Delaware Supreme Court Sends Plaintiffs to Bring Suit in Bulgaria, Establishes Intermediate Standard for First-Filed Cases

By Jay McMillan

Although Delaware is the preferred jurisdiction for deciding business disputes, it sometimes happens that a defendant would prefer to litigate elsewhere. When that happens the defendant may move to dismiss the action based on forum non conveniens, that is, because the forum is not convenient to the defendant. The decisive factor in such cases is whether there is a prior-filed action pending in another jurisdiction. Delaware courts typically rule in favor of the first-filed action. Where the Delaware action is first-filed, to prevail on a motion to dismiss, the defendant must show that it would suffer “overwhelming hardship” from being forced to litigate in Delaware. Where a prior-filed action is pending in another jurisdiction, a Delaware court will grant the motion to dismiss if the other action involves the same parties and the same issues and was brought in a court capable of doing prompt and complete justice. Either way, the prior-filed action is favored.

A less common scenario arises when a prior-filed action has been brought in another jurisdiction but is no longer pending. In a recent Delaware Supreme Court case, Gramercy Emerging Markets Fund v. Allied Irish Banks, p.l.c., 2017 Del. LEXIS 452 (Del. Oct. 27, 2017), the plaintiffs, a Cayman Islands company and two Delaware subsidiaries, had first brought suit in Illinois against the defendants, a bank organized under Delaware law with offices in Illinois and Bulgaria, and an Irish bank based in Dublin. The claims were brought under Bulgarian law. The Illinois court dismissed the complaint based on forum non conveniens. The plaintiffs then filed suit in the Delaware Court of Chancery, where Vice Chancellor Sam Glasscock III granted the defendants’ motions to dismiss on the same grounds.

The Delaware Supreme Court affirmed, finding that the plaintiffs’ claims “involve important and unsettled issues of Bulgarian securities law arising out of an investment in a Bulgarian bank” and that the plaintiffs knew from the start that they were investing in a Bulgarian bank governed by Bulgarian law.

Forum non conveniens standards: Cryo-Maid and McWane

Where the Delaware case is first-filed, Delaware courts apply a plaintiff-friendly standard based on General Foods Corp. v. Cryo-Maid, Inc., 198 A.2d 681 (Del. 1964) which requires a defendant to show that it would suffer “overwhelming hardship” from being forced to litigate in Delaware. This is because Delaware courts are reluctant “to lightly disturb a plaintiff’s first choice of fora.” Under Cryo-Maid, the court considers five factors: “(1) [t]he relative ease of access to proof; (2) the availability of compulsory process for witnesses; (3) the possibility of the view of the premises, if appropriate; . . . (4) all other practical problems that would make the trial of the case easy, expeditious and inexpensive;” and (5) “whether or not the controversy is dependent upon the application of Delaware law which the courts of this State more properly should decide than those of another jurisdiction.” The court also considers a sixth factor, whether or not there is a similar action pending in another jurisdiction.

Where the Delaware case is not the first-filed case and the earlier case is pending in another jurisdiction, the analysis favors the defendant (who is typically the plaintiff in the other, first-filed case) and the court applies a defendant-friendly standard based on McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co., 263 A.2d 281 (Del. 1970). Under McWane, dismissal is within the court’s discretion and is strongly favored where: “(1) [there is] a prior action pending elsewhere; (2) in a court capable of doing prompt and complete justice; (3) involving the same parties and the same issues.”

In another, more recent case, Lisa, S.A. v. Mayorga, 993 A.2d 1042 (Del. 2010), three actions that the plaintiff had filed in Florida had been dismissed, one of them on the merits with prejudice, so there was no prior-filed case pending elsewhere. The Court of Chancery applied the Cryo-Maid factors and found that litigating in the alternative forum (Guatemala) would cause the defendant “overwhelming hardship.” The Delaware Supreme Court affirmed, but did so under McWane, finding that the fact that the Florida action was no longer pending did not change the outcome, and that McWane should apply because the plaintiff-friendly standard of Cryo-Maid “would ignore the binding effect of the Florida adjudication, and create the possibility of inconsistent and conflicting rulings.” Allowing the plaintiff to proceed in Delaware after dismissal on the merits in Florida would be “precisely the outcome McWane’s doctrine of comity seeks to prevent.”

In Gramercy, however, the prior-filed action was dismissed not on the merits, but on procedural grounds, without prejudice. Therefore, the Court of Chancery treated the Delaware action as first-filed and applied the plaintiff-friendly Cryo-Maid standard. However, the Court found in favor of the defendants, granting their motions to dismiss without finding that they would suffer overwhelming hardship. On appeal, the plaintiff argued that the Court of Chancery should have applied the overwhelming hardship standard. The Delaware Supreme Court rejected that argument and affirmed the Court of Chancery’s ruling in favor of the defendants. In addition, the Supreme Court clarified “the spectrum of standards under which motions for forum non conveniens are considered in Delaware.” The Court established an “intermediate” standard, concluding that “when a case is later-filed and its predecessors are no longer pending, the analysis is not tilted in favor of the plaintiff or the defendant. In that situation, Delaware trial judges exercise their discretion and award dismissal when the Cryo-Maid factors weigh in favor of that outcome.”

The Delaware Supreme Court found that its earlier ruling in Lisa was “case-specific.” In Lisa, the Court of Chancery ruled in favor of the defendant even under the plaintiff-friendly Cryo-Maid standard. Had Lisa been decided by balancing the Cryo-Maid factors under the neutral standard prescribed by Gramercy, without the overwhelming hardship “overlay,” rather than under the defendant-friendly McWane standard used by the Delaware Supreme Court in that case, the outcome would have been the same.

James G. (Jay) McMillan is a partner in the Wilmington, Delaware office of Halloran Farkas + Kittila LLP. He concentrates his practice in complex corporate and commercial matters, with a particular focus on litigation in the Delaware Court of Chancery. For more information on the firm, visit hfk.law.

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