In re Bay Hills Emerging Partners I, L.P.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

In re BAY HILLS EMERGING )
PARTNERS I, L.P.; BAY HILLS )
EMERGING PARTNERS II, L.P.; )
BAY HILLS EMERGING PARTNERS ) C.A. No. 2018-0234-JRS
II-B, L.P.; and BAY HILLS )
EMERGING PARTNERS III, L.P., )
Delaware limited partnerships. )

ORDER REFUSING APPLICATION FOR CERTIFICATION OF
INTERLOCUTORY APPEAL

WHEREAS:

A. On April 2, 2018, Plaintiffs filed a complaint under 6 Del. C. §§ 17-110 and

17-111, seeking a declaration that (1) the Fund GPs1 were not properly removed and

continue to serve as general partners of the Funds; and (2) the Fund GPs and Bay

Hills “have not breached, materially or otherwise, any contractual duty or other legal

duty in connection with the Funds.”2

B. On July 2, 2018, this Court issued a Memorandum Opinion (the “Opinion”)

denying Defendants’ motion to dismiss the complaint (the “Motion”). The Motion

1
Capitalized terms are as defined in the Court’s July 2, 2018 Memorandum Opinion. In re
Bay Hills Emerging P’rs I, L.P., 2018 WL 3217650 (Del. Ch. July 2, 2018).
2
Plaintiffs filed an amended complaint on April 9, 2018, asserting these same counts for
declaratory relief. See D.I. 18 (Am. Verified Compl. Pursuant to 6 Del. C. §§ 17-110 and
17-111), ¶ 95.

1
sought dismissal on the basis of a purported mandatory forum selection clause

designating a court in the Commonwealth of Kentucky as the exclusive jurisdiction

to resolve disputes arising out of the LPA that governed the limited partnerships at

issue. Although the Court determined that dismissal was not justified because the

purported forum selection clause was, in fact, a permissive consent to jurisdiction

clause, the Court did determine, sua sponte, that a stay of this Delaware action in

favor of a contemporaneously filed Kentucky action was justified in the interests of

comity and judicial efficiency.3

C. On July 6, 2018, Plaintiffs filed their Application for Certification of

Interlocutory Appeal (the “Application”).

D. The Application asserts three grounds under Delaware Supreme Court

Rule 42: (1) “the [Opinion] involves a novel question of law”; (2) “the [Opinion]

conflicts with other trial court decisions on the applicable legal standard”; and

(3) “interlocutory review [will] serve considerations of justice.”4

3
The Court determined that the Kentucky action was filed contemporaneously with the
Delaware action under the circumstances presented even though it was filed eight days
later. In re Bay Hills Emerging P’rs I, L.P., 2018 WL 3217650 at *8. The Court based its
finding primarily on the fact that Plaintiffs here filed this action upon receiving notice of
their removal (prior to the expiration of their contractual cure period) and in apparent
anticipation of the limited partners’ filing in Kentucky. Id.
4
Pls.’ Br. in Supp. of their Appl. for Certification of Interlocutory Appeal (“Appl.”) 5, 8,
11.

2
 E. On July 16, 2018, Defendants filed their opposition to the Application.

AND NOW, this 23rd day of July, 2018, the Court having considered the

Application, Defendants’ opposition and the criteria set forth in Supreme Court

Rule 42, it appears to the Court that:

1. Supreme Court Rule 42(b)(i) provides that “[n]o interlocutory appeal

will be certified by the trial court or accepted by [the Delaware Supreme] Court

unless the order of the trial court decides a substantial issue of material importance

that merits appellate review before a final judgment.” Rule 42(b)(ii) provides that

instances where the trial court certifies an interlocutory appeal “should be

exceptional, not routine, because [interlocutory appeals] disrupt the normal

procession of litigation, cause delay, and can threaten to exhaust scarce party and

judicial resources.” For this reason, “parties should only ask for the right to seek

interlocutory review if they believe in good faith that there are substantial benefits

that will outweigh the certain costs that accompany an interlocutory appeal.”5

2. When considering whether to certify an interlocutory appeal, “the trial

court should identify whether and why the likely benefits of interlocutory review

outweigh the probable costs, such that interlocutory review is in the interests of

5
Supr. Ct. R. 42(b)(ii).

3
justice. If the balance is uncertain, the trial court should refuse to certify the

interlocutory appeal.”6

3. After carefully considering the Application, I am satisfied that the

Opinion does not decide a substantial issue of material importance that merits

appellate review before a final judgment.7 Specifically, the Opinion does not decide

a novel issue of law or conflict with other trial court decisions, and interlocutory

review would not serve considerations of justice. Consequently, and for the three

reasons stated below, I cannot certify that interlocutory review of the Opinion is

warranted on a cost-benefit basis or otherwise.

4. First, the Application contends the Opinion “involves a novel question

of law”8—specifically, “whether the same policy interests (recognized under

McWane9) should be included in or even predominate and override a court’s

application of the Cryo-Maid10 factors in deciding whether to stay a summary action

6
Supr. Ct. R. 42(b)(iii).
7
A substantial issue of material importance is one that “relate[s] to the merits of the case.”
Castaldo v. Pittsburgh-Des Moines Steel Co., Inc., 301 A.2d 87, 87 (Del. 1973).
8
Appl. 5.
9
McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng. Co., 263 A.2d 281
(Del. 1970).
10
Gen. Foods Corp. v. Cryo-Maid, Inc., 198 A.2d 681 (Del. 1964).
4
in favor of a plenary action filed in another state.”11 Plaintiffs assert that, under

Delaware law, the Court may not stay “a summary Delaware action in favor of a

first-filed plenary action” and, accordingly, “it should follow that a

contemporaneously filed (or first-filed) Delaware summary action should not be

stayed in favor of out-of-state plenary litigation.”12

The Application mischaracterizes the bases for the Court’s decision to order

a stay and overstates the limitations on the Court’s discretionary authority to stay

statutory summary proceedings. As noted in the Opinion, “[a] court may, ‘in the

interests of comity and judicial efficiency, stay an action before it in favor of another

with an identity of parties and issues pending in another forum.’” 13 “The Court’s

right to grant a stay is within the exclusive discretion of the Court. The discretion

to issue a stay is inherent in every court and flows from its control over the

disposition of cases on its docket.”14 “That authority, . . . is ‘subject only to statutory

and rule constraints and the requirement to exercise discretion rationally.’”15 As the

11
Appl. 6 (internal citation and quotation marks omitted).
12
Appl. 7.
13
Bay Hills, 2018 WL 3217650, at *7 (quoting Scott v. Dondero, 2014 WL 4406996, at *2
(Del. Ch. Sept. 8, 2014)).
14
In re Insys Therapeutics Inc. Deriv. Litig., 2017 WL 5953515, at *2 (Del. Ch. Nov. 30,
2017) (internal quotation omitted).
15
Brenner v. Albrecht, 2012 WL 252286, at *4 (Del. Ch. Jan. 27, 2012) (quoting Brudno
v. Wise, 2003 WL 1874750, at *4 (Del. Ch. Apr. 1, 2003)) (internal alteration omitted).
5
Opinion explained, “‘[u]ltimately, the exercise of the court’s discretion will depend

upon review of the relevant practical considerations keeping in mind the broader

policies of comity between the states and their courts and the orderly and efficient

administration of justice.’”16

It is true, as Plaintiffs point out, that Delaware courts should, and do,

consider the summary nature of a Delaware action when determining whether a stay

of that action is appropriate.17 But the mere fact that the Delaware action is a

statutory summary proceeding will not prohibit a trial court from staying that

proceeding when “otherwise legally warranted and [when the stay] would not

undermine or defeat the statutory purposes.”18 For instance, in Japan Lease

International Corp. v. Mediatrics, Inc., the court began its stay analysis by

acknowledging that plaintiff had initiated the Delaware action under 8 Del. C. § 225

(the corporate analogue of 6 Del. C. § 17-110)19 with the legitimate expectation that

the proceedings would be summary in nature.20 The court also acknowledged that

16
Bay Hills, 2018 WL 3217650, at *7 (quoting Adirondack GP, Inc. v. Am. Power Corp.,
1996 WL 684376, at *6 (Del. Ch. Nov. 13, 1996)).
17
See Carvel v. Andreas Hldgs. Corp., 698 A.2d 375, 378 (Del. Ch. 1995).
18
Id. (internal citation omitted).
19
See Adirondack, 1996 WL 684376, at *3 (“[S]ection 110 is the partnership analogue to
section 225.”).
20
Japan Lease Int’l Corp. v. Mediatrics, Inc., 1973 WL 461, at *2 (Del. Ch. May 8, 1973).

6
Section 225 charges the Court of Chancery with the responsibility of “supervis[ing]

the internal affairs of Delaware corporation[s].”21 Nevertheless, then-Chancellor

Duffy explained that the court was not “mandate[d] to decide any controversy

submitted under the corporation law statutes no matter what actions may be pending

between the parties in other jurisdictions.”22 He continued, “I think we still have an

obligation to look at all of the attendant circumstances and make a decision which

includes a consideration of the orderly and efficient administration of justice as we

see it in light of the binding case law.”23

In the Opinion, the Court determined a stay was warranted “in the interests of

the orderly and efficient administration of justice” because “[t]he Kentucky and

Delaware Actions overlap[ped] substantially[,] [t]he parties [were] functionally

21
Id.
22
Id.
23
Id.; see also Carvel, 698 A.2d at 378 (internal citation omitted) (recognizing that
Delaware law does not mandate that a trial court allow summary proceedings to go forward
even if the court determines that the case otherwise would be subject to a stay); Choice
Hotels Int’l, Inc. v. Columbus-Hunt Park Dr. BNK Investors, L.L.C., 2009 WL 3335332,
at *5 (Del. Ch. Oct. 15, 2009) (explaining, “this court consistently looks at all the attendant
circumstances when faced with a motion to stay or dismiss a statutory cause of action
arising out of one of our business entity statutes, including actions to determine the
management of a business entity, in favor of a foreign-filed action”); Xpress Mgmt., Inc. v.
Hot Wings Int’l, Inc., 2007 WL 1660741, at *6 (Del. Ch. May 30, 2007) (granting a stay,
explaining “[i]n the circumstances present here, the equitable powers this court enjoys to
manage its own docket and to provide for the efficient and orderly administration of justice
outweigh, at least in the foreseeable future, this particular petitioner’s statutory right to an
immediate dissolution under section 273”).

7
identical[,] both actions w[ould] require the courts to adjudicate the same contract

dispute . . . [and] the simultaneous procession of both actions risk[ed] the significant

waste of scarce judicial resources and, more importantly, the inconsistent resolution

of relevant issues.”24 The Opinion applied well-settled Delaware law and considered

the same policy interests embodied in legion authority where our courts have

recognized the court’s discretion to manage its docket.25 Thus, the Opinion did not

decide a novel question of law.

5. Second, the Application mischaracterizes the scope of, and differences

between, the Delaware and Kentucky actions. According to the Application,

interlocutory review of the Opinion would serve considerations of justice because

the “Delaware forum offers an expedited means of resolving this control dispute that

the Kentucky Action does not.”26 The Application continues, because “this Court[’s

procedures under Section 17-110] . . . are designed ‘to prevent a Delaware entity

from being immobilized by controversies about whether a given . . . general partner

[] ‘is properly holding office,’” this action “should be decided promptly by the

24
Bay Hills, 2018 WL 3217650, at *7–8.
25
See CBOT Hldgs., Inc. v. Chicago Bd. Options Exch., Inc., 2007 WL 2296355, at *11,
n.45 (Del. Ch. Aug. 3, 2007) (collecting cases).
26
Appl. 11.

8
Delaware Court of Chancery.”27 In contrast, Plaintiffs point out that Defendants’

claims in Kentucky are plenary, broader in scope and “threaten to undermine the

Delaware courts’ authority and independence.”28

As mentioned in the Opinion, notwithstanding Plaintiffs’ characterization of

their claims, this action most certainly does not present a narrow governance dispute

that can be resolved with the development of a downsized factual record and

summary application of Delaware law. Instead, Plaintiffs have sought declarations

under Section 17-111 that they did not breach the LPA (or other duties they may

owe the limited partners) in a manner that would justify their removal as general

partners. Plaintiffs’ claims do not implicate discreet matters of Delaware entity law;

they are, instead, straight-up contract claims involving a complex, long-term

relationship between determinate parties who have agreed that their disputes would

be decided under Kentucky law (and who have expressly consented to the

27
Appl. 11 (quoting Box v. Box, 697 A.2d 395, 398 (Del. 1997)).
28
Appl. 12. In this regard, Plaintiffs argue that the request for injunctive relief in Kentucky
threatens to undermine the status quo order I entered in this case. I note that I entered the
status quo order to address governance of the Funds while Defendants’ motion to dismiss
was pending (and perhaps beyond that if the motion was denied). The Order expressly
reserves the parties’ “right to make any motion or argument concerning jurisdiction, venue,
adequacy of the pleadings, or other matter, to seek or oppose relief from any other court of
competent jurisdiction, to contest the jurisdiction of any court, or to move to lift this Order
for good cause shown.” Status Quo Order, D.I. 17, ¶ 6. Given that I have ordered a stay
of the litigation here, I expect that the parties will seek to address the interim management
of the Funds with the Kentucky court (as permitted by the status quo order).

9
jurisdiction of the Kentucky court).29 Those same claims will be litigated in

Kentucky whether or not this action is stayed. To suggest that the Delaware action

is a typical summary proceeding, or that the dispute can be resolved substantially

more quickly here than in Kentucky, is to blink at the reality of the scope of the

controversy between these parties and what will be required to adjudicate it.30

Moreover, contrary to Plaintiffs’ protestation that a stay of this action will

somehow immobilize the Delaware entities, the Funds are “funds-of-funds” that

have but one limited partner—Defendant, KRS. Accordingly, there is no concern

29
Bay Hills, 2018 WL 3217650, at *10 (“The claims presented here do not implicate unique
issues of Delaware law. Instead, they require a straightforward application of the LPA’s
contractual provisions as interpreted under the parties’ bargained-for choice of Kentucky
law.”); see also Adirondack, 1996 WL 684376, at *5 (“What is in dispute in this case is
not the title to the office, but [the general partner’s] performance of its obligations under
the funding and partnership agreements. The dispute, therefore, fits squarely within the
provisions of section 111, as it is an action to interpret, apply or enforce the provisions of
an agreement, and [the general partner’s] ‘duties, obligations or liabilities . . . to the limited
partnership.’” (quoting 6 Del. C. § 17-111) (alteration in original)).
30
See Carvel, 698 A.2d at 379. In Carvel, this court found that the circumstances justifying
a stay outweighed the policies underlying 8 Del. C. § 225—and by analogy Section 17-
110. Specifically, the court found a stay was warranted because the New York court (where
the first action was filed) was prepared to proceed, the pivotal issue involved application
of New York law and the dispute over corporate governance was “in reality . . . only one
part of, and [] subsumed within, a larger controversy.” Id. The court noted that there was
no “countervailing Delaware public policy” justifying denial of a stay because: “[a]lthough
the dispute before the New York Court has a corporate governance ‘fallout’ as far as
[defendant] is concerned, it is not one that requires this Court to take prompt action to
protect the interests of unaffiliated investors. [Defendant] is not a corporation having
numerous stockholders whose interests need to be protected against the ‘uncertainty risk’
caused by a dispute over who constitutes the corporation’s lawful management [because
defendant] has only one stockholder [who is before the New York court] . . . ” Id. at 379
n.3.

10
that a stay in Delaware will cause uncertainty among other investors or potential

investors.31 As in any dispute over the control of an operating business entity,

whether based in contract or otherwise, interim measures will have to be taken to

minimize disruption and ensure proper management while the control issues are

resolved. The Kentucky court is certainly capable of overseeing that process. In the

unlikely event it does not, either party is free to return to this Court to seek relief

from the stay.32

6. Finally, the Application asserts the Opinion conflicts with other trial

court decisions on the applicable legal standard because it weighed the forum non

conveniens factors instead of requiring a showing of “overwhelming hardship,” even

though a stay “would have the same ultimate effect as dismissal.”33 “Generally, for

court decisions to be ‘conflicting upon [a] question of law,’ they must disagree about

legal standards.”34 There was no “disagreement” here.

When our courts have applied the “overwhelming hardship” standard to a

motion to stay on the ground that the stay would be tantamount to dismissal, they

31
See id. at 379 n.3.
32
Bay Hills, 2018 WL 3217650, at *10 (“Either party may apply to lift the stay should
good cause warrant such an application.”).
33
Appl. 8 (quoting Rosen v. Wind River Sys., Inc., 2009 WL 1856460, at *3 (Del. Ch.
June 26, 2009)) (internal quotation marks omitted).
34
Roseton OL, LLC v. Dynegy Hldgs. Inc., 2011 WL 3420845, ¶ 9 (Del. Ch. Aug. 4, 2011)
(ORDER).
11
have done so to address the concern that a defendant seeking dismissal under the

guise of a stay should not be entitled to invoke a less onerous standard to achieve the

same practical relief.35 That concern is not implicated in this case; the Opinion did

not address a motion to stay brought by Defendants in hopes they could avoid the

need to articulate overwhelming hardship. Indeed, Defendants sought dismissal on

what they construed to be a mandatory forum selection clause (selecting Kentucky)

in the operative limited partnership agreement. Rather, the Court determined,

sua sponte, that a stay was appropriate based on “principles of comity and judicial

efficiency”36 because “[t]he simultaneous procession of both actions risk[ed] the

significant waste of scarce judicial resources and, more importantly, the inconsistent

35
See, e.g., BP Oil Supply Co. v. ConocoPhillips Co., 2010 WL 702382, at *3 (Del. Super.
Feb. 25, 2010) (recognizing that the application of something less than the overwhelming
hardship standard when a defendant requests a stay that ultimately effects dismissal “would
allow and encourage defendants to move this Court for a stay rather than a dismissal, and
thereby achieve the same result without the showing of hardship articulated by the
[Delaware] Supreme Court.” (quoting In re Citigp. Inc. S’holder Deriv. Litig., 964 A.2d
106, 117 n.16 (Del. Ch. 2009))); Rosen, 2009 WL 1856460, at *3 (“[T]here is a ‘so-called
debate’ concerning the degree of hardship a party requesting relief on forum non
conveniens grounds must demonstrate based on whether the party seeks a stay or
dismissal.” (emphasis supplied)).
36
Rosen, 2009 WL 1856460, at *7.

12
resolution of relevant issues.”37 This was hardly a remarkable or rogue

determination.38

7. Under the circumstances presented here, I cannot certify that the

benefits of interlocutory review outweigh the probable cost. Thus, I cannot conclude

that interlocutory review of the Opinion would serve the interests of justice.

Accordingly, Plaintiffs’ Application is REFUSED.

IT IS SO ORDERED.

/s/ Joseph R. Slights III
Vice Chancellor

37
Bay Hills, 2018 WL 3217650, at *8; see also id. at *10 (“[I] defer to Kentucky in the
interests of the orderly and efficient administration of justice.”).
38
See, e.g., Online Res. Corp. v. Lawlor, 2010 WL 3949232, at *1 (Del. Ch. Sept. 21, 2010)
(staying indefinitely an action sua sponte “in the interest of comity and judicial efficiency,
most especially, the conservation of judicial resources,” where the courts in both actions
would be adjudicating the same dispute, noting “[i]f [the Delaware plaintiff] is unable to
assert as a counterclaim its claim involving the severance agreement in the Circuit Court
of Virginia or if that proceeding is not prosecuted diligently by [defendant], [plaintiff] may
seek to vacate the Stay Order and I will rule promptly on [defendant’s] pending motion to
dismiss”); Carvel, 698 A.2d at 379 (staying the Delaware action because it would only
determine a small part of the parties’ broader dispute that was before a court in another
jurisdiction).

13