Delaware Business Litigation Report

District Court Declines to Exercise Supplemental Jurisdiction Over Fiduciary Duty Claims, Grants Motion to Dismiss

Lemon Bay Partners LLP v. Hammonds, C.A. No. 05-327 (D.Del. June 26, 2007)

 

In this shareholder derivative action for breach of fiduciary duties against various corporate defendants, the Court held that the state law claims asserted so predominated the lone federal claim that exercise of supplemental jurisdiction was inappropriate. Plaintiffs, former shareholders of MBNA Corporation, asserted various claims against the defendants based on breach of fiduciary duties in connection with earnings reports and the merger of MBNA with Bank of America. Defendants moved to dismiss based on lack of subject matter jurisdiction, arguing that the Plaintiffs’ sole claim that rested on federal jurisdiction was so predominated by the state law claims as to make the exercise of the Court’s supplemental jurisdiction inappropriate. The Court concurred with the defendants, concluding that Plaintiffs’ federal law claim bore only a tangential relationship to the rest of the claims. The Court therefore granted Defendants’ motion to dismiss for lack of subject matter jurisdiction. 

Plaintiffs’ alleged that the defendants breached their fiduciary duties in connection with statements made regarding earnings expectations, as well as subsequent sales of shares made by various individual defendants. Plaintiffs also alleged that the MBNA defendants made misrepresentations regarding a planned merger with Bank of America, and did not maximize value for the MBNA shareholders consistent with Revlon duties in approving and recommending that merger. The plaintiffs’ sole federal claim was for contribution under Section 10(b) of the Exchange Act and Section 21(D) of the Private Securities Litigation Reform Act, asserting that if MBNA were found liable for its wrongful acts, Bank of America, as its successor in interest, would be entitled to contribution from the other defendants. The Court agreed with the defendants that Plaintiffs’ claims were chiefly state law issues, and that the contribution claim was largely unrelated to those state law issues. The Court acknowledged that it could exercise supplemental jurisdiction over the state law claims given original jurisdiction over the federal claim, but found that it would be inappropriate given the predominance of the state law claims.

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