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Court of Chancery Warns Against Filing Unwarranted Claims

By Seth A. Niederman & Nathaniel Klepser on February 15, 2023
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The Court of Chancery recently warned that knowingly filing claims that lack subject matter jurisdiction violates Rule 11 and risks referral to the Office of Disciplinary Counsel.  In Fintech Consulting LLC v. TSR, Inc., et al., C.A. No. 2023-0030-MTZ (Del. Ch. Jan. 18, 2023), the plaintiff filed a verified complaint and motion to expedite, asserting claims for common law fraud and violations of the Securities Exchange Act.  The plaintiff filed its claims in Chancery because of the underlying share purchase agreement’s forum selection clause.  Less than an hour later, the plaintiff filed a motion to dismiss its complaint, arguing that the Court lacked subject matter jurisdiction over its Exchange Act claim and sought an order dismissing it so that the plaintiff could re-file in federal court.

In its ruling on the Motion to Expedite, the Court explained that pursuant to Court of Chancery Rule 11, when a Delaware lawyer files a claim, the lawyer is certifying to the best of her knowledge, information, and belief that claim is warranted.  Further, noncompliance with Rule 11 risks a referral to the Office of Disciplinary Counsel or, if the proceedings are prejudiced, sanctions.  In this case, because the defendants had not yet appeared, the fairness of the action had not been prejudiced and the Court did not impose disciplinary action.  The Court denied the plaintiff’s motion to expedite and indicated that it would address the motion to dismiss in the ordinary course.  A review of the case docket reveals that Plaintiff subsequently filed a notice of dismissal of the Chancery Action.  This Decision provides a cautionary tale to counsel filing claims that challenge the subject matter jurisdiction of the Court.

  • Posted in:
    Corporate Compliance
  • Blog:
    Delaware Chancery Law Blog
  • Organization:
    Fox Rothschild LLP
  • Article: View Original Source

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