Delaware Law Updates
{ Banner Image }
PDF

Puig v. Seminole Night Club, LLC, C.A. No. 5495-VCN (Del. Ch. July 29, 2011) (Noble, V.C.)

July 29, 2011

In this memorandum opinion, the Court of Chancery granted the defendants’ motion to dismiss the plaintiff’s claims as untimely, holding that 10 Del. C. § 8106’s analogous three-year limitation period applied and that 10 Del. C. § 8118(a), Delaware’s “Savings Statute,” could not save the plaintiff’s expired claims.

The defendants engaged the plaintiff to develop and manage a nightclub. In connection with his engagement, the plaintiff executed a limited liability company agreement (the “LLC Agreement”), a stock purchase agreement, and an operating agreement (collectively “the Governing Agreements”) on September 22, 2004. Two years later, after the club had been operating, the defendants terminated the plaintiff’s responsibilities in September 2006.

On November 15, 2006, the plaintiff sued the defendants in Florida state court, alleging various causes of action relating to the Governing Agreements. In May 2008, the Florida court dismissed the plaintiff’s claims related to the LLC Agreement (the “Dismissal Order”) because the LLC Agreement contained a forum selection clause requiring the parties to litigate all claims related to the LLC Agreement in Delaware. Following the Dismissal Order, the plaintiff continued pursuing his remaining claims in the Florida action.

On May 14, 2010, the plaintiff brought suit in the Court of Chancery, seeking to rescind the stock purchase agreement and LLC Agreement on the grounds that the defendants fraudulently induced him to enter into those agreements. In their motion to dismiss, the defendants argued that, although the equitable doctrine of laches governs equitable actions, 10 Del. C. § 8106, which limits fraud claims at law, should apply by analogy to bar the plaintiff’s claims. The plaintiff argued that his claims were timely because 10 Del. C. § 8106 was inapplicable and, alternatively, that Delaware’s Savings Statute saved his claims.

Declining to adopt the plaintiff’s argument that there were “unusual circumstances” warranting a determination that 10 Del. C. § 8106’s three-year limitation period should not apply, the Court of Chancery determined the plaintiff’s claims were untimely. The court reasoned that, even if an exception tolled 10 Del. C. § 8106’s three-year limitation period, the plaintiff’s cause of action accrued at the latest on November 15, 2006, when he commenced the Florida action. Therefore, because the plaintiff did not commence the Delaware action until after November 15, 2009, his claims were untimely.

The Court of Chancery next addressed whether Delaware’s Savings Statute could save the plaintiff’s expired cause of action. The court stated that the “Savings Statute may be applicable (1) whenever the writ has abated or (2) the action was avoided or defeated for any matter of form.” The Court of Chancery reasoned that, to promote Delaware’s policy of limiting placeholder suits, the Savings Statute cannot save a time-barred claim until the order dismissing the claim becomes final. Because the Dismissal Order was not a final order under Florida law, the Savings Statute could not yet save the plaintiff’s cause of action. The court reasoned that, because Florida law allows the plaintiff to appeal the Dismissal Order when the Florida trial court resolves his remaining claims, the Dismissal Order was not final and did not abate the Florida action. The court recognized that this put the plaintiff in an awkward position—not only were his claims untimely, but the Savings Statute could not yet save his expired claims. The court acknowledged, however, that the Savings Statute might save the plaintiff’s claims if the Dismissal Order becomes final.

The full opinion is available here