Gallagher v. Long, C.A. No. 8181-CS (Del. Ch. Feb. 28, 2013) (Strine, C.)

In this letter opinion, the Delaware Court of Chancery granted a motion to dismiss a breach of fiduciary duty claim under the doctrine of laches and rejected motions for oral argument and to recuse Chancellor Leo Strine.

The company at issue was LGF Enterprises, LLC, a Delaware limited liability company (the “Company”), which had three members: Robert Gallagher, Betty Franklin, and Richard Long.  The Company failed to make a profit, and Long filed a motion in the Court of Chancery to dissolve the Company and wind up its affairs.  The Court granted Long’s motion and permitted Long to seize and sell the Company’s assets to recover $1.2 million he paid to the Company and lent to Gallagher.  On June 26 and 27, 2009, Long auctioned the Company’s assets, which netted less than $1.2 million.  On February 17, 2010, the Company’s certificate of cancellation was filed.

More than three years after the June 2009 auction, Gallagher sued Long alleging that Long breached his fiduciary duty as liquidating trustee of the Company by failing to conduct the auction in a manner that maximized the sale price of the Company’s assets.  Long moved to dismiss this claim for being time-barred under the doctrine of laches. 

The Court agreed with Long and dismissed Gallagher’s claim.  The Court first noted that statutes of limitation apply to cases in law, while the doctrine of laches applies to cases in equity.  In certain circumstances, however, the Court of Chancery may apply a statute of limitations to an equitable claim by analogy.  Here, the Court applied the three-year statute of limitations for breach of fiduciary duty to Gallagher’s equitable claim.  The Court found the claim to be time-barred because (i) the alleged breach of fiduciary duty related to the auction, which was more than three years before Gallagher brought his suit, and (ii) Gallagher articulated no reason for failing to sue within the limitations period.

The Court also dismissed Gallagher’s motions for oral argument and for Chancellor Strine to recuse himself.  The Court dismissed Gallagher’s motion for oral argument because the record was satisfactory for granting judgment from the briefs and because Gallagher failed to appear for three hearings scheduled in a prior related action.  The Court denied the motion to recuse because Chancellor Strine subjectively believed that he could hear the proceeding free of bias, and found that there was no objective appearance of bias sufficient to cause doubt as to his impartiality.

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