The Delaware Court of Chancery has a national reputation as the preeminent forum for business disputes. This is, in part, due to the fact that Delaware draws a large number of businesses with its business-friendly laws and tax benefits. The Court of Chancery’s composition includes judges who specialize in corporate law making it uniquely poised to efficiently handle the large number of complex business disputes.
Although many businesses are registered in Delaware, they do not all operate within the state. Many have operations in other states throughout the country. As such it is not uncommon for a case within the Court of Chancery to have concurrent cases moving forward in other states. In a recent example, a business owner attempted to use Delaware law to his advantage while also navigating a proceeding on a similar matter in Florida. In some cases, this can work to the plaintiff’s benefit. In this case, it did not.
Facts of the case
The case involves a group of six Delaware limited liability companies known as Alternative Globe Companies with three individuals, Richard Cardinale, David Feingold, and Michael Dazzo, who served as managers and members. On January 28, 2022, Feingold and Dazzo resigned from their positions as managers and withdrew as members. Upon the resignation, Cardinale moved forward with this dispute in the Court of Chancery to demand Feingold and Dazzo return all books, records, and other assets belonging to Alternative Globe Companies.
Cardinale points to the Delaware Limited Liability Company Act Section 18-110 and 18-111 for declaratory relief. Feingold and Dazzo countered with a request for dismissal or stay of the action due to an earlier case currently moving forward in Florida. In the Florida case, Feingold and Dazzo have accused Cardinale of fraudulent charges related to keeping a second set of books. It is this second set of books that Cardinale is requesting in the Court of Chancery case.
The Court of Chancery has jurisdiction when one of the following is present:
- A plaintiff seeks an equitable claim;
- A plaintiff requests equitable relief and there is no adequate remedy at law; or
- Jurisdiction is present by statute.
Cardinale claims the third option applies under the law noted above. However, the Court of Chancery points out that Section 18-110 is very narrow. It provides for court ordered enforcement to produce all books, records, and assets when the situation relates to a question of who serves as manager.
In this case, there is no question who serves as manager. All parties agree that Cardinale is the manager. Since there is no controversy over this matter, the section of law used to support Cardinale’s argument does not apply, and the case cannot move forward.
This case provides an important reminder of the complex nature of Court of Chancery proceedings. The Court of Chancery dismissed this claim and stated that Cardinale could file an appropriate claim in the proper court — which appears to be raised in the ongoing litigation in Florida.