May 8, 2015
The Bancorp Bank
Cross & Simon, LLC
Submitted: February 20, 2015
Plaintiff The Bancorp Bank ("Bancorp") filed this action against Defendant Cross & Simon, LLC ("C&S"), seeking a declaration that it has a superior lien on certain funds to which C&S also claims an entitlement. Bancorp alleges that C&S has converted those funds and requests "[a] declaration that Bancorp is entitled to the immediate release and receipt of all [the funds at issue], . . . free of any encumbrances or liens thereon . . . ." C&S moved to dismiss for lack of subject matter jurisdiction, for failure to state a claim, and for failure to join an indispensible party. The Court concludes that dismissal is warranted because it lacks subject matter jurisdiction over Bancorp's claims.
On December 29, 2011, CCC Atlantic, LLC ("CCCA") and Karman Development Group, LLC executed and delivered to Bancorp a guaranty and a security agreement in connection with a loan (the "Loan") that Bancorp provided a third party. As collateral, CCCA assigned its "right, title and interest in all of its right, title and interest in all commercial tort claims, claims, choses in action, judgments, settlements and proceeds of litigation described in or arising out of" a then-pending lawsuit in New Jersey (the "New Jersey Action"). Bancorp filed a UCC-1 Financing Statement in New Jersey on January 2, 2012, and in Delaware on May 2, 2014.
The New Jersey Action settled in 2012, with the defendants in that case paying $125, 000 (the "Settlement Funds"). Bancorp alleges that it is the holder of the perfected first lien and security interest in the Settlement Funds. The Loan is in default and Bancorp seeks immediate possession of the collateral.
Before the New Jersey Action settled, CCCA had filed for bankruptcy in Delaware. C&S represented CCCA in the bankruptcy proceedings. According to Bancorp, CCCA requested that C&S hold the Settlement Funds in escrow during the pendency of the bankruptcy action. Although C&S was expected to distribute the Settlement Funds to CCCA following termination of those proceedings, it did not do so. C&S allegedly holds the funds for its own use, i.e., payments of attorneys' fees owed to it by CCCA, disregarding Bancorp's superior right and interest. Although Bancorp acknowledges that C&S has asserted a right to the Settlement Funds based on a purported attorney's lien, Bancorp contends that C&S can have no such lien because it was not involved in procuring that money.
Bancorp brings two counts against C&S, one requesting declaratory relief and the other alleging conversion. C&S has challenged this Court's subject matter jurisdiction to hear Bancorp's claims. This Court is generally limited to deciding cases that implicate equitable rights or remedies, or involve a claim subject to a statutory grant of jurisdiction.
A party may seek declaratory relief both at law and in equity. This Court "has jurisdiction in a declaratory judgment action if there is any underlying basis for equity jurisdiction measured by traditional standards." "[U]nless the underlying allegations are directed toward the enforcement of an exclusively equitable right or are sufficient to establish alternatively that there exists no adequate remedy at law, a prayer for declaratory relief is not cognizable in the Court of Chancery."
Count I does not seek to enforce an exclusively equitable right. As characterized by Bancorp, that count "is a straightforward matter as to which of the two parties has a superior lien to the funds at issue and what obligations Defendant, as the current holder of the funds, has to Bancorp." The Superior Court has the power and the ability to resolve a lien dispute.
Further, Bancorp has an adequate and complete remedy at law. It ultimately seeks a monetary award, the quintessential legal remedy. Its application for declaratory relief should be heard in Superior Court.
Bancorp's second count is one for conversion, a common law tort. The relief it seeks pursuant to that count is the same as that requested under the first. Accordingly, Count II asserts a legal right and implicates a legal remedy, and this Court lacks the subject matter jurisdiction to address it.
For the reasons stated above, this action is dismissed for lack of subject matter jurisdiction. Bancorp may seek to transfer this action to the Superior Court within sixty days in accordance with 10 Del. C. § 1902.
IT IS SO ORDERED.
Very truly yours,
John W. Noble Judge