Chancery Has Jurisdiction Over Claims for Escrow Money

The Court of Chancery recently confirmed, in East Balt LLC v. East Balt US, LLC  (available here), that it has subject matter jurisdiction over a breach of contract claim for damages to be paid from a contractually-established escrow.

Plaintiff sold assets to defendants for $250 million, $7.9M to be escrowed to indemnify defendants against losses from later claims.  In the event of claims the escrow would continue unless otherwise agreed until a final non-appealable order resolved the dispute.  Defendants asserted claims totaling more than $7.9M.  Plaintiffs sued in Chancery to release the escrow; defendants argued that only Superior Court could hear the case.

The Court ruled for plaintiff, relying on a 2013 Chancery bench ruling, and a 1977 Chancery decision, to the same effect.  The Court rejected defendants’ argument that Superior Court was adequate because (i) all the escrow agreement required was a final ruling; and (ii) its contempt powers could enforce declaratory relief.

East Balt confirms that parties with a contractual damages claim from an escrow may sue in the Court of Chancery.

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2015 DGCL Amendments

On May 12, the Delaware Senate passed amendments to the Delaware General Corporation Law, and on June 3, the amendments made their way through the House Judiciary Committee.  They will be considered next by the House and, if passed, will be presented to the Governor (amendments available here).  Two are particularly noteworthy:

Forum selection amendment – One amendment responds to several Court of Chancery decisions on whether a Delaware corporation’s bylaws may contain a provision that selects a forum for disputes.  One permitted a provision selecting Delaware, another a provision selecting North Carolina.  The amendments would allow forum selection provisions in charters or bylaws as to “internal corporate claims,” including derivative actions.  It prohibits any provision that selects a non-Delaware forum as the exclusive forum, but there is no prohibition as to a provision that selects Delaware plus some other jurisdiction(s).  So, for instance, a bylaw would be valid if it provided for exclusive jurisdiction of Delaware and North Carolina, but not if just North Carolina was selected.

Fee-shifting amendment – Another group of amendments responds to a Delaware Supreme Court decision allowing a fee-shifting bylaw for a non-stock corporation.  The amendments prohibit such provisions, but only as to stock corporations.  In other words, a Delaware stock corporation’s charter and bylaws cannot contain any provision requiring a stockholder to pay attorneys’ fees or costs in connection with an “internal corporate claim.”

As you may have heard, the proposed amendments also made certain changes as to appraisal actions.  The Delaware House and Senate have been considering different versions of such changes, however, and there is some uncertainty if any such changes will be included in the final bill or if so in what form.

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