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Chancery Dismisses Action for Declaratory and Injunctive Relief for Lack of Subject Matter Jurisdiction on Grounds that the Proposed Declaratory Judgments Would Provide an Adequate Remedy at Law

Qlarant, Inc. v. IP Commercialization Labs, LLC, C.A. No. 2021-0574-MTZ (Del. Ch. Jan. 25, 2022)
Pursuant to an asset purchase agreement, the plaintiff buyer purchased assets from a seller and several of its affiliates. Despite another company asserting that it owned twenty percent of the seller, the agreement represented that the seller had only two individual shareholders. The company that claimed it was a shareholder filed an action in Maryland challenging the asset purchase transaction. In turn, the plaintiff buyer filed an action in the Court of Chancery seeking declaratory judgments that the company was not a shareholder of the seller at the time of the agreement and that the asset-purchase transaction had been validly consummated. The plaintiff also asked the Court to permanently enjoin the company from asserting it was a shareholder of the seller.

Even though the plaintiff also sought equitable relief, the Court held that it lacked subject matter jurisdiction over the declaratory judgment action. Equitable relief in the Court of Chancery is unavailable when a sufficient remedy is available under common law or statute in another Delaware court. The Court reasoned that the plaintiff’s requested injunction was not necessary to protect the plaintiff’s rights and that a favorable outcome on its declaratory judgment claim would effectively provide the same relief as its proposed injunction. The Court explained that the plaintiff had offered no reason in its complaint or briefing to infer that a declaration alone would fall short of providing complete relief, and that plaintiff’s conclusory “incantation of magic words sounding in equity” was insufficient to bring its declaratory judgment action within the Court’s limited subject matter jurisdiction.

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