Vice Chancellor Glasscock discussed the limits of equitable jurisdiction in Elavon, Inc. v. Electronic Transaction Systems Corp, C.A. No. 2021-0440-SG, memo. op. (Del. Ch. Mar. 7, 2022). The Court granted a motion to dismiss for lack of subject matter jurisdiction where the sole basis for equitable relief was a request to direct an escrow agent to release funds, where no allegations suggested that the escrow agent would refuse to release the escrowed funds upon instruction from the parties or court order.
The parties entered into an Asset Purchase Agreement that contemplated $10 million held in escrow to satisfy any indemnification claims. Plaintiff brought claims for tort and contractual damages in the Court of Chancery. The sole cause in equity was a request for an order directing the escrow agent to release escrowed funds if plaintiffs prevailed and if the escrow agent refused to release the escrowed funds. Defendants moved to dismiss in part on the basis of lack of subject matter jurisdiction.
The Court explained, “This would not be the tail wagging the dog; it would be an unanticipated second dog biting that tail — the possibility of such a speculative cause of action does not, to my mind, open the kennel of equity.” The possibility that the escrow agent would not release the funds was too hypothetical to support the exercise of the Court’s equitable jurisdiction. A contrary ruling would effectively transform many actions into actions in equity. “Many contingencies, I assume, may involve invoking equity in way of a remedy. If raising the possibility of such is sufficient to trigger Chancery jurisdiction, the distinction between law and equity would be eroded.” The Court noted that, if an injunction is required, the plaintiff could apply for such relief at that time.