The Delaware Chancery Court issued two recent opinions that provide helpful guidance to practitioners and reaffirm certain basic principles of Chancery Court practice. On April 2, in Charlotte Broadcasting, LLC et al. v. Davis Broadcasting of Atlanta LLC, the Court reminded litigants of the limits of the Court’s own equitable jurisdiction and dismissed the plaintiffs’ cause of action as truly legal in nature. On March 27, in Horres v. Chick-fil-A, Inc., the Court explained the balancing test applied when Chancery litigants seek the continued confidential treatment of documents after a matter has been concluded.
Charlotte Broadcasting, LLC et al. v. Davis Broadcasting of Atlanta LLC –
If an “equitable” action walks, talks and quacks like an action at law, then the action belongs in Superior Court.
Facts/Background: The plaintiffs, subsidiaries of Radio One, Inc. (collectively “Radio One”), entered into an agreement with defendant Davis Broadcasting of Atlanta, LLC (Davis) to enable one of Radio One’s radio stations to upgrade its broadcasting signal strength. Under the agreement’s terms, FCC approval was necessary for the parties to be able to close the agreement. Both parties agreed to use “commercially reasonable efforts” to obtain the critical FCC consent. Circumstances arose that made FCC consent highly unlikely, and as a result, Radio One provided written notice to Davis under the agreement that the agreement was terminated. Davis disputed Radio One’s right to terminate, and in response, Radio One brought an action in Chancery Court asking for a declaratory judgment that its termination of the agreement had been proper and that its efforts to effectuate the agreement had been “commercially reasonable.” Radio One subsequently filed an amended complaint, adding a request that the Court enjoin Davis from attempting to enforce the agreement and from filing an action relating to the agreement in another jurisdiction. The Court in this instance was ruling on Davis’s motion to dismiss the amended complaint.
Holding: The Court began with a principle familiar to Chancery practitioners – that this Court is a court of limited jurisdiction. Unless jurisdiction is provided by statute, Chancery will only hear cases seeking to vindicate an equitable right or seeking a remedy where no remedy exists at law. The Court will take a very practical view of a complaint in order to determine the true reason for a lawsuit. Lawsuits for which a legal remedy exists will not be permitted simply because a plaintiff has prayed for equitable relief. In its decision, the Court separately addressed and similarly dismissed both Radio One’s request for declaratory judgment and its request for injunctive relief.
The Court pointed out that a declaratory judgment is a statutory action that may be brought at law. Chancery Court only has jurisdiction to hear a request for a declaratory judgment if the other counts of a complaint confer the requisite equitable jurisdiction on the Court. The Court concluded that, in this matter, the dispute underlying the requested declaratory judgment clearly arose out of Davis’s threats to assert its legal rights under the agreement. The Court further found that these issues would be resolved upon the adjudication of the purely legal issues related to the agreement that were presented by the plaintiffs in their request for declaratory judgment. Therefore, the Court found itself to be without jurisdiction.
The Court noted that Radio One, in its request for injunctive relief, had merely restated the contractual claims contained in the request for declaratory judgment, and that this simply cannot be considered a basis for subject matter jurisdiction in Chancery Court. Resolution of the declaratory judgment requests, which the Court had already deemed legal in nature, would render moot both of Radio One’s requests for injunctive relief. The Court commented that Radio One’s request for an injunction to prevent Davis from filing an action based on the agreement in another jurisdiction was “not a serious request for injunctive relief.” Returning to the question of whether an adequate remedy at law was available, the Court found no indication that the potential loss to Radio One could not be remedied by money damages. Moreover, the Court found that Radio One’s position was fundamentally flawed where, as the party terminating the agreement, it was asking Chancery to enjoin Davis from preserving the status quo, where equitable remedies such as preliminary injunctions are traditionally intended to preserve the status quo.
Lessons: When deciding where to file an action, litigants should be mindful and aware of the fact that simply facially designating a complaint as one in equity does not automatically establish equitable jurisdiction. Chancery Court considers itself duty bound to ascertain whether the true nature of an action is legal or equitable or whether complete relief is available at law. If a complete legal remedy is available, Chancery Court will dismiss the case for lack of subject matter jurisdiction. The Delaware Chancery Court has been, and remains, steadfast in maintaining its constitutional role as a court of limited jurisdiction.
Horres v. Chick-fil-A, Inc. –
Embarrassing information does not necessarily warrant confidential treatment.
Facts/Background: The plaintiff, Joseph A. Horres, Jr., originally sued Chick-fil-A for its termination of a franchise agreement with Horres. Chick-fil-A had responded with an affidavit from its investigator, Brian Skinner, describing allegations of sexual harassment that employees had made against Horres. The case was voluntarily dismissed by Horres in June 2010 in order to re-file in another state. In this instance, the Court was deciding on Chick-fil-A's request under Chancery Court Rule 5.1(g) for continued Confidential Treatment of Brian Skinner's affidavit.
Holding: The Court noted the public's right of access to judicial records, which is grounded in the First Amendment of the U.S. Constitution and the common law. Delaware courts balance "the magnitude and imminence of harm to the litigants" with "the interests of the government and public in disclosure." Embedded in Rule 5.1 is the powerful presumption of public access. Notably, proceedings are a matter of public record except as otherwise provided in the rule. Further, there are specific procedures for obtaining permission to file documents confidentially in addition to the presumptive three-year time limit on the confidential treatment of documents.
After three years, Rule 5.1(g) requires the party seeking continued confidential treatment of records to demonstrate that the "particularized harm from public disclosure of the Confidential Information in the Confidential Filing clearly outweighs the public interest in access to Court records." This incorporates the Delaware Supreme Court's holding in C. v. C, 320 A.2d 717, 723 (Del. 1974) that after proceedings are complete, the Court has the discretion to deny the inspection of records when justice so requires.
The Court found that the contents of the Skinner affidavit in this matter did not rise to the level of sensitive information to warrant continued confidential treatment. There was no risk of harm or prejudice to Chick-fil-A, aside from possible embarrassment connected to the sexual harassment allegations taking place in one of their locations, in disclosing the information in the affidavit, especially in light of the fact that the news media had already extensively covered the events. The Court also ordered the disclosure of the exhibits to the affidavit, including the franchise agreement and the termination letter, finding that they contained no commercially sensitive information and that Chick-fil-A had not shown particularized harm as required by Rule 5.1(g). The Court did designate “confidential” the names of the individuals identified in the affidavit as witnesses or victims, finding that the public did not have an interest in knowing these names and that there were good reasons to respect the privacy of these individuals.
Lessons: Parties must be mindful of Chancery Court's great deference to the public's right to access court records. Although a client may consider a document sensitive and wish that it remain private, it is prudent to remind a client that with litigation comes the risk that certain documents will become part of the public record. This can only be avoided if the standards contained in Rule 5.1 for the confidential treatment of those documents can be met.
Published April 19, 2013.
