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Sun Life Assurance Co. of Canada-U.S. Operations Holdings, Inc. v. Group One Thousand One, LLC

Superior Court of Delaware

March 29, 2019

SUN LIFE ASSURANCE COMPANY OF CANADA-U.S. OPERATIONS HOLDINGS, INC., Plaintiff,
v.
GROUP ONE THOUSAND ONE, LLC F/K/A DELAWARE LIFE HOLDINGS, LLC, Defendant.

          Submitted: January 17, 2019

         Upon Defendants Motion to Dismiss or, in the Alternative, to Transfer: Denied.

          Raymond J. DiCamillo, Esquire, Travis S. Hunter, Esquire, Renee M. Mosley, Esquire of RICHARDS, LAYTON, & FINGER, P.A., Wilmington, Delaware, and Daniel M. Abuhoff, Esquire, and Matthew D. Forbes, Esquire of DEBEVOISE & PLIMPTON LLP, New York, New York, Attorneys for Plaintiff.

          Robert S. Saunders, Esquire, Matthew P. Majarian, Esquire, and Daniel S. Atlas, Esquire of SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware, Attorneys for Defendant.

          MEMORANDUM OPINION

          LeGrow, J.

         This dispute arose from Defendant's purchase of several of Plaintiffs subsidiaries. Plaintiff and Defendant entered into a stock purchase agreement governing the sale. Plaintiff initiated this breach of contract action against Defendant for failing to pay over a tax refund that Plaintiff contends belongs to it under the stock purchase agreement. Defendant moved to dismiss or transfer the action under the stock purchase agreement's forum selection clause, which designates the Delaware Court of Chancery as the parties' first choice of forum for any action arising out of the agreement.

         The question presented in this case is whether Plaintiffs breach of contract claim falls within the statutory grant of authority in the LLC Act or seeks equitable relief, thereby conferring jurisdiction on the Court of Chancery. Although the Court generally will respect the parties' choice of forum, the parties cannot contract for jurisdiction where it otherwise is unavailable. Defendant's broad interpretation of the Court of Chancery's statutory jurisdiction is unreasonable and inconsistent with the cases and other sources interpreting the statute. Additionally, Plaintiffs claim is not equitable in nature because money damages adequately would address the harm from the alleged breach of contract. The Court of Chancery therefore does not have subject matter jurisdiction, and Defendant's motion to dismiss is denied.

         FACTS AND PROCEDURAL BACKGROUND

         The Plaintiff, Sun Life Assurance Company of Canada ("Sun Life"), is an insurance company incorporated in Delaware. Sun Life is a subsidiary of Sun Life Financial, Inc. ("Sun Life Financial"), a publicly traded Canadian company. In 2012, Sun Life Financial agreed to sell its subsidiary, Sun Life Reinsurance (Barbados) No. 3 Corp. ("BarbCo3"), to the Defendant, Group One Thousand One, LLC ("G1001"). The parties executed a Stock Purchase Agreement (the "SPA"), in which Sun Life agreed to convey all its issued and outstanding shares of BarbCo3 stock to G1001. In the SPA, the parties negotiated how they would handle pre and post-closing tax matters. Section 6.3 of the SPA specifically governed who was entitled to post-closing tax refunds. The transaction closed on August 2, 2013, and in November 2016 the IRS issued BarbCo3 a $10, 073, 433 tax refund related to the 2011 tax year (the "Refund"). Sun Life contends it is entitled to the Refund under Section 6.3 of the SPA, but G1001 has refused to pay the Refund to Sun Life.

         On July 23, 2018, Sun Life filed a one-count complaint in this Court (the "Complaint") for breach of contract against G1001 seeking damages in the amount of the Refund. G1001 filed a motion to dismiss under Superior Court Civil Rule 12(b)(3) or, in the alternative, a motion to transfer this action to the Delaware Court of Chancery under 10 Del. C. § 1902, by reason of the SPA's forum selection clause. That clause creates a hierarchy of Delaware forums in which the parties agreed to litigate any disputes arising under the SPA. Specifically, the forum selection clause provides each party:

[S]ubmits for itself and its property to the exclusive jurisdiction of the Delaware Court of Chancery, or if the Delaware Court of Chancery lacks jurisdiction of the subject matter, the United States District Court for the District of Delaware, or if both the Delaware Court of Chancery and the United States District Court for the District of Delaware lack jurisdiction of the subject matter, any court of competent jurisdiction sitting in the State of Delaware (together with any appellate courts therefrom, the "Permitted Courts") in any action directly or indirectly arising out of this Agreement, including the formation, breach, termination, validity, interpretation or enforcement thereof, or any transaction contemplated by this Agreement.[1]

         The parties do not dispute the validity or scope of the SPA's forum selection clause. The parties additionally agree that the United States District Court for the District of Delaware lacks subject matter jurisdiction. Therefore, if the Court of Chancery does not have subject matter jurisdiction over Sun Life's claim, the parties agree the Superior Court is the appropriate forum for this dispute.

         The Parties' Contentions

         In its motion to dismiss, G1001 argues the Court of Chancery has statutory and equitable jurisdiction over Sun Life's claim and Sun Life therefore is required under the SPA's forum selection clause to pursue its claim in that Court. G1001 first contends 6 Del. C. § 18-111 confers jurisdiction on the Court of Chancery because that statute grants the Court of Chancery jurisdiction over all contract disputes involving an LLC. G1001 also argues the Court of Chancery has jurisdiction over this dispute because Sun Life seeks equitable relief, specifically an order of specific performance directing BarbCo3 to pay over the Refund.

         In response to G1001's motion, Sun Life argues the Court of Chancery does not have jurisdiction over this action because Section 18-111 does not grant the Court of Chancery broad jurisdiction over all contract disputes involving an LLC, but only over contracts "explicitly contemplated" by the LLC Act. Additionally, Sun Life asserts it is neither making an equitable claim nor seeking equitable relief, but rather is making a straightforward breach of contract claim and seeking monetary damages arising from that breach.

         ANALYSIS

         Superior Court Civil Rule 12(b)(3) governs a motion to dismiss on the basis of improper venue. On a motion to dismiss, the Court must "assume as true all the facts pled in the complaint and view those facts and all reasonable inferences drawn from them in the light most favorable to the plaintiff."[2] The Court, however, "is not shackled to the non-moving party's complaint and is permitted to consider extrinsic evidence."[3] Under this standard, the Court should "give effect to the terms of private agreements to resolve disputes in a designated judicial forum out of respect for the parties' contractual designation" and should dismiss a case where the parties agreed to litigate in another forum.[4]

         According to the SPA's forum selection clause, the Court of Chancery is the parties' first choice of forum. A forum selection clause, however, cannot confer jurisdiction or venue where it otherwise is not available.[5] The Court of Chancery is a court of limited jurisdiction and only may acquire jurisdiction if: "(1) one or more of the plaintiffs claims ... is equitable in character, (2) the plaintiff requests relief that is equitable in nature, or (3) subject matter jurisdiction is conferred by statute."[6] The burden is on the plaintiff to prove subject matter jurisdiction exists, but the Complaint's prayers for relief are not controlling, and the Court may look beyond the pleadings to determine the nature of the claim.[7]

         A. The Court of Chancery does not have jurisdiction over this dispute under Section 18-111.

         G1001 asserts that Section 18-111 of the LLC Act vests the Court of Chancery with jurisdiction to interpret, apply, or enforce the SPA. G1001 contends Section 18-111 is "expansive, and grants the Court of Chancery broad jurisdiction to interpret and enforce any and all documents by which any permissible purpose enumerated in the LLC Act may be accomplished."[8] Sun Life resists such a broad reading of Section 18-111, arguing it would "drastically undermine the limited nature of the Court of Chancery's jurisdiction."[9]

         Section 18-111 grants the Court of Chancery authority to hear a variety of LLC disputes. The statute provides:

§ 18-111. Interpretation and enforcement of limited liability company agreement.
Any action to interpret, apply or enforce the provisions of a limited liability company agreement, or the duties, obligations or liabilities of a limited liability company to the members or managers of the limited liability company, or the duties, obligations or liabilities among members or managers and of members or managers to the limited liability company, or the rights or powers of, or restrictions on, the limited liability company, members or managers, or any provision of this chapter, or any other instrument, document, agreement or certificate contemplated by any provision of this chapter, may be brought in the Court of Chancery.

         The above-quoted statutory language lists five categories of disputes over which the Court of Chancery has jurisdiction, specifically disputes involving: (1) the provisions of an LLC agreement; (2) an LLC's duties and obligations to its members and managers; (3) the duties and obligations between and among the members, managers, and the LLC; (4) the rights, powers, or restrictions of the LLC or its members or managers; and (5) any provision of the LLC Act or any other instrument, document, agreement or certificate contemplated by any provision of the LLC Act.

         G1001 argues the parties' dispute falls within the fifth category because the dispute involves interpretation and enforcement of the SPA, an agreement G1001 contends is "contemplated" by the LLC Act. G1001 relies on 6 Del. C. § 18- 106(b) to argue the LLC Act contemplates the SPA. Section 18-106(b) broadly confers on a limited liability company powers relating to the entity's business, purpose, or activities. The statute relevantly provides:

A limited liability company shall possess and may exercise all the powers and privileges granted by this chapter or by any other law or by its limited liability company agreement, together with any powers incidental thereto, including such powers and privileges as are necessary or convenient to the conduct, promotion or attainment of the business, purposes or activities of the limited liability company.[10]

         The Delaware Supreme Court recently held this provision grants "broad authority to Delaware LLCs," including the authority to enter into contracts.[11] Thus, according to G1001, because the LLC Act "contemplates" contracts, and the SPA is a contract, the Court of Chancery may exercise jurisdiction over this dispute.[12] Sun Life argues this is an unreasonable reading of Section 18-111, and the fifth category of Section 18-111 only refers to internal affairs or documents "explicitly contemplated" by the LLC Act.[13]

         There is no authority definitively addressing the scope of Section 18-111 's fifth jurisdictional category. The parties generally rely on the same group of cases in which the Court of Chancery has exercised jurisdiction over disputes involving LLCs. Those cases, although helpful to a certain degree, do not meaningfully explore the scope of Section 18-111 's fifth category. In large part, this appears to be because in most of the cases the Court of Chancery could exercise subject matter ...


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