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TCV VI, L.P. v. TradingScreen Inc.

Supreme Court of Delaware

April 7, 2015

TCV VI, L.P. and TCV MEMBER FUND, L.P., Plaintiffs Below, Appellants,

Submitted March 27, 2015.

Case Closed April 7, 2015.

Editorial Note:

This decision has been designated as "Table of Decisions Without Published Opinions." in the Atlantic Reporter.

Court Below: Court of Chancery of the State of Delaware. C.A. No. 10164-VCN.

Before STRINE, Chief Justice; HOLLAND and VAUGHN, Justices.


Leo E. Strine, Jr., Chief Justice.

The preferred stockholders of TradingScreen Inc. (the " appellants" ) seek interlocutory review under Supreme Court Rule 42 of a Court of Chancery decision and order denying their motion for judgment on the pleadings.[1] The appellants argue that interlocutory review is in the interests of justice and judicial efficiency because the decision raises novel issues about the enforceability of a charter provision requiring the payment of dividends to preferred stockholders under certain circumstances. Although 8 Del. C. § 160(a)(1) provides that a corporation cannot redeem stock " when the capital of the corporation is impaired or when such purchase or redemption would cause any impairment," § 160 does not address a situation where the company might have funds to pay the dividend, but there is a substantial basis to believe that the payment will render the corporation unable to pay its other bills, unable to function as a going concern, and insolvent, injuring the rights of other creditors.

The Court of Chancery determined that it would be useful to have this Court determine certain legal issues that might be dispositive depending on the facts that emerge after discovery. The Court of Chancery thus certified the appellants' application for interlocutory review even though its decision hewed closely to the Court of Chancery's thoughtful decision in SV Investment Partners, LLC v. ThoughtWorks, Inc. and our affirming opinion.[2] In that decision, we stated " [w]hen a board decides on the amount of surplus available to make redemptions, its decision is entitled to deference absent a showing that the board: (1) acted in bad faith, (2) relied on unreliable methods and data, or (3) made determinations so far off the mark as to constitute actual or constructive fraud." [3] The Court of Chancery relied on that standard in its decision below,[4] but noted in its certifying memorandum that there are a number of related questions that this Court has not opined on, and that the answers could shed light on this dispute.

Applications for interlocutory review are addressed to the sound discretion of this Court under Rule 42(d)(v). In the exercise of our discretion, we have examined the Court of Chancery's decision according to the criteria set forth in Rule 42, and we have concluded that the appellants' application for interlocutory review should be refused. As the appellees point out and the Court of Chancery's decision makes clear, the facts developed in discovery could profoundly affect the legal questions that must be answered to decide the case, because the appellees dispute whether the company had surplus funds within the definition of § 160 to make a greater dividend payment.[5] It would be hazardous to decide those novel legal questions in the abstract, rather than against a concrete factual scenario. For example, it is potentially important whether a dividend payment will indisputably result in the corporation's immediate inability to meet its ongoing obligations, or simply put the corporation at greater risk of becoming insolvent in the future.[6]

We also decline to exercise interlocutory review when doing so would not be case dispositive.[7] Here, the extent of the statutory surplus must be determined to shape any remedy. Moreover, the appellants have pled four other counts in their complaint, including a claim that the failure to pay the requested dividend was a breach of fiduciary duty. Those counts require factual development and will not be resolved by an interlocutory ruling of this Court.[8] Therefore, the parties must proceed to discovery on the financial state of the company and the other claims, as the Court of Chancery itself noted,[9] regardless of our opinion on the novel issues supposedly presented by this proposed interlocutory appeal. When, as is the situation here, the case will not be resolved without the development of a full record regarding the underlying economic facts, it makes most sense for the Court of Chancery to handle the case in the normal order, using its own expertise and analysis of cases like ThoughtWorks and prior relevant decisions for guidance in addressing any novel legal issues that may arise from the facts as they ultimately develop.[10]


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