Elavon, Inc. v. Electronic Transaction Systems Corporation
CA No. 2021-0440-SG
| Del. Ch. | Mar 7, 2022Background
- Elavon purchased ETS’s assets under an Asset Purchase Agreement (approx. $180M) that included a $10M escrow to secure indemnification claims.
- Elavon alleges that ETS principals (Vaughan and former owner Akkad) defrauded it and seeks tort and contract damages (rescissory, consequential, expectation) and release of escrow funds.
- Elavon’s complaint sought, among other relief, an order directing the escrow agent to release the Escrow Fund.
- Defendants moved to dismiss for lack of Court of Chancery subject-matter jurisdiction; briefing addressed whether Chancery’s equitable jurisdiction was triggered by the need to compel an escrow agent.
- The Court found the core claims to be legal, concluded adequate remedies exist in the Superior Court (including declaratory relief that should enable escrow release), and dismissed for lack of equitable jurisdiction, subject to transfer to Superior Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Chancery has subject-matter jurisdiction to hear legal tort/contract claims because plaintiff may need an injunction directing an escrow agent to release funds | Elavon: only Chancery can issue an injunction directing the escrow agent; that potential need for equitable relief supplies Chancery jurisdiction | Defendants: claims are legal; Superior Court can grant complete relief (damages and declaratory relief) and an escrow agent will follow a final law-court order; injunction is speculative | Court: No Chancery jurisdiction. Legal remedies in Superior Court are adequate; the possibility of a future injunction is speculative and does not transform the action into equity |
| Whether the "cleanup doctrine" permits Chancery to retain the entire dispute because of potential need to order escrow release | Elavon: cleanup doctrine allows Chancery to decide related legal claims once equity jurisdiction exists (here, to deal with escrow) | Defendants: there is no primary equitable matter to invoke cleanup; the escrow issue depends on the legal adjudication | Court: Cleanup doctrine does not apply here because equity has not first obtained jurisdiction; resolving legal claims will determine escrow rights and makes equitable jurisdiction unnecessary |
Key Cases Cited
- IBM Corp. v. Comdisco, Inc., 602 A.2d 74 (Del. Ch. 1991) (damages for tort and contract are legal remedies and counseled against invoking Chancery when adequate relief at law exists)
- Getty Ref. & Mktg. Co. v. Park Oil, Inc., 385 A.2d 147 (Del. Ch. 1978) (discussion of the clean-up doctrine and equity’s power to decide related issues once equity obtains jurisdiction)