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Actions Filed Four Months Apart Treated as Contemporaneous Filings for Purposes of Forum Non Conveniens Analysis

Rapoport v. The Litigation Trust of MDIP Inc., C.A. No. 1035-N, 2005 WL 3277911 (Del. Ch. Nov. 23, 2005). Former directors moved to dismiss breach of fiduciary duty action brought against them by bankruptcy liquidation trust in Delaware District Court for lack of subject-matter jurisdiction. That same day, the former directors filed a parallel action in the Court of Chancery seeking a declaration that they did not breach their fiduciary duties in connection with the conduct challenged in the District Court action. Four months later, the directors' motion to dismiss was granted. The following day, the trust re-filed its breach of fiduciary duty action in Ohio state court. The directors moved to enjoin the trust from prosecuting the Ohio action. The trust cross-moved to stay or dismiss the Chancery action. The court denied both parties' motions. The court treated the Delaware and Ohio state court actions as being filed contemporaneously with respect to application of the first-filed rule. The court stated that the parties' conduct did not reflect a classical race to the courthouse, where opposing parties file within hours of each other, but found that there was a race nonetheless. In this regard, court noted that the Court of Chancery action was likely a tactical maneuver designed to confer first-filed status on directors, and that it was unlikely that the directors had any intention of prosecuting the Chancery action unless the District Court action was dismissed. Based on the non-applicability of the first-filed rule, the court proceeded to analyze the trust's motion to stay or dismiss under the traditional forum non conveniens analysis. The court found most the factors to neither favor nor disfavor litigation in Delaware. The court ultimately held, however, that those factors tipped slightly in favor of allowing the Court of Chancery action to proceed. The court noted that Delaware was the underlying corporation's state of incorporation and that the parties' dispute raised substantial issues of Delaware corporate law. The court also found it significant that the directors did not file suit in Delaware solely to inconvenience the trust, noting that the trust initially brought suit in Delaware and prosecuted that case until it was ready for trial. Notwithstanding the above ruling, the court was also unwilling to enjoin the trust's prosecution of the Ohio action. The court noted that where Delaware courts have issued injunctions in aid of jurisdiction, they have done so in favor of a first-filed Delaware action. The court also noted that neither party had taken any action in connection with Ohio action and therefore no collision with that action was immanent. The court did state, however, that if circumstances changed and a collision course seemed unavoidable that it would entertain a renewed motion to enjoin the trust from proceeding with the Ohio action. Share

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