In the recent decision of Otto Candies, LLC v. KPMG, LLP, C.A. No. 2018-0435-MTZ (Del. Ch. Apr. 25, 2019), the Delaware Court of Chancery found that Rule 15(aaa) applied to a case transferred from the Superior Court when plaintiffs, faced with a motion to dismiss for failure to state a claim under Rule 12(b)(6), declined to amend their complaint in lieu of filing an answering brief. Court of Chancery Rule 15(aaa) provides that if a party declines to either amend their complaint or file a motion to amend in response to a motion to dismiss filed under Rules 12(b)(6) or 23.1, and the court concludes that the complaint should be dismissed under either of these rules, then “such dismissal shall be with prejudice … unless the Court, for good cause shown, shall find that dismissal with prejudice would not be just under all the circumstances.”
The significance of Otto Candies is that the action was initially filed in the Delaware Superior Court, which is not subject to Court of Chancery Rule 15(aaa). Following briefing on the motion to dismiss, the action was transferred to the Court of Chancery under 10 Del. C. § 1902 because the Superior Court lacked subject matter jurisdiction over the action. The Court of Chancery then issued a memorandum opinion dismissing the action for lack of personal jurisdiction and failure to state a claim. To inform whether the dismissals should be with or without prejudice, the Court’s opinion requested supplemental briefing on the applicability of Rule 15(aaa) to fully briefed dispositive motions transferred under Section 1902.
Following supplemental briefing, and in a matter of first impression, the Court of Chancery “conclude[d] that Rule 15(aaa), or the policies that motivate it, apply when a complaint is transferred to this Court subject to a fully briefed motion seeking dismissal under Rules 12(b)(6) or 23.1. Transferring plaintiffs must either seek leave to amend or stand firm on their complaint and risk dismissal with prejudice under Rule 15(aaa).”
In other words, if a party files a complaint in the Delaware Superior Court (which does not have a Rule 15(aaa) analogue), and the case is transferred to the Court of Chancery following briefing before the Superior Court, the party’s failure to amend the complaint in lieu of filing an answering brief to a motion to dismiss may cause dismissal to be with prejudice under the Court of Chancery Rules. Because this was a matter of first impression, however, the Court found in the interests of justice that plaintiff be permitted a “mulligan” to amend their complaint.
Carl D. Neff is a partner with the law firm of Fox Rothschild LLP. Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at email@example.com.