Posts in Equitable Defenses and Remedies

Chancery Refuses to Order Specific Performance Due to Inaccurate Representations and Warranties

Restanca, LLC v. House of Lithium, Ltd., C.A. No. 2022-0690-PAF (Del. Ch. Jun. 30, 2023)
The parties seeking specific performance of an agreement must establish a clear right to performance, including that all conditions to closing have been met. In this case, a buyer refused to close on the acquisition of an electric scooter company, and the seller sought specific performance in the Court of Chancery. In its post-trial decision, the Court denied that relief because the sellers inaccurately represented that the seller’s equity holders had executed a secondary sale agreement and that the seller had delivered certain financial statements to the buyer. Because neither of those things had in fact occurred, not all conditions to closing were satisfied and the buyer could walk away from the transaction. Further, because Delaware is a pro-sandbagging jurisdiction, it did not matter whether the buyer knew (as seller argued) that representations were inaccurate, and holding seller to its representations did not create an unjust result.

Chancery Suggests Alternative Approach To Contracts Providing That Prohibited Acts Are Void Ab Initio

XRI Investment Holdings LLC v. Holifield, et al., C.A. No. 2021-0619-JTL (Del. Ch. Sept. 13, 2022)
Under precedents such as CompoSecure, L.L.C. v. CardUX, LLC (Del. 2018), acts defined by an LLC agreement as “void” or “void ab initio” are incurable, whether through equity or otherwise. For the Court of Chancery in this post-trial decision, applying the CompoSecure holding prohibited the Court from giving effect to the plaintiff’s acquiescence in the transaction at-issue. While respecting and applying CompoSecure, the Court proposed an alternative approach under which equitable doctrines may militate against holding that a challenged act may never be cured. More ›

Chancery Finds Equitable Defenses Bar LLC Dilution and Redomestication Claims, and Holds it Lacks Jurisdiction to Dissolve a Foreign Entity

In re Coinmint, LLC, C.A. No. 2019-0983-MTZ (Del. Ch. Aug. 12, 2021)
This decision illustrates that, in specific circumstances, the equitable defenses of waiver, acquiescence, and estoppel may preclude a party from challenging otherwise voidable actions. In addition, deciding an issue of first impression, the Court held that it lacks subject matter jurisdiction to equitably dissolve a non-Delaware business entity. More ›

Section 225 Action Filed Eight Months After Removal Barred by Laches

Simple Global, Inc. v. Banasik, C.A. No. 2018-0809-PAF (Del. Ch. June 24, 2021)
Under Delaware law, a director or officer who disputes her removal as such may be subject to equitable defenses if she does not proceed promptly to contest it.  Here, plaintiff Simple Global was owned by three stockholders, one of which, defendant Banasik, was removed as a director and officer by the others in June 2018.  In November 2018, Simple Global sued Banasik for breach of fiduciary duty, to which Banasik responded in April 2019 by, among other things, filing a counterclaim under Section 225 of the DGCL asserting he was not properly removed as a director.  More ›

Formulaic Recitations of Equitable Jurisdiction Are Not Enough for Court of Chancery Jurisdiction

Athene Life and Annuity Co. v. Am. Gen. Life Ins. Co., C.A. No. 2018-0244-SG (Del. Ch. July 31, 2019).

The Court of Chancery is a court of limited jurisdiction. It maintains subject matter jurisdiction only for (i) equitable claims, (ii) when equitable relief is sought and no adequate remedy is available at law, or (iii) where a statute confers jurisdiction.  Applying well-recognized equitable jurisdiction principles, the Court dismissed this breach of contract action.  Although Plaintiffs sought equitable relief in the form of specific performance and an injunction, their request for equitable relief was merely a “formulaic incantation” rather than substantive.  Applying a realistic assessment of the nature of the wrong alleged and the remedy available at law, the Court concluded that a legal remedy for the breach of contract claim was available in the form of a declaratory judgment and damages, and fully adequate. Normally when a court issues a declaratory judgment establishing the parties’ respective contract rights, the court will not presume that the defendant will fail to abide by the court’s ruling in the future requiring an injunction to secure performance. A real threat of continuing injury must be shown, which was absent here. More ›