ODN Holding Corp., et al. v. Hsu, et al., C.A. No. 6790-VCN (Del. Ch. Mar. 30, 2012) (Noble, V.C.)

In this memorandum opinion, the Court of Chancery denied defendant Frederick Hsu’s motion to dismiss but granted his motion to stay the Delaware litigation in favor of an action filed in the Superior Court of the State of California (the “California Action”).  The Court also denied Hsu’s motion to dismiss Count I of the complaint, which seeks an injunction prohibiting the prosecution of the California Action.  In so ruling, the Court clarified that it has the subject matter jurisdiction and authority to issue an injunction in aid of its jurisdiction even where the Delaware action is filed after similar actions in other jurisdictions.
 
The parties’ underlying dispute concerns the sale by one stockholder of a majority of the common stock of ODN Holding Corporation (“ODN”) to another stockholder.  On October 22, 2009, Hsu filed an action in the Court of Chancery against Lawrence Ng and ODN challenging and seeking to enjoin a sale of ODN common stock by Ng to ODN (the “First Delaware Action”).  Hsu voluntarily dismissed the First Delaware Action with prejudice two weeks later.  Nearly two years later, on July 27, 2011, Hsu and three other plaintiffs filed the California Action against ODN, Ng and various other defendants.  The California Action is based upon the same set of operative facts and circumstances as the First Delaware Action.  On August 17, 2011, the defendants in the California Action filed the current action before the Court of Chancery (the “Second Delaware Action”), seeking, inter alia, (i) an injunction prohibiting Hsu from prosecuting the California Action (on grounds of res judicata or collateral estoppel) and (ii) a declaration that they did not commit certain wrongs alleged in the California Action.  Hsu moved to dismiss the injunction claim for lack of subject matter jurisdiction and moved to dismiss or stay the Second Delaware Action in favor of the California Action.
 
The Court denied Hsu’s motion to dismiss the injunction claim for lack of equitable subject matter jurisdiction, ruling that the Court of Chancery “has the authority to issue an injunction in aid of its jurisdiction even when an action filed in Delaware is the last-filed of two or more similar actions filed in different jurisdictions.”  Although the parties cited no instance in which the Court of Chancery has issued such an injunction, the Court made clear that it has “the ability to do so.”  The Court therefore confirmed the existence of subject matter jurisdiction for the injunction claim.
  
Turning to Hsu’s motion to dismiss or stay, the Court applied the standard set forth in McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co., 263 A.2d 281 (Del. 1970) and its progeny.  Exercising its discretion, the Court determined to stay the Second Delaware Action in favor of the California Action because:  (i) the California Action was the first filed; (ii) the actions involve substantially the same parties and issues; and (iii) the California court is capable of providing prompt and complete justice.  The Court rejected the plaintiffs’ argument that the Second Delaware Action should be treated as “first filed” on the basis that it is effectively a continuation of the First Delaware Action.  The Court declined to dismiss the Second Delaware Action, however, noting that the California Action is in its “initial stages” and that the stay might be lifted depending upon “what happens” in the California Action.

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