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In Unusual Jurisdictional Fight, Court of Chancery Transfers Breach of Duty Case to Superior Court

By Francis G. X. Pileggi, Esq.

The plaintiffs in Sokol Holdings, Inc. v. Dorsey & Whitney, LLP, No. 3874-VCS (Del. Ch. Aug. 5, 2009), read opinion here, brought suit in the Delaware Court of Chancery against the law firm of Dorsey & Whitney LLP ('Dorsey') alleging professional negligence and breach of fiduciary duties based on claims of overbilling, improper billing of contract attorneys, and unnecessary costs due to ineffective work. The plaintiffs had retained Dorsey to assist in various international litigations. Plaintiffs sought 'money damages, a declaration that Dorsey's fees are unreasonable, an accounting, and attorneys' fees.'

Kevin Brady, a highly regarded Delaware litigator, provided this synopsis.

In an unusual twist of events, the plaintiffs, following a failed mediation, raised the question of whether the Court of Chancery has jurisdiction to hear the suit and argued, in the event jurisdiction rests with the Delaware Superior Court, that they would seek a jury trial. In response, Dorsey filed a motion to maintain jurisdiction, seeking an order keeping jurisdiction in Chancery or alternatively an order of a bench trial if the case was transferred to Superior Court.

Court Discusses Attorney-Client Relationship and Breach of Fiduciary Duty

The Court of Chancery noted that while Delaware courts have referred to attorneys as fiduciaries, the attorney-client relationship does not raise the same concerns as the fiduciary relationship cases that the Court of Chancery traditionally has jurisdiction over. 'The hallmark of a fiduciary relationship is that one person has the power to exercise control over the property of another as if it were her own.' Contrary to that category of relationships, Court of Chancery cases involving attorneys as fiduciaries generally involve allegations of professional negligence.

In concluding that it did not have jurisdiction, the Court stated,

clients with malpractice claims should not be able to bootstrap their way into Chancery simply because the conduct of attorneys can at times and in certain factual circumstances raise fiduciary concerns. Rather, equitable jurisdiction should only be available when an attorney's conduct implicates traditionally and uniquely equitable concerns. . . . our Superior Court has long heard such claims, and the loose language of cases referring to lawyers as fiduciaries does not transmogrify legal malpractice or legal billing disputes into an equitable claim for breach of fiduciary duty. 

Filing in Court of Chancery Waived the Right to a Jury Trial

In transferring the case to the Superior Court, the Court held that '[t]he decision to bring an action in Chancery . . . serves as an effective waiver of the right to a jury trial. Accordingly, this court is generally not solicitous of plaintiffs who file suit in Chancery only to belatedly decide they want to have a jury hear their case.'  Having deliberately chosen to file in Chancery and having waited nearly a year to decide that it wanted to pursue a jury trial, the Court in fairness to Dorsey ordered a bench trial in the Superior Court.

 

 

Full post as published by Delaware Corporate and Commercial Litigation Blog on August 26, 2009 (boomark / email).