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Chancery Applies Borrowing Statute, Dismisses Plaintiff’s Fraud Claims as Time-Barred

CHC Investments, LLC v. FirstSun Capital Bancorp, C.A. No. 2018-0353-KSJM, (Del. Ch. Mar. 23, 2020).

On a motion to dismiss plaintiff’s claims for fraud, the Delaware Court of Chancery applied Delaware’s three-year statutory limitations period rather than Texas’s four-year period and dismissed plaintiff’s claims as time-barred. Narrowly interpreting the Delaware Supreme Court’s holding in Saudi Basic Indus. Corp. v. Mobil Yanbu Petrochemical Co., 866 A.2d 1, 16-18 (Del. 2005), the Court found that, except in circumstances where a party is forced to bring claims in Delaware, under Delaware’s “borrowing statute,” the shorter of Delaware’s statute of limitations and that of the foreign jurisdiction will apply. 

Plaintiff, CHC Investments, LLC (“Plaintiff” or “CHC”), brought fraud claims against defendants FirstSun Capital Bancorp (the “Company”), William D. Sanders and William P. Sanders (collectively, “Defendants”), alleging that they failed to make certain disclosures in connection with Plaintiff’s $25 million investment into SG Capital Partners (“SG Capital”), a predecessor of the Company. In March of 2014, in connection with its investment in SG Capital, Plaintiff signed a Subscription Agreement providing that Delaware would be “the exclusive forum for resolving disputes” related to that agreement. In December of 2014, the Company issued an Exchange Offer Memorandum in connection with a proposed spin-off of SG Capital disclosing issues relating to the potential violation of federal banking regulations due to SG Capital’s business model as well as pending litigation against certain senior-level managers that could adversely impact SG Capital. On May 17, 2018, Plaintiff filed suit, alleging that the Company had made misrepresentations about the viability of SG Partners in the regulatory environment and about the existence of the litigation against SG Capital senior-level management. 

Defendants argued Plaintiff was on notice of the potential fraud since as early as December 2014 following the issuance of the Exchange Offer Memorandum. Thus, its fraud claims were barred under Delaware’s three-year statute of limitations. Plaintiff argued that Texas’s four-year statute of limitations should apply—and that its claim, filed in May of 2018, was not time-barred. 

The Court, applying Delaware’s borrowing statute, found that Delaware’s statutory period applied. The Court explained that Delaware’s borrowing statute, having been enacted to address forum shopping concerns, directs the court to apply whichever limitations period is shorter—whether that be Delaware or the foreign jurisdiction. The Court also addressed confusion caused by the application of the Delaware Supreme Court’s holding in Saudi Basic, finding that it stood for the narrow proposition that a longer limitations period of a foreign jurisdiction applies only where the party asserting the underlying claim was forced into a Delaware forum, such as in the case of a defendant asserting compulsory counterclaims or a creditor who is forced to file claims in a debtor’s chosen forum. In all other cases, however, the shorter of the two limitations periods applies. The Court found that the Plaintiff had filed in Delaware not because it was forced to do so, but because it had agreed to do so pursuant to a forum-selection clause.  

The Court also rejected Plaintiff’s fraudulent concealment argument, finding that Plaintiff had actual notice of any claims relating to the alleged misrepresentations when the Exchange Offer Memorandum was issued in December of 2014—more than three years before Plaintiff filed its complaint. Thus, the Court, applying Delaware’s three-year statute of limitations, dismissed Plaintiff’s claims. 

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