JPMORGAN CHASE BANK, N.A, individually, and on behalf of itself and other creditors similarly situated, Plaintiff,
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
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
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.
the first action, filed on December 27, 2017, J.P. Morgan
challenges dividends DTC paid in 2011 and 2012. Defendants
answered the complaint in the first action, which is in
discovery and which is not the subject of this appeal.
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.
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
July 11, 2019, the court issued an opinion granting in part
and denying in part Defendants' motion to dismiss (the
"Opinion"). On July 19, 2019, the court entered an
implementing order. The Opinion decided three issues of first
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.
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.
Third, the court held that the one-year discovery period in
Section 1309(1) of the Delaware Uniform Fraudulent Transfer
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.
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.
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.
THEREFORE, the court having considered the parties'
submissions, IT IS HEREBY ORDERED, ADJUDGED, and DECREED this
7th day of August, 2019, as follows:
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." 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." Under that rule, ...