According to reports from the Delaware Division of Corporations, over half of all U.S. publicly traded companies and 63 percent of corporations in the Fortune 500 are incorporated in Delaware. Ninety percent of all new initial public offerings in 2102 and 83 percent of all new initial public offerings in 2013 were from companies incorporated in Delaware (including Twitter, Yelp, and Facebook). These same reports inform us that there are more legal entities in Delaware (980,000) than residents (905,000).
It is no surprise, then, that Delaware is home to a great deal of business litigation. In addition to internal governance and deal-related litigation in the state courts, Delaware’s federal district court has one of the busiest patent infringement dockets in the nation, and its federal bankruptcy court is one of the leading venues for corporate reorganizations.
Each year, 4,000 to 6,000 out-of-state lawyers are admitted pro hac vice in Delaware state courts alone. In fact, more lawyers are admitted pro hac vice than practice there full-time. If you represent an entity formed in Delaware, or someone doing business with one, there is a reasonable chance your client may end up litigating in Delaware. Consequently, you might want to understand how litigation is conducted in the First State.
Litigation of state law claims involving Delaware entities will likely take place in one of Delaware’s two principal trial courts: the Court of Chancery and the Superior Court. Delaware is one of the few remaining states with separate courts of law and equity. Thus, it is important to understand the scope of subject matter jurisdiction of each court to avoid unnecessary litigation over jurisdiction and the potential embarrassment of dismissal of your case on jurisdictional grounds. It is also important for a potential plaintiff to consider the choice of forum because the Court of Chancery does not conduct jury trials or award punitive damages (absent express statutory authority).
The Two Courts
The Court of Chancery is a court of equity. There are currently five judges—the chancellor and four vice chancellors. Referring to any of them as “judge” is a dead giveaway that you are from out of town, as is referring to the “Chancery Court.” Its jurisdiction is limited by statute. Parties cannot confer subject matter jurisdiction on the Court of Chancery by consent, nor can subject matter jurisdiction be created by estoppel.
Apart from statutes specifically vesting jurisdiction in the Court of Chancery, there are two principal bases for equitable jurisdiction. First, the court may assume subject matter jurisdiction if the cause of action is one traditionally cognizable by equity courts. This is determined by looking at the general equity jurisdiction exercised by the High Court of Chancery of Great Britain at the time of the separation of the colonies. The most notable and frequently invoked example of such jurisdiction is a claim asserting a breach of fiduciary duty. The Court of Chancery has exclusive jurisdiction over these.
Second, even if a claim was not traditionally cognizable by equity courts, the Court of Chancery may hear a case that sets forth a basis for an equitable remedy, such as an injunction, specific performance, a constructive trust, reformation, or accounting. A request for a declaratory judgment is not considered equitable relief, as courts of law can issue declarations. Still, the Court of Chancery may issue declaratory relief if there is an independent basis for equitable jurisdiction.
For the Court of Chancery to have jurisdiction over legal claims seeking equitable relief, there must be no adequate remedy at law. Merely asserting that conclusion, however, will not be enough to confer jurisdiction. If jurisdiction is challenged, the court will engage in a realistic assessment of the nature of the wrong alleged and the remedy available in order to determine whether a legal remedy is available and fully adequate.
Under the “clean-up doctrine,” the Court of Chancery can also assume jurisdiction over purely legal claims seeking purely legal relief if there is also a separate basis for equitable jurisdiction over another claim and the legal and equitable claims are closely related. The decision to retain jurisdiction over the legal claims, however, is discretionary. Because there are no jury trials in the Court of Chancery, a defendant’s constitutional right to a jury trial on legal claims will be relevant to deciding whether to maintain jurisdiction over them. Such issues can be resolved by the appointment of the chancellor or a vice chancellor to sit temporarily as a judge in the Superior Court for the limited purpose of overseeing both the legal and equitable claims.
The Superior Court, by contrast, is a court of general jurisdiction, hearing civil and criminal cases. But that court does not have subject matter jurisdiction over equitable claims and cannot provide equitable relief, except in the limited (and rare) circumstance when all of the members of the Court of Chancery are either absent or temporarily disabled from acting. In that event, Superior Court judges have the power to issue temporary restraining orders, and the chief judge of the Superior Court can issue a preliminary injunction.
The Superior Court has established the Complex Commercial Litigation Division (CCLD) to facilitate quicker resolution of business disputes. The CCLD will hear any case with a claim (direct or declaratory judgment) for $1 million or more. The CCLD also has jurisdiction when the parties have designated it as their chosen forum, unless one of them is an individual acting primarily for personal, family, or household purposes, or where the agreement in question relates to an employment contract. The CCLD will not adjudicate claims for personal injury, mortgage foreclosure actions, mechanics’ lien cases, or condemnation proceedings.
Filing suit in the wrong court will not automatically result in dismissal. If the court holds that there is no subject matter jurisdiction, a plaintiff has 60 days to file a written election of transfer, pay all costs accrued in the first court, and make the usual deposit for costs in the second court—after which the case is transferred.
Pro Hac Vice in Delaware
But wait, you’re not from Delaware. So how do you get admitted pro hac vice? Application must be made on your behalf by a member of the Delaware bar practicing in Delaware. It consists of much the same materials found in other pro hac vice requests: a statement from an in-state lawyer recommending admission and a certification of various facts, such as membership in good standing in another state’s bar, agreement to be bound by Delaware rules, and the number of appearances in Delaware over the previous year.
Although admission is routine, the duty of candor to the court still requires applicants to disclose any information that might have a bearing on admission, even if not specifically requested in the application form. For example, where a colorable claim of a conflict of interest exists, there must be disclosure sufficient to put the court and opposing counsel on notice. Failure in this regard can result (and has resulted) in a reference to disciplinary counsel.
In one recent case, the court learned that the applicant was a defendant in litigation involving allegations that might have been relevant to the application. Before admitting the attorney, the court required the applicant to file a revised certification explaining why the litigation was not disclosed and whether it bore on the application.
Pro hac vice admission permits appearance before the court and participation in depositions. But admittees may not sign and file pleadings, letters, or other submissions to the court, all of which must come from Delaware counsel. And only Delaware counsel can e-file. Do not ask your Delaware attorney to give you his or her password to file documents online, as doing so carries the risk that you and the Delaware attorney will be referred to disciplinary counsel.
Nor can lawyers admitted pro hac vice contact the court without Delaware counsel, absent extraordinary circumstances. Violations of these rules have led to disciplinary actions against both Delaware and foreign counsel. In one case, an attorney admitted pro hac vice organized and participated in a conference call with the Court of Chancery without notifying his Delaware counsel or having him on the call. The court referred the out-of-state lawyer to Delaware’s Office of Disciplinary Counsel, which prosecuted him. He consented to a one-year private probation. Del. Board Case No. 2012-0307-B (Jan. 29, 2013).
In another pair of cases, a Delaware lawyer and his Pennsylvania colleagues were disciplined because the Pennsylvania lawyers signed pleadings and had telephone calls with the court without oversight or assistance from in-state counsel. They entered into an agreement for a private admonition with conditions, including (1) Delaware counsel could not serve as local counsel in the matter until he took steps to establish a practice in the field of law involved in the case, (2) the Pennsylvania colleagues had to obtain new Delaware counsel from a separate firm for any new Court of Chancery litigation, (3) all communication with the court had to be through and with new Delaware counsel, and (4) any application for admission pro hac vice for the following four years had to include disclosure of the admonition (effectively making the private admonition a public one). Del. Board Case No. 47, 2005 (May 8, 2006); Del. Board Case No. 46, 2005 (May 10, 2006). Summaries of disciplinary proceedings and sanctions imposed by the Office of Disciplinary Counsel are available on the Delaware state courts’ website (http://courts.delaware.gov/odc/digest/ODCDigest.aspx?ag=Supreme+Court&pvt=1).
Delaware courts reject the concept of “local counsel” as someone who simply rubber-stamps pleadings and shows up at hearings. Although out-of-state counsel may elect to play the dominant role in the litigation, Delaware courts expect Delaware counsel to be equally responsible for the case and its presentation, and to advise out-of-state counsel on substantive as well as procedural matters. Judges expect Delaware counsel to be involved enough that they are able to try the case in the event out-of-state counsel cannot.
Delaware counsel should especially be kept in the loop with regard to briefing, meaning at least the opportunity to review and comment on drafts in order to ensure nothing offends Delaware law or practice. This is critical because Delaware lawyers are deemed to be equally responsible for positions taken by out-of-state counsel.
The Delaware bench and bar place a high premium on collegiality and civility. Given the comparatively small size of the bar, lawyers who are adversaries in one case may be allies in another, sometimes at the same time. And litigators are likely to appear before the same judges repeatedly. Therefore, Delaware lawyers are not inclined to permit or participate in hardball tactics that may be more prevalent in larger jurisdictions because it diminishes their credibility before judges they see again and again. Moreover, abusive conduct may result in a referral to the Office of Disciplinary Counsel for investigation or, when the conduct prejudices the fairness of the judicial proceeding, revocation of pro hac vice admission.
In the past, the Court of Chancery generally has not required the parties to immediately file a scheduling order setting all dates through trial. More recently, however, the court has made it known that it appreciates case scheduling stipulations and expects the parties to work cooperatively on scheduling.
Certain types of cases—such as those seeking preliminary injunctions—require a faster schedule. If expedition is warranted, the Court of Chancery does its best to accommodate, but the plaintiff has the burden of persuading the court that good cause exists to justify the added inconvenience and cost. The party seeking expedition must file a motion demonstrating that it has brought at least one colorable claim and that it faces a possibility of irreparable injury. The moving party should include a proposed schedule and attempt to negotiate deadlines with the other side. Of course, the party seeking expedition should move as quickly as possible. Unreasonable delay permits the inference that speed is not really necessary.
Some statutory causes of action are deemed summary proceedings intended to be resolved promptly. Examples include demands to inspect corporate books and records, contractual demands for indemnification and advancement of attorney fees, and actions to determine contested corporate elections. Del. Code tit. 8, §§ 145, 220, 225. To promote a prompt resolution of these cases, the Court of Chancery will not hear additional claims or counterclaims that are unnecessary to a resolution of the statutory claim, and discovery and remedies will be limited to those necessary to effectuate the purposes of the statutes. Collateral claims and requests for other relief normally must be brought in separate plenary actions. Although the usual practice is to dismiss the collateral claims on motion, the court has sometimes severed them where there was some overlap of the factual and legal issues, addressing the summary claims first.
The need to schedule matters quickly in summary proceedings results in a modest exception to the need to have non-Delaware counsel admitted pro hac vice. Because an initial scheduling conference often occurs in such cases within days after the complaint is filed, the court will allow out-of-state counsel for the defendants (including in-house lawyers) to appear for the purpose of the initial scheduling hearing before retaining Delaware counsel and being admitted pro hac vice, if need be. This is rarely necessary, however, given the significant pool of experienced Chancery practitioners who are available on short notice.
The Court of Chancery expects summary cases to be resolved within 45 to 90 days and disfavors (but does not prohibit) dispositive motion practice. The court will also enter a scheduling order with a prompt trial date, although cases are frequently resolved on a paper record.
In the Superior Court, two kinds of cases receive expedited treatment. The first are summary proceedings involving commercial disputes. These entail claims of over $100,000, or less at the discretion of the resident judge, and at least one of the parties must be a Delaware resident and both must have consented to the proceeding. The parties relinquish any claim to a jury trial or punitive damages, and discovery must be completed within 180 days. Motions for summary judgment are not allowed, although motions to dismiss are. The parties may forgo trial and rely solely on the paper record and briefing. The judge rules within 30 days of oral argument or submission, or provides an estimate of when he or she will rule—normally not more than another 30 days.
Cases in the CCLD are also expedited. The assigned judge holds an early scheduling conference after all responsive pleadings have been filed and enters a case management order mandating early disclosures like those in Federal Rule of Civil Procedure 26(a) and establishing procedures for electronic discovery and other matters relevant to the case. These could include appropriate protective orders and alternative dispute resolution procedures. Firm pretrial and prompt trial dates are established. They will not be changed, and the case will usually receive priority from the court.
Given the comparatively small size and collegial nature of Delaware’s bar, counsel have often agreed informally to modify deadlines. But with the growth of the legal sector and the increase in litigation—with its corresponding pressures on a judiciary forced to make do with ever fewer resources—this practice is vanishing. Delaware courts have recently limited lawyers’ ability to enforce informal agreements. As the Delaware Supreme Court wrote in 2013,
parties who ignore or extend scheduling deadlines without promptly consulting the trial court, will do so at their own risk. In other words, any party that grants an informal extension to opposing counsel will be precluded from seeking relief from the court with respect to any deadlines in the scheduling order. By the same token, if the trial court is asked to extend any deadlines in the scheduling order, the extension should not alter the trial date. Counsel may face a compressed time period to complete discovery, or the filing of dispositive motions, but the most important aspect of the scheduling order—the trial date—will be preserved. In the unusual circumstance where the trial court does decide to postpone the trial date, litigants should expect that the trial will be rescheduled after all other trials already scheduled on the court’s docket.
Christian v. Counseling Res. Assocs., Inc., 60 A.3d 1083, 1085 (Del. 2013).
The Supreme Court also commented on the resolution of discovery disputes:
If one party misses a discovery deadline, opposing counsel will have two choices—resolve the matter informally or promptly notify the court. If counsel contacts the court, that contact can take the form of a motion to compel, a proposal to amend the scheduling order, or a request for a conference. Any one of these approaches will alert the trial court to the fact that discovery is not proceeding smoothly. With that knowledge, the trial court will be able to take whatever steps are necessary to resolve the problem in a timely fashion.
If the party chooses not to involve the court, that party will be deemed to have waived the right to contest any late filings by opposing counsel from that time forward. There will be no motions to compel, motions for sanctions, motions to preclude evidence, or motions to continue the trial. It is entirely possible, under this scenario, that some vital discovery will not be produced until the day before trial. Still, the party prejudiced by the delay accepts that risk by failing to promptly alert the trial court when the first discovery deadline passes.
Id. at 1088.
That decision was on appeal from the Superior Court, where there are jury trials. How strictly these rules apply in the Court of Chancery is an open question. But in Encite, LLC v. Soni, the court observed: “A Scheduling Order is an order of the Court,” and “[i]nformal agreements among counsel do not operate, ex proprio vigore, to modify a Court’s order.” 2011 Del. Ch. LEXIS 58, at *2 (Apr. 15, 2011).
Although discovery practice in Delaware does not diverge much from discovery practice in other jurisdictions, here are a few helpful hints. In Delaware, lawyers are expected to approach deposition scheduling with due regard for the ethic of civility that animates practice here. Scheduling is considered a cooperative endeavor. Counsel openly discuss witness availability and their own calendars so that depositions can take place at times that are convenient for everyone. Deposition notices typically contain nominal dates and times, but these are placeholders designed to provide notice of the identity of the witness to be deposed rather than acts of unilateral scheduling. A parsimonious or begrudging proffer of one or two dates is not acceptable. Nor is the surprise deposition notice. Failure to cooperate can result in sanctions.
Objections in depositions are expected to be few and far between, usually limited to privilege claims. There is no need to object based on relevance, as such objections are preserved, and it is improper to instruct a deponent not to answer on the ground of relevance. Objections to the form of the question are expected to be limited to stating the objection and explaining briefly why the form is objectionable (such as “compound” or “leading”). This allows the interrogating lawyer an opportunity to rephrase the question and cure the problem. As in most jurisdictions, “speaking” objections complete with lengthy statements designed to coach the witness are not allowed.
In one case in the Court of Chancery, the judge was so offended by non-Delaware counsel’s defense of a deposition—the lawyer made repeated speaking objections and was generally obstructive—that he ordered the attorney to write a letter to the Delaware Office of Disciplinary Counsel and arrange a meeting in Delaware with disciplinary counsel to review the rules of conduct for conducting a deposition in a Delaware proceeding.
With regard to document production, the Court of Chancery has stated that it expects counsel to be actively involved in the gathering of records in response to requests for production. Relying on the client to gather materials is not satisfactory.
Recently, judges in both courts have become more vocal in expressing their displeasure with meritless summary judgment motions and have discouraged parties from filing them. One of the vice chancellors has even included a provision in scheduling orders requiring a party who wishes to move for summary judgment to file a short letter (no more than four pages, double spaced) requesting permission and explaining why the motion is valid.
In Delaware, as everywhere, most cases settle. But if trial is in the offing, remember that juries are not allowed in the Court of Chancery, given its equity jurisdiction. All cases there are tried to the bench. The court will therefore encourage the parties to minimize objections because they can be preserved in post-trial briefing (although certain objections, such as privilege, are better asserted at trial).
The Court of Chancery divides trial time equally between the parties and expects them to track and agree on time devoted to questioning witnesses, objecting, and giving argument. The parties should also anticipate and agree on each side’s remaining time.
To facilitate a prompt trial and avoid inconvenience, witnesses should appear only once unless recalled in the rebuttal case. If both sides are calling a witness, the party with the burden of proof has the option of how to proceed. The court generally finds it is more efficient and comprehensible to hear witnesses tell their own story first and then be cross-examined, even if that witness is called by the opposing side.
Got all that? Good. Welcome to Delaware and enjoy your visit.