COURT OF CHANCERY
OF THE
STATE OF DELAWARE
STEPHEN P. LAMB
VICE CHANCELLOR
New Castle County Court House
500 N. King Street, Suite 11400
Wilmington, Delaware 19801
Submitted: October 20, 2006
Decided: December 12, 2006
Robert K. Payson, Esquire
Gregory A. Inskip, Esquire
Potter Anderson & Corroon
1313 N. Market Street
Wilmington, DE 19899
Richard D. Heins, Esquire
Carolyn S. Hake, Esquire
Ashby & Geddes
222 Delaware Avenue
Wilmington, DE 19899
R. Franklin Balotti, Esquire
Lisa A. Schmidt, Esquire
Michael R. Robinson, Esquire
Richards, Layton & Finger, PA
One Rodney Square
Wilmington, DE 19899
Elizabeth A. Wilburn, Esquire
Blank Rome LLP
1201 Market Street, Suite 800
Wilmington, DE 19801
Edward P. Welch, Esquire
Nicole DiSalvo, Esquire
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, DE 19899
RE: Wal-Mart Stores, Inc., et al. v. AIG Life Insurance Co., et al.
C.A. No. 19875
Dear Counsel:
The court has reviewed and considered the parties’ submissions in
connection with the plaintiffs’ motion to transfer this action to the Delaware
Superior Court. In part because the plaintiffs have waived their right to a jury trial
on the remaining legal claim, and in light of this court’s familiarity with the issues
Wal-Mart Stores, Inc., et al. v. AIG Life Ins. Co., et al.
C.A. No. 19875
December 12, 2006
Page 2
involved in the remaining claim gained through the adjudication of two motions to
dismiss, I have determined the motion to transfer will be denied. Instead,
exercising equity’s traditional “clean-up” jurisdiction, the case will remain on this
court’s docket, where it can proceed promptly through discovery to its ultimate
resolution.
I.
The factual and procedural backgrounds of this matter are thoroughly
discussed in the Delaware Supreme Court’s recent decision that affirmed, in all but
one respect, an earlier opinion of this court dismissing the amended complaint.1
They are summarized here only briefly.
On April 1, 2005, this court granted the defendants’ motions to dismiss as to
each count asserted in the amended complaint.2 On appeal, the Delaware Supreme
Court affirmed generally but concluded that the amended complaint states a claim
for fraud and remanded to this court for trial of that claim.3 In its opinion, the
Delaware Supreme Court observed, as follows:
1
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 901 A.2d 106 (Del. 2006).
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 872 A.2d 611, 615, 632 (Del. Ch. 2005).
3
Wal-Mart, 901 A.2d at 117-18. This court had earlier dismissed the amended complaint as
time-barred without reaching the defendants’ other arguments. Wal-Mart Stores, Inc. v. AIG Life
Ins. Co., 2004 WL 405913, at *7 (Del. Ch. Mar. 2, 2004). In November 2004, the Delaware
Supreme Court reversed and remanded. Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d
312, 314 (Del. 2004) (per curiam).
2
Wal-Mart Stores, Inc., et al. v. AIG Life Ins. Co., et al.
C.A. No. 19875
December 12, 2006
Page 3
Finally, there remains a question as to whether Wal-Mart’s fraud
claim may be heard in the Court of Chancery. There is no fiduciary
relationship between the parties, and Wal-Mart seeks damages as its
remedy. Although Wal-Mart characterizes its claim as one for
equitable fraud, we conclude, for the reasons discussed above, that the
Amended Complaint adequately alleges the elements of common law
fraud as well. The parties did not address the possibility that only the
fraud claim would survive, although the trial court noted:
[E]quitable fraud does not swallow common law fraud because
it can only be applied in those cases in which one of the two
fundamental sources of equity jurisdiction exists: (1) an
equitable right founded upon a special relationship over which
equity takes jurisdiction, or (2) where equity affords a special
remedy (e.g. rescission or cancellation).
We decline to resolve this question of equitable jurisdiction in the first
instance. The Court of Chancery will be able to consider this matter
and, if appropriate, transfer this claim to the Superior Court.4
On August 10, 2006, Wal-Mart filed a motion seeking voluntary dismissal
of its case pursuant to Court of Chancery Rule 41(a) and a transfer to the Delaware
Superior Court pursuant to 10 Del. C. § 1902. In that motion, Wal-Mart took the
position that its surviving claim is a legal claim over which this court should refuse
to exercise jurisdiction. After a review of the briefing on the motion, the court
asked the parties to file supplemental briefs and specifically asked Wal-Mart to
attach to its response a proposed amended complaint in the same form it would
submit to the Superior Court if its motion were granted.
4
Wal-Mart, 901 A.2d at 117.
Wal-Mart Stores, Inc., et al. v. AIG Life Ins. Co., et al.
C.A. No. 19875
December 12, 2006
Page 4
II.
Wal-Mart argues that, properly read, the Delaware Supreme Court’s opinion
holds that the amended complaint adequately states a claim for common law fraud
only, recognizing that, as found by this court and affirmed on appeal, the facts
alleged do not support the existence of any equitable fraud claim since no special
relationship exists between the parties and Wal-Mart seeks only damages. Because
only a legal claim survived the Delaware Supreme Court’s decision, Wal-Mart
posits that this court has no subject matter jurisdiction over the remaining dispute.
Thus, it argues, transfer to the Superior Court is appropriate under 10 Del. C.
§ 1902.5 Finally, Wal-Mart contends that this court should refuse to exercise its
discretion to retain jurisdiction pursuant to the equitable “clean-up” doctrine
because the case remains at the “outset of litigation” and because Wal-Mart will
request a jury trial on the remaining claim if the case is transferred.
5
Delaware’s transfer statute provides:
No civil action, suit or other proceeding brought in any court of this State shall be
dismissed solely on the ground that such court is without jurisdiction of the subject
matter, either in the original proceeding or on appeal. Such proceeding may be
transferred to an appropriate court for hearing and determination, provided that the party
otherwise adversely affected, within 60 days after the order denying the jurisdiction of
the first court has become final, files in that court a written election of transfer,
discharges all costs accrued in the first court, and makes the usual deposit for costs in the
second court . . . . This section shall be liberally construed to permit and facilitate
transfers of proceedings between the courts of this State in the interests of justice.
10 Del. C. § 1902 (2006).
Wal-Mart Stores, Inc., et al. v. AIG Life Ins. Co., et al.
C.A. No. 19875
December 12, 2006
Page 5
The defendants oppose transfer and argue that an equitable fraud claim
survived the Delaware Supreme Court’s decision. Thus, they suggest, this court
still enjoys general equity subject matter jurisdiction. Alternatively, the defendants
say that, even if Wal-Mart’s sole remaining claim is one for common law fraud,
this court should exercise its discretion to retain this matter under equity’s “cleanup” doctrine. Because of this court’s familiarity with the complex issues presented
and because a transfer would result in wasted time and judicial resources, the
defendants urge that this suit remain in the court where it was originally, and
voluntarily, brought.
III.
A.
Wal-Mart’s Only Remaining Claim Is A Legal Claim For Common Law
Fraud
As a result of the decision of the Delaware Supreme Court, only one cause
of action now remains in this case.6 Despite the defendants’ insistence that this
surviving claim is equitable in nature, that court’s opinion clearly meant to
preserve Wal-Mart’s claim for common law fraud. As this court observed, and as
the Delaware Supreme Court emphasized on appeal, equitable fraud is cognizable
only where the claim arises out of a special relationship over which equity takes
6
See generally Wal-Mart, 901 A.2d 106 (affirming this court’s dismissal pursuant to Rule
12(b)(6) of Wal-Mart’s claims for commercial frustration, breach of fiduciary duties, breach of
contract, negligence, indemnification, and a violation of the Delaware Consumer Fraud Act).
Wal-Mart Stores, Inc., et al. v. AIG Life Ins. Co., et al.
C.A. No. 19875
December 12, 2006
Page 6
jurisdiction, or where the complaint seeks a special remedy that only equity can
afford.
Neither circumstance is present here. No fiduciary relationship exists
between the parties.7 Instead, Wal-Mart and the defendants engaged in a series of
arm’s-length commercial transactions that presented none of the factual indicia
normally representative of fiduciary dealings.8 Thus, a claim of equitable fraud in
this case cannot rest upon an “equitable right founded on a special relationship.”
Similarly, Wal-Mart does not seek a “special remedy” afforded by the equitable
powers of this court. Monetary damages, an inherently legal remedy, is the relief
sought.9 Far from recognizing a claim for equitable fraud, the Supreme Court’s
opinion plainly reads the amended complaint to adequately allege a money
damages claim for legal or common law fraud for knowing misrepresentation of
fact.10
For the aforementioned reasons, the court agrees with Wal-Mart that its sole
remaining claim is one for common law fraud.
7
Id. at 114, 117.
Id. at 113-14 (agreeing with this court’s analysis and noting that “it is vitally important that the
exacting standards of fiduciary duties not be extended to quotidian commercial relationships”).
9
Id. at 117 (observing that “Wal-Mart seeks damages as its remedy”).
10
Id. at 110.
8
Wal-Mart Stores, Inc., et al. v. AIG Life Ins. Co., et al.
C.A. No. 19875
December 12, 2006
Page 7
B.
The Court Will Retain Jurisdiction Over Wal-Mart’s Common Law Fraud
Claim Pursuant To The Equitable “Clean-Up” Doctrine
Having determined that Wal-Mart’s complaint adequately alleges a common
law fraud claim only, the court now considers whether to retain this case or transfer
it to the Superior Court. After evaluating the relative merits of the parties’
arguments, the court believes that transfer is not appropriate because of the
defendants’ well-founded concerns regarding efficiency and judicial economy.
A fundamental tenet of Delaware jurisprudence counsels that the Court of
Chancery, because it is a court of equity, “is a court of limited jurisdiction.”11
However, under the equitable “clean-up” doctrine, once this court “is properly
vested with jurisdiction over a matter . . . it cannot be lightly divested of that
jurisdiction even if a case changes and the relief sought becomes primarily legal
instead of equitable.”12 Simply put, once jurisdiction initially is established, this
court enjoys substantial discretion in determining “whether to continue to hear the
case or to order its transfer to a law court for trial.”13
11
Clark v. Teeven Holding Co., Inc., 625 A.2d 869, 880 (Del. Ch. 1992); see also 10 Del. C.
§ 342 (“The Court of Chancery shall not have jurisdiction to determine any matter wherein
sufficient remedy may be had by common law, or statute, before any other court or jurisdiction
of this State.”).
12
Fontana v. Julian, 1978 WL 4952, at *1 (Del. Ch. July 12, 1978).
13
Id. (citing Getty Ref. & Mktg. Co. v. Park Oil, Inc., 385 A.2d 147 (Del. Ch. 1978), aff’d, 407
A.2d 533 (Del. 1979)).
Wal-Mart Stores, Inc., et al. v. AIG Life Ins. Co., et al.
C.A. No. 19875
December 12, 2006
Page 8
Importantly, this court’s jurisdiction over a controversy “should ordinarily
be ascertained as of the time the complaint is filed and that jurisdiction [should
remain] unaffected by post-complaint developments. Thus, even if subsequent
events moot all equitable causes of action . . . the court retains the power to decide
the legal features of the original claim pursuant to the clean-up doctrine.”14
The court is mindful of the important policy concerns that underlie the
“clean-up” doctrine. Among the more salient of these considerations for present
purposes are a desire for judicial efficiency, the avoidance of duplicative litigation
expenses, and whether the claim at issue is normally one triable before a jury.15
Without question, the court initially obtained subject matter jurisdiction in
this case because both the original complaint and the amended complaint “sounded
in both equity and law.”16 Moreover, as the defendants rightly emphasize, this
case, after four years of motion practice, is hardly on the “threshold of litigation.”
In that process, the court, through its decisions on two fully-briefed motions to
14
Giordano v. Marta, 1999 WL 350493, at *2 (Del. Ch. Apr. 28, 1999) (quoting DONALD J.
WOLFE, JR. & MICHAEL A. PITTENGER, CORPORATE AND COMMERCIAL PRACTICE IN THE
DELAWARE COURT OF CHANCERY § 2-4 at 81 (1998)); see also Goodrich v. E.F. Hutton Group,
Inc., 1991 WL 101367, at *2 (Del. Ch. June 7, 1991) (“Equitable jurisdiction is ordinarily
ascertained at the time of the filing of the complaint.”).
15
Getty, 385 A.2d at 150; see also WOLFE & PITTENGER, § 2-4 at 2-73 (2006).
16
Pls.’ Opening Br. 3.
Wal-Mart Stores, Inc., et al. v. AIG Life Ins. Co., et al.
C.A. No. 19875
December 12, 2006
Page 9
dismiss, has gained familiarity with the relatively convoluted insurance and
taxation issues in this case.17
Wal-Mart argues that interests of fundamental fairness support its motion to
transfer so that it may demand a jury for its sole remaining claim. In prior cases,
courts occasionally have placed emphasis on whether “the primary issue is one
ordinarily triable before a jury” when ruling on a transfer request.18 Wal-Mart
argues that fairness requires a transfer here since, it says, it plans to request a jury
trial in Superior Court.19
Wal-Mart’s position does not bear scrutiny. For example, in Getty Refining
& Marketing Co. v. Park Oil, Inc., the court stated that it would consider
transferring legal claims to Superior Court if the defendants requested a jury trial
17
See Giordano, 1999 WL 350493, at *2 (emphasizing that “the familiarity of the Court with the
background of this matter” argued against transfer).
18
See, e.g., Goodrich, 1991 WL 101367, at *2 (citing In re Markel, 254 A.2d 236 (Del. 1969));
Getty, 385 A.2d at 150-51.
19
Wal-Mart’s announced intention to request a jury trial is surprising for a number of reasons.
First, it never made any such demand with respect to the legal fraud claim that it included in both
its complaints filed to date. Second, in its opening brief in support of its motion to transfer, WalMart made no mention of its intent to request a jury in the Superior Court. See generally Pls.’
Opening Br. Rather, the defendants raised the issue in a footnote in their answering brief. Defs.’
Answering Br. 13 n.13. Third, Wal-Mart then represented in its reply brief that it planned to
seek a jury trial, Pls.’ Reply Br. 7, but failed to include a jury demand in the proposed Superior
Court amended complaint. Pls.’ Supp. Br. 1 & Ex. B. Viewing this conduct in total, Wal-Mart’s
newly discovered interest in a jury trial appears to be nothing more than a ploy to justify the
transfer of its complaint to a different court.
Wal-Mart Stores, Inc., et al. v. AIG Life Ins. Co., et al.
C.A. No. 19875
December 12, 2006
Page 10
on those claims.20 Further, prior law suggests that when a plaintiff’s equitable
causes of action disappear and only legal claims remain, a plaintiff’s untimely
request for a jury trial on the legal claims does not weigh heavily in determining
whether a transfer is appropriate.21
As these prior decisions recognize, considerations of fairness differ when a
plaintiff, rather than a defendant, makes a tardy request for a jury trial. When a
plaintiff joins legal claims with equitable ones in a complaint and files suit in a
court of equity, the defendant typically loses its right to demand a jury “if the facts
involved in the equitable counts and legal counts are so intertwined as to make it
undesirable or impossible to sever them.”22 If motion practice quickly resolves the
equitable claims or if the legal claims are severable, a court should liberally grant
transfer or severance when the defendant so requests to protect its right to a jury
trial on purely legal claims. Were this not the rule, “a plaintiff could deprive a
defendant of a jury trial merely by adding a spurious equitable claim to a demand
for money damages and commencing the action in Chancery instead of at law.”23
20
385 A.2d at 151-52.
See, e.g., Giordano, 1999 WL 350493, at *2 (denying a motion to transfer despite the
plaintiff’s request for a jury trial); Fontana, 1978 WL 4952, at *2 (granting the plaintiff’s motion
to amend to add a claim of fraud, but deciding that after two years of litigation the plaintiff
effectively waived its right to demand a jury trial).
22
Getty, 385 A.2d at 150; see also Park Oil, Inc v. Getty Ref. & Mktg. Co., 407 A.2d 533, 535
(Del. 1979) (“The right to a jury trial, however, applies to an action at law; it does not apply to
an equity suit.”)
23
Getty, 385 A.2d at 151.
21
Wal-Mart Stores, Inc., et al. v. AIG Life Ins. Co., et al.
C.A. No. 19875
December 12, 2006
Page 11
Such inequity would erode the right to a jury trial as established in article I, section
4 of the Delaware Constitution.24
These concerns for fundamental fairness are not as pressing when a plaintiff
belatedly requests a jury trial over legal causes of action that it long ago knowingly
and voluntarily joined with equitable claims. As instigator of the litigation in the
Court of Chancery, a plaintiff has options available at the outset of a case to
preserve its then rightful expectation of having a jury decide certain factual issues
normally triable by a jury at law. For example, if “the facts involved in the
equitable and legal counts are so intertwined”25 as to make severance impractical,
the plaintiff can curtail any perceived hardship by requesting that the Court of
Chancery frame a factual issue for an advisory jury.26
Wal-Mart did nothing to evidence any concern for its right to a jury trial
over the past four years. Because it chose to proceed entirely without regard to any
claimed right to a trial by jury, Wal-Mart has waived its right to request a trial by
jury on its remaining legal claim, and its newly professed desire for a jury does not
enter the court’s calculus in determining whether transfer is justified in this case.
24
DEL. CONST. art. I, § 4 (“Trial by jury shall be as heretofore.”).
Getty, 385 A.2d at 150.
26
Id. at 151-52 (noting, however, that an “advisory jury verdict which may be disregarded by the
Chancery judge is not entirely equivalent to a jury verdict at law” and that the “old procedure of
framing of issues by the Court of Chancery for jury trial is now probably outmoded”).
25
Wal-Mart Stores, Inc., et al. v. AIG Life Ins. Co., et al.
C.A. No. 19875
December 12, 2006
Page 12
Because Wal-Mart has not preserved any right to a jury trial on its claim of
common law fraud, the decision to transfer this case to the Superior Court or not is,
as a practical matter, of little real consequence. This is particularly true in light of
the provision in the Delaware Constitution allowing members of this court to sit by
designation on the Superior Court.27 Had this matter been transferred to the
Superior Court, it is plausible to assume that the same judge who has been assigned
to this case since it was filed would have been designated to sit on the Superior
Court to handle the case to its conclusion.
IV.
For the foregoing reasons, the plaintiffs’ motion to transfer this action to the
Delaware Superior Court is DENIED. IT IS SO ORDERED. The parties are
directed, no later than January 2, 2007, to submit a scheduling order contemplating
trial on or before December 14, 2007.
/s/ Stephen P. Lamb
Vice Chancellor
27
DEL. CONST. art. IV, § 13(2) empowers the Chief Justice of the Delaware Supreme Court,
upon written request by the Chancellor or by the President Judge of the Superior Court, to
designate one or more of the state judges “to sit in the Court of Chancery [or] the Superior Court
. . . , as the case may be, and to hear and decide cases in such Court and for such period of time
as shall be designated.” For application of this procedure, see Monsanto Co. v. Aetna Cas. and
Surety Co., 1989 WL 997183 (Del. Super. Sept. 29, 1989).