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Testa v. Nixon Uniform Service, Inc., C.A. No. 3886-VCS (Nov. 21, 2008) (Strine, V.C.)

November 21, 2008

In this opinion, the Court of Chancery held that 8 Del. C. 111(a)(2), which grants the Court jurisdiction over an “agreement by which a corporation creates or sells ... rights or options respecting its stock,” does not apply to a corporate compensation plan that provides employees with a right to receive cash payments tied to the corporation’s stock performance. Under the compensation plan at issue, employees were granted “stock appreciation rights,” which entitled the holder to receive, under certain circumstances, cash payments tied to increases in the value of the company’s stock. The plaintiff alleged that the amounts paid to him under the plan were incorrectly calculated, and brought claims against the company in Chancery Court. The Court granted the company’s motion to dismiss for lack of subject matter jurisdiction, holding that a compensation plan, which only gives recipients the right to certain cash payments tied to the value of a company’s stock, is not an agreement in which a corporation “create[d] rights ... respecting its stock.” The Court further held that a “realistic assessment” of plaintiff’s complaint showed that it was, at its core, a breach of contract claim, and that the court lacked jurisdiction because the alternate claims pled by plaintiff were not equitable in nature and plaintiff did not plead a proper need for, or a right to, an equitable remedy.

The full opinion is available here