Sometimes more is not a good idea. That is the case when a complaint alleges multiple bases to invoke the jurisdiction of the Delaware Court of Chancery, but still fails to sustain that subject matter jurisdiction. The recent decision in Yu v. GSM Nation, Del. Ch. C.A. No. 12293-VCMR (July 7), shows why that can be a costly failure. For the plaintiff in the GSM case spent over a year trying to sustain the Court of Chancery's jurisdiction only to fail to do so. Had the plaintiff instead filed in the Delaware Superior Court's CCLD docket, he very well might have had a trial by the time his Court of Chancery complaint was dismissed.

The facts alleged in the GSM complaint were fairly straight forward. Warren David Yu lent GSM $3,500,000 to develop its new business. When GSM failed to repay him under the terms of the loan documents, Yu sued GSM, its founding member Ahmed Khattak and several entities related to Khattak. The Yu complaint alleged six counts, using the “magic words” he thought would invoke the Court of Chancery's jurisdiction. He failed, however, to allege facts that supported that jurisdiction.

To begin with, Chancery jurisdiction must be based on either: a statutory grant of subject matter jurisdiction (such as a books and records claim under the Delaware General Corporation Law); an equitable right (such as a fiduciary relationship); or an equitable remedy (such as an injunction). But the equitable right or remedy must be supported by specific factual allegations that would show that right exists or that remedy cannot be adequately supplied by an action at law. For example, Yu generally alleged that he had the equitable right to pierce the corporate veil to see Khattak. Yet Yu failed to also allege facts that would warrant veil piercing, such as a failure to observe corporate formalities that amounted to treating Khattak's corporations as mere sham entities. Hence, Yu failed to show there was Court of Chancery jurisdiction over that claim. Similarly, Yu alleged a claim for equitable fraud. Such a claim must be based on a fiduciary relationship, but Yu failed to show he had such a relationship with GSM or Khattak.