable
ruling should prove necessary to complete relief post judgment, this Court is open,
but speculation about the need for such relief, under these facts, is insufficient to that
purpose. My reasoning follows.
I. BACKGROUND
A. Factual Background2
1. The Parties
Plaintiff Richard A. Graciano, Jr. (“Plaintiff”), along with David F. Graciano,
Ross J. Nese, and Jeffrey J. Graciano (collectively, the “Sellers”) each owned a
percentage of Grane Hospital Care, Inc., a Pennsylvania corporation (the
“Company”).3 Collectively, the Sellers owned 100% of the Company prior to
January 31, 2021, when Defendant Abode Healthcare, Inc. purchased the Company.4
Defendant Abode Healthcare, Inc. (“Abode”) is a Delaware corporation.5
Abode acquired all outstanding stock in the Company on January 31, 2021.6
2
The following facts are drawn from the operative complaint. See Am. Compl., Dkt. No. 10.
3
Id. ¶¶ 1–2.
4
Id. ¶¶ 2, 23.
5
Id. ¶ 3.
6
Id.
2
Abode did not abide, at least as an independent entity; Defendant
BrightSpring Health Services, Inc. (“BrightSpring” and collectively with Abode, the
“Defendants” or “Buyers”) is a Delaware corporation that acquired Abode in
February 2021.7
Nominal Defendant Citibank, N.A. (the “Escrow Agent” or “Citibank”) is a
national banking association that conducts business in Delaware.8
2. The CARES Act Grant
Following the onset of the COVID-19 pandemic in early 2020, the federal
government approved the Coronavirus Aid, Relief, and Economic Security Act (the
“CARES Act”).9 Under the CARES Act, federal funds were appropriated to
reimburse qualified health care providers for health care-related expenses and lost
revenue attributable to the COVID-19 pandemic.10 The federal Department of
Health and Human Services (“HHS”) distributed the CARES Act funds and the
program was administered under the federal Health Resources & Services
Administration (“HRSA”).11 HRSA was tasked with determining the amount to pay
7
Id. ¶ 4.
8
Id. ¶ 5.
9
Id. ¶ 14.
10
Id. ¶ 15.
11
Id.
3
each eligible provider, including the Company,12 and automatically made
distributions from the CARES Act funds.13
Over the course of 2020, the Company suffered from lost revenues amounting
to millions of dollars while incurring direct COVID-19-related unreimbursed
expenses.14 In April 2020, as an eligible provider under the CARES Act, the
Company received a Phase 1 general distribution of the CARES Act funds
amounting to $1,884,212.75, subject to terms and conditions imposed by HRSA.15
As a condition to receiving the CARES Act funds, the Company agreed to repay any
CARES Act funds that were not used to pay for eligible COVID-19-related expenses
or to replace lost revenues permitted under the HRSA Terms and Conditions and the
HRSA Guidelines.16
3. Abode Purchases the Company
On July 9, 2020, Sellers and Abode entered into a confidentiality agreement
so that Abode could conduct due diligence in connection with a potential purchase
of the Company.17 Thereafter, Sellers and Abode entered into a purchase agreement
dated December 21, 2020 (the “Purchase Agreement”).18 Under the terms of the
12
The Company has provided hospice care to terminally ill patients since December 2005. Id.¶
17.
13
Id. ¶ 16.
14
Id. ¶ 18.
15
Id. ¶ 17.
16
Id. ¶ 19.
17
Id. ¶ 22.
18
Id. ¶ 23.
4
Purchase Agreement, Abode would acquire all of the issued and outstanding capital
stock of the Company at closing on January 31, 2021.19
When the parties entered into the Purchase Agreement, the parties agreed that
if the Company was required to repay, return, or reimburse any CARES Act funds
received by the Company prior to the January 31, 2021 closing, Sellers would be
liable for repayment.20 Because the amount that Sellers could report as lost revenue
incurred in 2020 was unknown in January 2021, it was uncertain if the Company
would be required to repay any of the CARES Act funds it received in April 2020.21
Accordingly, the parties agreed that the Sellers would escrow an amount equal to the
amount of the CARES Act funds the Company received prior to closing to ensure
that Buyers would have cash available to make any requirement repayment.22
a. Escrow Account
When Abode’s purchase of the Company closed on January 31, 2021, the
parties executed an escrow agreement (the “Escrow Agreement”, and collectively
with the Purchase Agreement, the “Transaction Agreements”).23 Pursuant to the
Escrow Agreement, Citibank was appointed the Escrow Agent and Sellers caused
the Company to deposit $1,884,212.75 (the “Escrow Fund”) into the escrow account
19
Id.
20
Id. ¶ 25.
21
Id. ¶ 26.
22
Id. ¶ 27.
23
Id. ¶ 32.
5
(the “Escrow Account”).24 Under the Escrow Agreement, the parties agreed to
instruct the Escrow Agent to release from the Escrow Account first any repayment
amount required by the federal government.25 If funds remained in the Escrow
Account after the required repayment was made to the federal government, the
parties agreed to instruct the Escrow Agent to then release to the Sellers funds
totaling the amount expended, spent, or otherwise used for purposes permitted under
the CARES Act on eligible pre-closing losses.26 After reimbursing the Sellers, if the
Escrow Account still had funds, the parties agreed to instruct the Escrow Agent to
release such remaining funds to the Company.27
4. BrightSpring Acquires Abode
In February 2021, BrightSpring closed its purchase of Abode.28 When
BrightSpring was negotiating the purchase of Abode, BrightSpring was aware that
Abode was also negotiating with Sellers to purchase the Company.29 Section 11.4
of the Purchase Agreement allows Sellers or Abode to assign the relevant rights and
obligations under the Purchase Agreement to an affiliate who would then be bound
by the Purchase Agreement’s terms.30 Upon purchasing Abode, BrightSpring
24
Id. ¶¶ 24, 32.
25
Id. ¶ 29.
26
Id. ¶ 30 (citing Am. Compl., Ex. A § 2.7(c)(ii)(x), Dkt. No. 10 (the “Purchase Agreement”)).
27
Id. ¶ 31 (citing Purchase Agreement § 2.7(c)(ii)(y)).
28
Id. ¶ 41.
29
Id. ¶¶ 42–43.
30
Id. ¶ 44.
6
assumed all rights, obligations, and liabilities of Abode under the Transaction
Agreements.31
5. The HRSA Report
The HRSA required each provider that had received CARES Act funds to
report to HRSA by a specified deadline the allocation of the funds such provider
received.32 The portal to file an Initial CARES Act Funds Report (“HRSA Report”)
did not open until July 1, 2021, so the parties did not file such report prior to the
January 31, 2021 closing date.33 Moreover, the HRSA did not provide how to
calculate lost revenues for CARES Act reporting purposes, until August 2021.34
Ultimately, the Company was required to submit its first HRSA Report by
November 30, 2021.35 Buyers prepared the HRSA Report and allowed Sellers to
review the HRSA Report before filing the HRSA Report on November 30, 2021.36
The HRSA Report allocated the full $1,884,212.75 in CARES Act funds received
by the Company.37
Section 2.7(c) of the Purchase Agreement provided, in relevant part, that if
the HRSA had not made a final determination of the Company’s repayment
31
Id. ¶ 45.
32
Id. ¶ 49.
33
Id. ¶ 50.
34
Id. ¶ 66.
35
Id. ¶ 51. The initial deadline was September 30, 2021, but the Company received an extension.
Id.
36
Id. ¶ 52.
37
Id.
7
obligations for the CARES Act funds, then three months after the Company filed the
first post-closing HRSA Report, the “Buyer and Sellers’ Representative shall deliver
a joint written instruction to the Escrow Agent to release” the “aggregate amount
equal to the portion (if any) of the [Escrow Funds] expended, spent or otherwise
used by or on behalf of the Company on or before the Closing Date exclusively for
the purposes permitted under the CARES Act,” to Sellers.38 The HRSA Report was
filed on November 30, 2021, thus (per the complaint) on March 1, 2022, the
Purchase Agreement obligated parties obligated to submit a joint release instruction
(the “Joint Release Instruction”) directing the Escrow Agent to release the Sellers’
portion of the Escrow Funds to Sellers.39
On March 2, 2022, Sellers notified Buyers that the Escrow Funds had become
due for release and provided Buyers with the proposed Joint Release Instructions.40
Buyers have refused to execute the Joint Release Instructions.41 Consequently, the
Escrow Funds remain in the Escrow Account, and the Escrow Agent cannot release
any portion of the Escrow Funds to Sellers.42
38
Id. ¶ 53 (quoting Purchase Agreement § 2.7(c)(ii)(x)). Upon review of the field HRSA Report,
the federal government determined that the Company was not required to repay any CARES Act
funds received in 2020. Id. ¶ 76.
39
Id. ¶ 54.
40
Id. ¶¶ 56–57.
41
Id. ¶ 82.
42
Id. ¶ 83.
8
B. Procedural History
On August 17, 2022, Plaintiff filed suit against Defendants.43 The initial
complaint contained two counts: Count I for specific performance and Count II for
breach of contract pertaining to the Escrow Account.44 Plaintiff filed an amended
complaint on April 5, 2023, to add a third count for breach of contract that the parties
have since resolved.45 On June 14, 2023, Plaintiff filed a motion for judgment on
the pleadings.46 The briefing on Plaintiff’s motion was stayed after I requested, sua
sponte,47 that the parties brief the issue of subject matter jurisdiction in accordance
with this Court’s decision in ISS Facility Servs., Inc. v. JanCo FS 2, LLC.48 The
parties completed briefing the issue of subject matter jurisdiction on August 31,
2023.49 I heard oral arguments on November 29, 2023, and consider the matter fully
submitted as of that date.50
43
See Verified Compl. of Pl., Dkt. No. 1.
44
Id. ¶¶ 85–94.
45
See Am. Compl. ¶¶ 138–54; Opening Br. of Defs. 7 n.1, Dkt. No. 15 (“Defs.’ OB”).
46
See Mot. of Pl. for J. on the Pleadings, Dkt. No. 12.
47
See Crown Castle Fiber LLC v. City of Wilmington, 2021 WL 2838425, at *3 (Del. Ch. July 8,
2021) (“The Court has a duty to determine whether it has subject matter jurisdiction over a
plaintiff’s claims and can raise the issue sua sponte.”); see also Int’l Bus. Machs. Corp. v.
Comdisco, Inc., 602 A.2d 74, 77 n.5 (Del. Ch. 1991) (“[J]udges in the Delaware Court of Chancery
are obligated to decide whether a matter comes within the equitable jurisdiction of this Court
regardless of whether the issue has been raised by the parties.”).
48
See Stipulation and Order Governing Briefing Schedule, Dkt. No. 14.
49
See Reply Br. of Defs., Dkt. No. 19 (“Defs.’ RB”).
50
See Judicial Action Form re Oral Argument via Zoom before Vice Chancellor Sam Glasscock
dated 11.29.23, Dkt. No. 21.
9
II. ANALYSIS
The Court of Chancery is a court of limited jurisdiction.51 As such, this Court
“can acquire subject matter jurisdiction over a cause in only three ways, namely, if:
(1) one or more of the plaintiff’s claims for relief is equitable in character, (2) the
plaintiff requests relief that is equitable in nature, or (3) subject matter jurisdiction
is conferred by statute.”52 Here, Plaintiff seeks to invoke this Court’s equitable
jurisdiction to obtain an equitable remedy, an order for specific performance.53
A. Equitable Jurisdiction and Specific Performance Generally
Parties cannot contractually confer equitable jurisdiction where the Court
otherwise lacks jurisdiction.54 Instead, “[e]quitable jurisdiction must be determined
from the face of the complaint as of the time of filing, with all material factual
allegations viewed as true.”55 When reviewing the complaint to determine whether
equitable jurisdiction exists, “[t]he Court must examine what the parties to the
litigation are actually seeking . . . to ensure that Chancery jurisdiction is a necessity
to adequate justice, and not . . . a ‘formulaic “open sesame”’ by which artful pleaders
may attach equitable jurisdiction.”56
51
See El Paso Natural Gas Co. v. TransAmerican Natural Gas Corp., 669 A.2d 36, 39 (Del. 1995).
52
Candlewood Timber Grp., LLC v. Pan Am. Energy, LLC, 859 A.2d 989, 997 (Del. 2004).
53
Am. Compl. ¶¶ 114–26.
54
El Paso Natural Gas Co., 669 A.2d at 39 (citing Elia Corp. v. Paul N. Howard Co., 391 A.2d
214, 215–16 (Del. Super. 1978)).
55
Int’l Bus. Machs. Corp., 602 A.2d at 78.
56
Elavon, Inc. v. Elec. Transaction Sys. Corp., 2022 WL 667075, at *2 (Del. Ch. Mar. 7, 2022)
(quoting Int’l Bus. Machs. Corp., 602 A.2d at 78).
10
Where, as here, a plaintiff seeks to invoke this Court’s equitable jurisdiction
by requesting an order for specific performance, the plaintiff “must [be prepared
ultimately to] prove by clear and convincing evidence” that she is entitled to such
relief.57 “Specific performance . . . is an equitable remedy by which a court of equity
may compel the actual accomplishment of a contract by the party bound to fulfill
it.”58 The purpose of specific performance is to address “situations where the
assessment of money damages is impracticable or somehow fails to do justice.”59
Thus, to prove she is entitled to specific performance, a plaintiff must also prove that
there exists no adequate remedy at law.60 “[I]n order to be ‘adequate’, a legal remedy
must be available as a matter of right, be full, fair and complete, and be as practical
to the ends of justice and to prompt administration as the remedy in equity.”61
1. Specific Performance and Escrow Accounts
Whether this Court has equitable jurisdiction based solely on a plaintiff’s
request for an order of specific performance or injunction to direct an agent to release
escrowed funds is an issue with which the Court is familiar. In my view, the issue
turns on whether the relief is necessary to the full vindication of the plaintiffs’ rights,
57
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1158 (Del. 2010).
58
E. Balt LLC v. E. Balt US, LLC, 2015 WL 3473384, at *2 (Del. Ch. May 28, 2015) (internal
quotation marks omitted).
59
Id.60
Minn. Invco of RSA No. 7, Inc. v. Midwest Wireless Hldgs. LLC, 903 A.2d 786, 793 (Del. Ch.
2006).
61
Clark v. Teeven Hldg. Co., Inc., 625 A.2d 869, 881 (Del. Ch. 1992).
11
and not merely speculative or pretextual. In addressing this issue, this Court has
issued conflicting lines of decisions: those that find such a request is facially
sufficient to invoke this Court’s equitable jurisdiction, and those that find this Court
lacks jurisdiction unless is appears that full relief is unavailable without equitable
intervention. Naturally, the parties in the instant matter have relied upon the line of
cases that reach their preferred outcome for this motion. I will briefly discuss the
reasoning used in each line of decisions to support their respective conclusions,
beginning with this Court’s decision in East Balt.
In East Balt, this Court concluded it could assert equitable jurisdiction over
the plaintiffs’ request for an order of specific performance requiring the defendants
to issue instructions to the escrow agent to release escrowed funds.62 To reach this
conclusion, the Court explained that, even if plaintiff were to receive declaratory
relief in its favor from a court of law, plaintiff would have to seek recourse in the
Court of Chancery to enforce the declaratory judgment against the non-party escrow
agent.63 Therefore, the Court reasoned the remedy available at law was inadequate
as it “would not be as certain, prompt, complete, or efficient as the equitable
remedies” sought by the plaintiffs.64
62
E. Balt LLC, 2015 WL 3473384, at *2, 4.
63
Id. at *3–4 (citing SecNet Hldgs., LLC, v. Potash, C.A. No. 7781-VCP, at 33–35 (Del. Ch. Apr.
2, 2013) (TRANSCRIPT)).
64
Id. at *4.
12
Subsequent decisions as have followed East Balt found that this Court has
equitable jurisdiction over a plaintiff’s request for an order of specific performance
requiring the defendants to cause an escrow agent to release escrowed funds. United
BioSource LLC v. Bracket Holding Corporation had analogous facts to those in East
Balt and similarly concluded that the Court had equitable jurisdiction to grant an
order for specific performance for the non-party escrow agent to release the
escrowed funds at issue on grounds that relief at law would not be complete.65 In
American Healthcare Administrative Services, Inc. v. Aizen, the Court built on the
holding in East Bolt to find that equitable jurisdiction existed where the plaintiffs
“point[ed] to provisions in the Purchase Agreement that provide expressly for a
decree of specific performance and stipulate to the existence of irreparable harm in
the event of a breach.”66 According to the Aizen Court, these contractual provisions
established that the plaintiffs had no adequate remedy at law.67
Other decisions in our jurisdiction have reached conclusions than depart from
the reasoning in East Balt. In Evalon, Inc. v. Electronic Transaction Systems
Corporation, this Court found that it lacked equitable jurisdiction over a plaintiff’s
request for an order of specific performance to direct an escrow agent to release the
65
United BioSource LLC v. Bracket Hldg. Corp., 2017 WL 2256618, at *4 (Del. Ch. May 23,
2017).
66
285 A.3d 461, 495 (Del. Ch. 2022).
67
Id. at 495–97. I note that Aizen is not squarely under the East Balt line, in that it focused not on
the request for equitable relief alone, but, significantly, on an examination of the contract at issue
and whether enforcement at law would be complete.
13
escrowed funds.68 To reach this conclusion, the Court distinguished the facts from
East Balt by noting that the Evalon plaintiff sought legal relief in the form of the
release of escrowed funds either through joint release instructions from the parties
or with a final order from a court, but the plaintiff failed to plead sufficient facts to
demonstrate a need for injunctive relief.69 The Evalon Court explained that “[a] legal
action cannot be transformed into an equitable one merely suggesting that contingent
relief, such as an escrow agent gone rogue, may necessitate an injunction.”70
Similarly, in ISS Facility Services, Inc. v. JanCo FS 2, LLC, this Court found that
the plaintiffs had a sufficient remedy at law even where there was contractual
language requiring an escrow agent to release escrowed funds upon receipt of a final
order from a court of competent jurisdiction.71 This examination of the need for
equity, and not simply the request for equity, departs from East Balt. Importantly,
to my mind, this approach of looking for the true nature of the relief required, under
the facts asserted in the complaint, is consistent with this Court’s duty to disallow
jurisdiction through artful pleading alone, as called for under Comdisco and its
progeny.
68
2022 WL 667075, at *2–4 (Del. Ch. Mar. 7, 2022).
69
Id. at *3.
70
Id. at *4.
71
2023 WL 4096014, at *1–2 (Del. Ch. June 20, 2023).
14
B. Equitable Jurisdiction Over the Specific Performance Sought Here
In the instant case, Plaintiff seeks an order of specific performance to require
Buyers to comply with the Escrow Agreement or, in the alternative, to require the
Escrow Agent to release the Escrow Funds in accordance with written instructions
included in a court order for specific performance.72 Based on the Court’s decision
in ISS Facility, I requested supplemental briefing to assist me in determining whether
Plaintiff’s request requires this Court’s equitable jurisdiction.73
Buyers have refused to issue Joint Release Instructions to release the Escrow
Funds under the terms of the Purchase Agreement, due to a disagreement about
amounts due.74 In such circumstances, the Escrow Agreement provides for
alternative mechanisms to govern the release of the Escrow Fund by the Escrow
Agent. Specifically, the Escrow Agreement provides:
Upon receipt by the Escrow Agent of a Final Order from any Party,
together with proof of simultaneous delivery thereof to the other Party,
the Escrow Agent shall within five (5) Business Days following receipt
of such Final Order, disburse as directed in such Final Order, part or
all, as the case may be, of the applicable Escrow Funds (but only to the
extent funds are available in the applicable Escrow Account(s)) from
the applicable Escrow Account(s) in accordance with such Final Order.
Notwithstanding the foregoing, while the Escrow Agent may act on
such Final Order without further inquiry, the Escrow Agent shall be
entitled to request an opinion of counsel of the prevailing Party to the
effect that an order or judgment is final and non-appealable and from a
72
Pl.’s Suppl. Answering Br. on Issue of Jurisdiction 22–24, Dkt. No. 18 (“Pl.’s AB”).
73
See Stipulation and Order Governing Briefing Schedule, Dkt. No. 14.
74
Am. Compl. ¶ 82.
15
court of competent jurisdiction for purposes of this Section [ ] before
making such disbursement.75
The Escrow Agreement defines the term “Final Order” as follows:
“Final Order” means a certified copy of a final non-appealable order or
judgment of any court of competent jurisdiction or arbitrator awarding
amounts to be paid out of any of the Escrow Accounts, together with
(A) a certificate of the prevailing Party to the effect that such order or
judgment is final and non-appealable and from a court of competent
jurisdiction or arbitrator (in each case in accordance with the terms of
the Purchase Agreement) having proper authority and (B) the written
payment instructions of the prevailing Party to effectuate such order or
judgment.76
Plaintiff advances three principal arguments in favor of this Court’s equitable
jurisdiction over this dispute: (1) the Amended Complaint facially seeks relief that
is equitable in nature; (2) the parties agreed to this Court’s equitable jurisdiction in
the Transaction Agreements; and (3) equitable jurisdiction is inevitable.
1. Equitable Jurisdiction From the Face of the Amended Complaint
Plaintiff asserts that the Amended Complaint sufficiently states a request for
equitable relief on its face because the primary relief sought is an order of specific
performance requiring Defendants “to deliver a joint written instruction the Escrow
Agent to release” the escrowed Escrow Funds.77 In response, Defendants note that
the Purchase Agreement clearly provides for an alternative remedy if Defendants
75
Am. Compl., Ex. B ¶ 4(a)(ii), Dkt. No. 10 (“Escrow Agreement”).
76
Id. (emphases added).
77
Pl.’s AB 22 (quoting Purchase Agreement § 2.7(c)(ii)).
16
refuse to execute the Joint Release Instructions, which alternative Plaintiff is in fact
pursuing in its lawsuit.78 Specifically, the Purchase Agreement states that either
party is entitled to file suit against the other for breach of contract and seek monetary
relief in accordance with the Escrow Agreement.79 Thus, the Escrow Agreement
furnishes Plaintiff with an adequate remedy at law.80
Plaintiff is correct that this Court will determine whether it has equitable
jurisdiction by reviewing the face of the complaint.81 However, when reviewing the
complaint, the Court must “take a practical view of the complaint, and [ ] not permit
a suit to be brought in Chancery where a complete legal remedy otherwise
exists[.]”82 Put another way, the Court’s consideration of whether it has equitable
jurisdiction to decide a dispute is not limited to a review of the prayer for relief
included in a complaint, or else an artful pleader’s “incantation of magic words”
would circumvent this Court’s otherwise limited jurisdiction.83 Instead, this Court
“review[s] the allegations of the complaint as a whole to determine the true nature
of the claim.”84 To ascertain the true nature of a plaintiff’s claims, the Court
conducts “a realistic assessment of the nature of the wrong alleged and the remedy
78
Defs.’ OB 14–15.
79
Id. at 14.
80
Id. at 15.
81
Pl.’s AB 22 (citing Int’l Bus. Machs. Corp., 602 A.2d at 78).
82
Int’l Bus. Machs. Corp., 602 A.2d at 78.
83
McMahon v. New Castle Assocs., 532 A.2d 601, 603 (Del. Ch. 1987).
84
Christiana Town Ctr., LLC v. New Castle County, 2003 WL 21314499, at *3 (Del. Ch. June 6,
2003).
17
available in order to determine whether a legal remedy is available and fully
adequate.”85
Upon a holistic review of the allegations in the Amended Complaint, I
conclude that Plaintiff brought this suit in pursuit of legal relief. The driving force
behind this lawsuit is Plaintiff’s desire to obtain escrowed funds that Plaintiff
believes he is entitled to under the Transaction Agreements. Even though Plaintiff
asserts that the most efficient manner to obtain the Escrow Funds is a court order for
specific performance, such assertion does not change the true nature of this lawsuit.
Besides a formulaic statement that an order for specific performance is required for
Plaintiff to have “certain, efficient, and complete relief,” Plaintiff fails to explain
why equitable jurisdiction is necessary for him to obtain the legal remedy sought.
Thus, my inquiry into whether this Court has equitable jurisdiction will not end with
the face of the Amended Complaint.
2. Equitable Jurisdiction Under the Transaction Agreements
Despite the fact that “[i]t is settled law that parties may not confer subject
matter jurisdiction by agreement[,]”86 Plaintiff nevertheless contends that this Court
should defer to the parties’ interpretation of the language of their own agreements
governing the business relationship.87 In asserting that the Transaction Agreements
85
McMahon, 532 A.2d at 603.
86
Thompson v. Lynch, 990 A.2d 432, 434 (Del. 2010).
87
Pl.’s AB 2.
18
confer equitable jurisdiction on this Court, Plaintiff relies on his interpretation of
two aspects of the Transaction Agreements: (1) the definition and use of the term
“Final Order;” and (2) the inclusion of a “Specific Performance Clause.”
a. Equitable Jurisdiction to Issue the “Final Order”
Plaintiff asserts that the language of the Transaction Agreements
unambiguously require that the contractually-defined term “Final Order” be a court
order expressly ordering specific performance, a form of relief only available from
the Court of Chancery.88 Paragraph 4(a)(ii) of the Escrow Agreement dictates that
the Escrow Agent is required to “disburse as directed in such Final Order, part or all,
. . . of the Escrow Funds . . . in accordance with the Final Order.”89 “Final Order” is
a defined term in the Agreement. It is defined, in relevant part, as “a final non-
appealable order or judgment of any court of competent jurisdiction . . . awarding
amounts to be paid out of any of the Escrow Accounts together with . . . the written
payment instructions of the prevailing Party to effectuate such order or judgment.”90
According to Plaintiff, when these two provisions are read together, the definition
of Final Order permits the Escrow Agent to disburse Escrow Funds only as
specifically directed by the court.91 Therefore, per Plaintiff, the language of the
88
Id. at 12–15.
89
Id. at 13 (quoting Escrow Agreement ¶ 4(a)(ii)).
90
Escrow Agreement ¶ 4(b)(ii).
91
Pl.’s AB 14.
19
Escrow Agreement requires the equitable power of the Court of Chancery to cause
the Escrow Agent to act.
In response, Defendants argue that the language in the Escrow Agreement is
unambiguous in its mandate that the Escrow Agent release the Escrow Funds upon
receipt of a Final Order.92 The contractual definition of Final Order does not require
the court to give the Escrow Agent written instructions to effectuate the court’s
order.93 Rather, the language of the Escrow Agreement allows for either party to
obtain a court order adjudicating the amount of the Escrow Funds to which the party
is contractually entitled and to deliver that to the Escrow Agent, along with the
prevailing party’s written instructions.94 Only where the Escrow Agent defies the
court order does the Escrow Agreement contemplate an order of specific
performance from this Court.95
The Transaction Agreements unambiguously require that the Escrow Agent
disburse the Escrow Funds upon receipt of a Final Order. Plaintiff emphasizes that
this disbursement must be done “in accordance with the Final Order.” However, as
just described, “Final Order” is a contractually defined term; Final Order comprises
(1) “a final non-appealable order or judgment of any court of competent jurisdiction
92
Defs.’ OB 14.
93
Id. at 14–15.
94
Id. at 13.
95
Id. at 13–14.
20
. . . awarding amounts to be paid out of any of the Escrow Accounts”; (2) “a
certificate of the prevailing Party” certifying that the court “order or judgment is
final and non-appealable and from a court of competent jurisdiction”; and (3)
“written payment instructions of the prevailing Party to effectuate such order or
judgment.”96
The plain language of the Transaction Agreements does not require a court
order for specific performance. As it is defined, the Final Order requires the
prevailing party to instruct the Escrow Agent on how to disburse the Escrow Funds
in accordance with the court’s decision. Put another way, the court itself does not
provide written instructions directing the Escrow Agent how to disburse the Escrow
Funds; those instructions are to come from the prevailing party. Therefore, the
Transaction Agreements’ definition and use of Final Order do not invoke equity to
issue an order for specific performance.
b. Equitable Jurisdiction Under the Specific Performance
Clause
Plaintiff next argues that the Purchase Agreement includes a “Specific
Performance Clause” that, according to Plaintiff, contains language under which I
96
Escrow Agreement ¶ 4(b)(ii) (emphases added).
21
must conclude that equitable jurisdiction exists.97 Here, the Specific Performance
Clause states, in relevant part:
The parties agree that irreparable damage would occur in the event that
any provision of this Agreement was not performed in accordance with
its specific terms or was otherwise breached or the Transaction was not
consummated, and that money damages would not be an adequate
remedy, even if available. It is accordingly agreed that the parties shall
be entitled to an injunction or injunctions, or any other appropriate form
of specific performance or equitable relief, to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof
in the Delaware Courts, this being in addition to any other remedy to
which they are entitled at law or in equity. Each of the parties agrees
that it will not oppose the granting of an injunction, specific
performance and other equitable relief on the basis that any other party
has an adequate remedy at law or that any award of specific
performance is not an appropriate remedy for any reason at law or in
equity.98
While Delaware is a contractarian state that will honor parties’ contractual
agreements unless doing so would contradict public policy,99 “[i]t is settled law that
parties may not confer subject matter jurisdiction by agreement.” 100 If the Court
were to defer to the parties’ contractual agreement to decide whether the ability of
the Court to assert equitable jurisdiction over a dispute, limited jurisdiction would
have no meaning; all contracting parties who wish for their dispute to be heard in
the Court of Chancery, regardless of the true nature of the dispute, would be
97
Pl.’s AB 9–10; see Aizen, 285 A.3d at 495–97 (basing jurisdiction in part on contractual
recitation of insufficiency of legal relief).
98
Purchase Agreement § 11.11.
99
See Cantor Fitzgerald, L.P. v. Ainslie, 2024 WL 315193, at *1 (Del. Jan. 29, 2024).
100
Thompson, 990 A.2d at 434.
22
permitted to contractually agree to this Court’s jurisdiction. Put another way, the
parties may bind themselves, they may not bind the Court, and they may not provide
a context in which this Court may violate the jurisdictional limitations imposed upon
it by the Delaware Constitution.
Even though the parties contractually agree that any breach of the Transaction
Agreements would result in irreparable harm that could only be remedied through
an order for specific performance, it is incumbent upon the Court to “determine the
‘true reason’ for which the plaintiff has brought suit.”101 At the heart of this
complaint is Plaintiff’s desire to receive the Escrow Funds to which Plaintiff believes
he is contractually entitled. While the parties contractually agreed “that money
damages would not be an adequate remedy”102 for any breach of the Transaction
Agreements, that does not change that the ultimate relief Plaintiff seeks is monetary,
relief that may be vindicated by a final judgment at law. Finally, I note, obtaining a
court order, and submitting it to the Escrow Agent with the required certification and
instructions, is itself an explicit contractual remedy endorsed by the contracting
parties.
101
Int’l Bus. Machs. Corp., 602 A.2d at 78.
102
Purchase Agreement § 11.11.
23
3. Equitable Jurisdiction as Inevitable
Finally, Plaintiff avers that this Court’s equitable jurisdiction is inevitable to
enforce any court order.103 According to Plaintiff, invoking this Court’s equitable
jurisdiction to order specific performance at this early stage “would not be the result
of the tail wagging the dog based upon an uncertain future contingency[,]” but rather
is necessary to provide Plaintiff with complete and efficient relief that cannot
otherwise be accomplished.104 Plaintiff posits that he is not asking for this Court to
invoke its equitable jurisdiction to avoid a hypothetical future failure of the Escrow
Agent to comply with a court order.105 In support of this contention, Plaintiff
reasserts his interpretation that the Escrow Agreement requires the Final Order to
include written instructions specifically directing the Escrow Agent to disburse the
Escrow Funds.106 Therefore, according to Plaintiff, declaratory judgment would be
insufficient to cause the Escrow Agent to act under the terms of the Escrow
Agreement.107 I have rejected this reading of the Transaction Agreements, above.
This leaves Plaintiff’s argument that equitable relief will be required to
compel the Escrow Agent to act. Defendants criticize Plaintiff’s position as
assuming that the Escrow Agent will ignore a court order issued by the Superior
103
Pl.’s AB 17–18.
104
Id. at 21–22.
105
Id. at 21 (distinguishing the facts from those in Athene Life & Annuity Co. v. Am. Gen. Life Ins.
Co., 2019 WL 3451376 (Del. Ch. July 31, 2019)).
106
Id.107
Id. at 21–22.
24
Court.108 According to Defendants, the Escrow Agreement creates a two-step
process for either party to enforce the Escrow Agreement where the parties cannot
agree to Joint Release Instructions.109 Under this two-step process, Plaintiff must
first seek and obtain an order from a court of competent jurisdiction to deliver to the
Escrow Agent.110 Only if the Escrow Agent refuses to disburse the funds in
accordance with the Final Order, as defined by the Escrow Agreement, can Plaintiff
then invoke the second step, which would be to seek specific performance from the
Court of Chancery to enforce the Final Order.111 In other words, equity is only
invoked upon a future, speculative breach by the Escrow Agent of the Escrow
Agreement. In Defendants’ opinion, Plaintiff’s request to invoke equitable
jurisdiction at this juncture invokes equity which may never be required.112 I agree.
The Escrow Agreement directs the Escrow Agent to disburse the Escrow
Funds if one of two situations occurs: (1) the parties deliver Joint Release
Instructions or (2) a party obtains and delivers a Final Order, as defined in the
Escrow Agreement.113 While Plaintiff believes both (1) and (2) require an order of
this Court directing a party to specifically perform, specific performance is not
implicated at all for option (1) and a declaratory judgment issued by the Superior
108
Defs.’ RB 5.
109
Id. at 13.
110
Id.
111
Id.
112
Id. at 13–14.
113
Escrow Agreement ¶¶ 4(a)(i)–(ii).
25
Court (together with the requisite certification and instructions from the prevailing
party) is adequate to cause the Escrow Agent to release the Escrow Funds under
option (2). As I explained above in Section II.B.2.a, the Escrow Agreement does
not narrowly define the term Final Order to require the court issuing such order or
judgment to include written instructions on how the Escrow Agent is to disburse the
Escrow Funds. Instead, the definition of the term Final Order requires that the
prevailing party provide the Escrow Agent with written instructions to effectuate the
court’s order or judgment, at which point the Escrow Agent’s contractual duty to
release the funds is triggered.
Accordingly, a declaratory judgment obtained from the Superior Court that
adjudges Plaintiff’s entitlement to receive a disbursement from the Escrow Account,
alongside written instructions from Plaintiff, satisfies the contractual definition of a
Final Order and is sufficient to cause the Escrow Agent to act. Plaintiff has an
adequate remedy at law in the form of a declaratory judgment from the Superior
Court. Equitable relief will only become necessary if the Escrow Agent refuses to
act in accordance with such Final Order. There is no indication in the record that
the Escrow Agent, who is bound by contractual and fiduciary duties, will refuse to
comply with a declaratory judgment issued by the Superior Court, supplemented by
the prevailing party as contractually mandated. To invoke equitable jurisdiction at
this early juncture would contradict the principle that the Court of Chancery is a
26
court of limited jurisdiction.114 Therefore, the Amended Complaint must be
dismissed for lack of subject matter jurisdiction.
III. CONCLUSION
This Court lacks equitable jurisdiction, because an adequate remedy at law
exists. Therefore, Defendants’ Motion to Dismiss is GRANTED, with leave to refile
in Superior Court.115 The parties shall submit a form of order in accordance with
this memorandum opinion.
114
See Athene Life & Annuity Co., 2019 WL 3451376, at *7–8 (explaining “that if the mere threat
of future breach or disregard of court orders triggered equitable jurisdiction, such jurisdiction
would be general, not limited.”).
115
10 Del. C. § 1902.
27