Opinion
C.A. No. 2017-0036-TMR
03-28-2018
In re Morrow Park Holding LLC
ORDER DENYING MOTION TO DISMISS VERIFIED COMPLAINT
WHEREAS, on February 1, 2016, Plaintiff Village Green Holding LLC ("VG Holding"), Defendant Village Green Residential Properties, LLC ("Village Green Residential"), Defendant VGM Clearing, LLC ("VGM Clearing"), and Defendant Jonathan Holtzman entered into a Redemption Agreement (the "Redemption Agreement");
WHEREAS, on January 17, 2017, Village Green Residential filed a complaint against CCI Historic, Compatriot Capital Inc., VG ECU Holdings LLC, and Morrow Park Holding LLC (the "First Action");
WHEREAS, on April 20, 2017, VG Holding filed the Verified Complaint against Village Green Residential, VGM Clearing, Holtzman, and City Club Apartments, LLC ("City Club") in a separate action (the "Second Action");
WHEREAS, on May 16, 2017, Village Green Residential moved under Court of Chancery Rule 12(b)(1) to dismiss or transfer to the Superior Court the complaint in the Second Action;
WHEREAS, on October 10, 2017, the Court consolidated the First Action and the Second Action;
WHEREAS, on December 13, 2017, the Court heard oral argument on the motion;
NOW, THEREFORE, THE COURT HEREBY FINDS AND ORDERS AS FOLLOWS:
1. The Court has reviewed the parties' briefs, supporting submissions, and the applicable law.
2. The Motion to Dismiss or Transfer is DENIED because I find that the Court has subject matter jurisdiction over Counts I and II of the complaint in the Second Action under 6 Del. C. § 18-111 ("Section 18-111"), and I exercise my discretion to retain jurisdiction over Counts III and IV under the clean-up doctrine.
3. The Court of Chancery "can acquire subject matter jurisdiction over a case in three ways: (1) the invocation of an equitable right; (2) the request for an equitable remedy when there is no adequate remedy at law; or (3) a statutory delegation of subject matter jurisdiction." Testa v. Nixon Unif. Serv., Inc., 2008 WL 4958861, at *2 (Del. Ch. Nov. 21, 2008) (quoting Medek v. Medek, 2008 WL 4261017, at *3 (Del. Ch. Sept. 10, 2008)).
4. VG Holding contends that the Court has jurisdiction over Counts I and II, under Section 18-111 of the Limited Liability Company Act, which grants the Court of Chancery subject matter jurisdiction over:
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.6 Del. C. § 18-111. Relying on Duff v. Innovative Discovery LLC, 2012 WL 6096586 (Del. Ch. Dec. 7, 2012), VG Holding argues that interpretation of rights and obligations under a redemption agreement fall under Section 18-111. In Duff, the parties entered into an equity redemption agreement to sell their interest back to the company. Id. at *1. The agreement included terms and conditions, including a warranty that the LLC would cover the members' tax liability for 2011 and 2012. Id. The plaintiffs in Duff brought a breach of contract claim related to the tax warranty in the redemption agreement and argued that the Court of Chancery had jurisdiction over the claim under Section 18-111. Id. at *3, *4. The Court of Chancery held that "Section 18-702 [of the Limited Liability Act] explicitly contemplates that redemption agreements may be entered into by members or managers of an LLC as part of their internal dealings with the LLC." Id. at *6. A redemption agreement "is technically an agreement among current members of an LLC and the LLC as to how they are going to order their business in connection with and after the repurchase of the members' interests." Id. at *7. Therefore, the Court "conclude[d] that redemption agreements are agreements contemplated by the LLC Act[,]" id., and "[t]hus, Section 18-111 confers jurisdiction on this court to hear an 'action to interpret, apply or enforce' the Redemption Agreement at issue in this case." Id. Here, Counts I and II of the complaint in the Second Action relate to alleged breaches of the Redemption Agreement, which was entered into "for the purpose of providing a mechanism for the redemption of certain Membership Interests of certain of the [VG Holding] Members, and to carry out transactions related to such redemption." Compl. Ex. A, at 1 (Apr. 20, 2017). The Court therefore has subject matter jurisdiction to hear these claims because of the statutory delegation in Section 18-111.
5. The Court may exercise its discretion to retain jurisdiction over Counts III and IV under the clean-up doctrine. "[O]nce equity obtains jurisdiction, it may go on to decide the whole controversy[.]" Getty Ref. & Mktg. Co. v. Park Oil, Inc., 385 A.2d 147, 150 (Del. Ch. 1978), aff'd, 407 A.2d 533 (Del. 1979). "[I]f a controversy is vested with 'equitable features' which would support Chancery jurisdiction of at least a part of the controversy, then the Chancellor has discretion to resolve the remaining portions of the controversy as well." Id. at 149. The clean-up doctrine may be invoked to obtain jurisdiction over parts of a controversy for "several reasons, including to resolve a factual issue which must be determined in the proceedings; to avoid multiplicity of suits; to promote judicial efficiency; to do full justice; to avoid great expense; to afford complete relief in one action; and to overcome insufficient modes of procedure at law." Medek, 2008 WL 4261017, at *3. The claims at issue in this dispute arise out of a common nucleus of agreements governing the relationships between the parties who own or manage the Morrow Park City Apartments. Proceeding in one action before one judicial officer promotes efficiency, reduces expense, and avoids further unnecessary strain on limited judicial resources. Therefore, Village Green Residential's Motion to Dismiss or Transfer for Lack of Subject Matter Jurisdiction pursuant to Court of Chancery Rule 12(b)(1) is DENIED.
/s/ Tamika Montgomery-Reeves
Vice Chancellor
Dated: March 28, 2018