In the recent decision of DG BF, LLC, et al. v. Michael Ray, et al., C.A. No. 2020-0459-MTZ (Del. Ch. June 30, 2021), the Delaware Court of Chancery declined to exercise subject matter jurisdiction over a defamation claim despite the parties stipulating to have the Court hear such claim under the clean-up doctrine.
Earlier, on March 1, 2021, the Court issued a Memorandum Opinion addressing defendant’s motion to dismiss, and ordered supplemental briefing on whether the Court had subject matter jurisdiction over plaintiffs’ defamation claim, which seeks damages but not injunctive relief. Rather than brief that question, the parties instead submitted a stipulation agreeing that the Court had subject matter jurisdiction over the claim.
While Vice Chancellor Zurn considered the pending motion’s substantive merits, Vice Chancellor Slights issued an opinion in the case of Smith v. Scott, 2021 WL 1592463, at *13–14 (Del. Ch. Apr. 23, 2021) which addressed whether the same issue, i.e. whether the Court has subject matter jurisdiction over a defamation claim.
In Smith, Vice Chancellor Slights concluded that “the Court of Chancery, in all instances, lacks subject matter jurisdiction to adjudicate the questions of whether a defendant made a false statement about the plaintiff and whether it did so with actual malice.” Id. (emphasis added).
The Court went on to state: “The ‘clean-up’ doctrine serves the important function of avoiding, when appropriate, piecemeal litigation, but the historical imperative that a jury, not a judge, should evaluate whether a defendant’s statements are defamatory shines even brighter.” Id.
Vice Chancellor Zurn adopted the rationale of Smith v. Scott, and therefore declined the parties’ request that the Court hear the defamation claim under the clean-up doctrine. Rather, the Court dismissed the count, subject to plaintiffs’ right under 10 Del. C. § 1902 to transfer the claim to the Delaware Superior Court.
Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware. You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.