Delaware Business Litigation Report

Chancery Declines to Exercise Equitable Jurisdiction in a Contract Action to Compel the Release of Funds Held in Escrow

Graciano v. Abode Healthcare, Inc., C.A. No. 2022-0728-SG (Del. Ch. Mar. 4, 2024)
The Court of Chancery declined to exercise subject matter jurisdiction in connection with a seller’s contractual rights under a purchase agreement. The plaintiff argued that his contract claim required an equitable remedy to recover funds from an escrow fund. The Court held that a declaratory judgment, together with the plaintiff’s instruction to the escrow agent, was the only judicial action required under the agreement. 

The Court emphasized that its equitable jurisdiction was limited and may be exercised only if complete relief was unavailable at law. The plaintiff argued that the contract required specific performance to obtain the release of the funds in escrow. The defendant had previously refused to release the escrow funds because of the parties’ disagreement about the amount to be released. Here, the contract between the parties allowed either party to file suit for breach and seek monetary relief. It also provided that, upon receiving an order from a court of competent jurisdiction, the prevailing party could instruct the escrow agent to release the funds. The Court explained that speculation as to the need for equity to compel the escrow agent to release funds after the eventual entry of a declaratory judgment was insufficient to invoke the Court’s equitable jurisdiction. The plaintiff also asserted that the contract itself conferred equitable jurisdiction on the Court, but the Court reasoned that parties may not confer subject matter jurisdiction by an agreement. Accordingly, after a holistic review of the complaint, the Court ruled that complete relief at law was available.

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