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JPMorgan Chase Bank, N.A. v. Ballard

Court of Chancery of Delaware

August 7, 2019

JPMORGAN CHASE BANK, N.A, individually, and on behalf of itself and other creditors similarly situated, Plaintiff,
v.
CLAUDIO BALLARD, KEITH DELUCIA, GARY KNUTSEN, SHEPHARD LANE, PETER LUPOLI, IRA LEEMON, JOHN KIDD, CELESTIAL PARTNERS, LLC, ZAAH TECHNOLOGIES, INC., VEEDIMS, LLC, POTENS PARTNERS LLC, AND DATATREASURY CORPORATION, Defendants.

          ORDER DENYING DEFENDANTS' MOTION FOR CERTIFICATION OF AN INTERLOCUTORY APPEAL

         WHEREAS:

         A. On June 2, 2015, the United States District Court for the Eastern District of Texas entered a final judgment awarding JPMorgan Chase Bank, N.A. ("J.P. Morgan") damages of $69 million against Data Treasury Corporation ("DTC") for breach of a June 2005 licensing agreement (the "Judgment"). On May 19, 2016, the United States Court of Appeals for the Fifth Circuit affirmed the Judgment.

         B. J.P. Morgan has filed two actions in the Court of Chancery in aid of its efforts to collect on the Judgment. The two actions are closely related as they both challenge DTC's payment of dividends, albeit in different years, as unlawful under the Delaware General Corporation Law (8 Del. C. §§ 170-74).

         C. In the first action, filed on December 27, 2017, J.P. Morgan challenges dividends DTC paid in 2011 and 2012.[1] Defendants answered the complaint in the first action, which is in discovery and which is not the subject of this appeal.

         D. The second action, filed on April 12, 2018, is the subject of this appeal. In this action, J.P. Morgan sued DTC, its directors, and certain affiliates (collectively, "Defendants") to recover two categories of distributions that DTC allegedly made unlawfully to evade its liability to J.P. Morgan: (i) dividends DTC paid from 2006 to 2010 and (ii) other individual payments DTC made to insiders from 2011 to 2013.

         E. Defendants moved to dismiss the complaint in this action, arguing that J.P. Morgan lacked standing under Section 174 to challenge the payment of dividends from 2006 to 2010 on the theory that J.P. Morgan was not a creditor of DTC during that period, and that J.P. Morgan's unlawful dividend and fraudulent transfer claims were untimely under two different statutory provisions.

         F. On July 11, 2019, the court issued an opinion granting in part and denying in part Defendants' motion to dismiss (the "Opinion").[2] On July 19, 2019, the court entered an implementing order. The Opinion decided three issues of first impression.

         G. First, the court held that J.P. Morgan had standing to assert a claim as a "creditor" of DTC within the meaning of Section 174 to recover for itself and other creditors of DTC dividends that it paid from 2006 to 2010 even though J.P. Morgan did not obtain its Judgment against DTC until 2015.

         H. Second, the court held that the six-year limitations period in Section 174 is a statute of repose (to which tolling principles do not apply) and not a statute of limitations (to which tolling principles may be applied). As a result, the court determined that J.P. Morgan's unlawful dividend claim with respect to dividends that were paid from 2006 to 2010 must be dismissed as untimely because J.P. Morgan did not file this action until 2018, more than six years after the payment period in question.[3]

          I. Third, the court held that the one-year discovery period in Section 1309(1) of the Delaware Uniform Fraudulent Transfer Act[4] begins to run when the fraudulent nature of an allegedly fraudulent transfer is or could reasonably have been discovered, rather than when the mere existence of the allegedly fraudulent transfer is or could reasonably have been discovered. The court then determined that J.P. Morgan had timely filed claims challenging as fraudulent both the dividends paid from 2006 to 2010 and the individual payments made to insiders from 2011 to 2013.

         J. On July 26, 2019, Defendants filed a motion to certify an interlocutory appeal of the Opinion and implementing order. Defendants focus their application on challenging the third issue of first impression the court decided, i.e., that the one-year discovery period in Section 1309(1) of the Delaware Uniform Fraudulent Transfer Act starts when the fraudulent nature of an allegedly fraudulent transfer is or could reasonably have been discovered.

         K. On July 29, 2019, J.P. Morgan filed a combined response to Defendants' motion and alternative cross-motion for certification of an interlocutory appeal. J.P. Morgan contends that interlocutory review would not be an efficient path forward for this litigation. In its alternative cross-motion, J.P. Morgan argues further that, if the court were to conclude otherwise, any interlocutory appeal should address the second issue of first impression this court decided, i.e., that the six-year limitations period in Section 174 is a statute of repose.[5]

         NOW THEREFORE, the court having considered the parties' submissions, IT IS HEREBY ORDERED, ADJUDGED, and DECREED this 7th day of August, 2019, as follows:

         1. Supreme Court Rule 42 provides that an interlocutory appeal will not be certified "unless the order of the trial court decides a substantial issue of material importance that merits appellate review before a final judgment."[6] It further states that "[i]nterlocutory appeals should be exceptional, not routine, because they disrupt the normal process of litigation, cause delay, and can threaten to exhaust scare party and judicial resources."[7] Under that rule, ...


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