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Chancery Applies "Walks Like a Duck" Test for Equity Jurisdiction; and Rejects Alleged Insolvency of Defendant as Hook to Invoke Equitable Jurisdiction

By Francis G. X. Pileggi, Esq.

Hillsboro Energy, LLC v. Secure Energy, Inc., (Del. Ch., Oct. 3, 2008), read opinion here. The introductory paragraph of the opinion provides the best overview of the case:

This case exemplifies the old adage: If it walks like a duck, and quacks like duck, it’s probably a duck. Despite plaintiff’s ingenious arguments to the contrary, I conclude, for the reasons described briefly below, that even though plaintiff used the “magic words” to dress its complaint in the garb of equity, its claim’s proper remedy lies at law. The issues in this case “are, beyond question, legal issues capable of resolution by the Superior Court, and declaratory relief is available there to the same extent as it is [in the Court of Chancery].” 1 (citation omitted).

The Chancery Court described the claims in this case as, in essence, involving the Defendant, Secure, believing that a contract existed between the parties while Hillsboro believed that the contract did not exist. The Court regarded this as a claim that is inherently legal in nature. The Court stated that a claim that is legal in nature cannot be converted to an equitable claim simply by requesting an equitable remedy.

More artfully, the Court stated that:  “one cannot parade a duck around and call it a swan.” The court reiterated three basic ways that the Chancery Court can acquire subject matter jurisdiction over a case:

1) The invocation of an equitable right;
2) The request for an equitable remedy when there is no adequate remedy at law; or
3) A statutory delegation of subject matter jurisdiction (citing Medek v. Medek, 2008 WL 4261017, at * 3 (Del. Ch., Sept. 10, 2008)) [see my short blog summary of Medek here].

Importantly, Hillsboro argued that specific performance was the only adequate remedy and that if a contract were found to exist, the parties would be forced to pursue equitable remedies to enforce the contract. The Court was not convinced. Rather, the Chancery Court explained that the Superior Court is authorized to grant declaratory relief and to enforce its order via its contempt power or to award compensatory damages for violation of a judgment - - all of which are sufficient to address the type of harm anticipated in this case (citing Section 6502 of Title 10 of the Delaware Code).
 

Also of great importance is the Court’s rejection of the argument that even though the potential insolvency of the defendant and its alleged inability to pay any potential money judgment has in the past been a potential factor in determining equitable jurisdiction, the Court observed that in this case there is no support for the premise that the financial condition of the defendant would render it unable to meet a potential money judgment in this case (citing E.I. DuPont de Nemours & Co. v. HEM Research, Inc., 576 A.2d 635 (Del. Ch. 1989)).
 

 

Full post as published by Delaware Corporate and Commercial Litigation Blog on October 19, 2008 (boomark / email).