Chancery Court's Equitable Jurisdiction to Compel Transfer of Escrowed Funds
Three recent decisions by Delaware courts have addressed the appropriateness of equitable relief to acquire funds held in escrow post-closing of a transaction.
August 02, 2017 at 05:33 AM
6 minute read
Three recent decisions by Delaware courts have addressed the appropriateness of equitable relief to acquire funds held in escrow post-closing of a transaction. In all three decisions, the Delaware courts (the Court of Chancery twice and the Superior Court once) concluded that the Court of Chancery's equitable jurisdiction provided the most “certain, prompt, complete and efficient” relief. A common thread among these three cases is their reliance on a 2013 transcript ruling in SecNet Holding v. Potash, No. 7781-VCP (Del. Ch. April 2, 2013).
In SecNet, the Court of Chancery ordered a nonparty escrow agent to release $750,000 held in an escrow account, concluding that even if the plaintiff could obtain a judgment for the funds in escrow in a court of law (i.e., damages), the equitable power to enforce that judgment rests with the Court of Chancery (i.e., specific performance). Therefore, a legal remedy would be inadequate and not as certain, prompt, complete or efficient as an equitable remedy.
In the most recent case relying on SecNet—United BioSource v. Bracket Holding, 2017 Del. Ch. LEXIS 85 (Del. Ch. May 23, 2017)—Chancellor Andre G. Bouchard held that the Court of Chancery had equitable jurisdiction to hear a breach of contract dispute where a plaintiff sought specific performance compelling the defendant to transfer a tax refund held in escrow. Bouchard set forth the well-established rule that the Court of Chancery obtains equitable jurisdiction only three ways: one or more of the plaintiff's claims for relief is equitable in character, the plaintiff requests relief that is equitable in nature, or subject matter jurisdiction is conferred by statute. Toward that end, Bouchard noted that the Court of Chancery conducts a “practical analysis of the adequacy of any legal remedy” in an effort to limit the “formulaic 'open sesame'” claims for equitable relief.
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