In re English Seafood (USA) Inc.

• Decision Date: 09 July 1990
• Docket Number: Civ. A. No. 89-599-JRR.
• Citation: 743 F. Supp. 281
• Parties: In re ENGLISH SEAFOOD (USA) INC., Petitioner.
• Court: U.S. District Court — District of Delaware

743 F. Supp. 281

In re ENGLISH SEAFOOD (USA) INC., Petitioner.

Civ. A. No. 89-599-JRR.

United States District Court, D. Delaware.

July 9, 1990.

Edward P. Welch, Cathy J. Testa and Peggy L. Kerr, Skadden, Arps, Slate, Meagher & Flom, Wilmington, Del., and New York City, for petitioner Wheeler's Restaurants PLC.

Henry A. Heiman of Heiman, Aber & Goldlust, Wilmington, Del., and Jack M. Platt, New York City, for respondent British Fish Development, Inc.

OPINION

ROTH, District Judge.

This action is before the Court after removal by the respondent, British Fish Development, Inc. ("British Fish"), of a petition for corporate discontinuance and dissolution of English Seafood (USA) Inc. ("English Seafood"), filed by the petitioner, Wheeler's Restaurant PLC ("Wheeler"), in the Delaware Court of Chancery. British Fish and Wheeler are co-owners of English Seafood. British Fish removed this action to federal court on the ground that this Court possessed subject matter jurisdiction over the action based upon the parties' diversity of citizenship and the existence of an adequate amount in controversy under 28 U.S.C. §§ 1332(a) and 1441(a). Wheeler has moved for remand of the action back to the Delaware Court of Chancery on the grounds that this Court lacks subject matter jurisdiction, that it lacks the equity powers necessary to grant the relief requested, or that, even if it should have jurisdiction and equity powers, it should abstain from exercising them. For the reasons stated below, the motion to remand will be granted, and this action will be dismissed.

BACKGROUND

Wheeler is a company which is organized under the laws of England and maintains its principal place of business there. It operates and franchises a popular chain of seafood restaurants in Great Britain. British Fish is incorporated under the laws of Florida and maintains its principal place of business in New York. In November, 1987, Wheeler and British Fish entered into a written "shareholders agreement" in which the two companies agreed to form a joint venture to develop and promote Wheeler's particular type of restaurants in the United States. Pursuant to the shareholders agreement, English Seafood was created and incorporated under the laws of Delaware on December 29, 1987. English Seafood's principal place of business is in New York. Wheeler and British Fish each own fifty percent of the stock of English Seafood under the shareholders agreement, and each made an equal initial capital contribution to this joint venture.

Under a separate "trademark and know-how license agreement," Wheeler granted to English Seafood exclusive rights to use and sublicense the Wheeler name and method of operating seafood restaurants in the United States. British Fish is responsible for developing, promoting and financing English Seafood's first five restaurants, which are required under the agreements to be opened within the first five years of English Seafood's operations. British Fish and its two principals are responsible under the agreement for managing all aspects of English Seafood's operations, including the development of the new restaurants.

British Fish and its principals have succeeded in opening only one restaurant to date, in Atlanta, Georgia, and Wheeler perceives no other steps being taken by British Fish toward opening any other restaurants. Contentions have arisen between the parties. The Atlanta restaurant has lost money since its opening in October, 1988, and British Fish requested Wheeler to transmit funds to English Seafood in response to those losses. Wheeler complied with this request even though it believed British Fish alone was responsible for operating English Seafood.

British Fish filed a complaint against Wheeler in July, 1989, in the United States District Court for the Southern District of New York. British Fish alleged that Wheeler had breached the shareholders agreement by refusing to cooperate in the proper operation of English Seafood. British Fish also claimed that it had the right to exercise an option under the agreement between the parties by which British Fish could purchase Wheeler's entire interest in English Seafood. Wheeler filed a number of counter-claims, alleging fraud and mismanagement, against British Fish and its two principals. The parties filed cross-motions for summary judgment on British Fish's claims in that action; these motions are still pending decision by the district court.

On October 2, 1989, Wheeler filed a petition in the Delaware Court of Chancery for discontinuance and dissolution of English Seafood pursuant to section 273 of the Delaware General Corporation Law, 8 Del.C. § 273. This statute provides in pertinent part:

(a) If the stockholders of a corporation of this State, having only 2 stockholders each of which own 50% of the stock therein, shall be engaged in the prosecution of a joint venture and if such stockholders shall be unable to agree upon the desirability of discontinuing such joint venture and disposing of the assets used in such venture, either stockholder may file with Court of Chancery a petition stating that it desires to discontinue such joint venture and to dispose of the assets used in such venture in accordance with a plan to be agreed upon by both stockholders or that, if no such plan shall be agreed upon by both stockholders, the corporation be dissolved....

(b) Unless both stockholders file with the Court of Chancery (1) within 3 months of the date of the filing of such petition, a certificate similarly executed and acknowledged stating that they have agreed on such plan, or a modification thereof, and (2) within 1 year from the date of the filing of such petition, a certificate similarly executed and acknowledged stating the distribution provided by such plan has been completed, the Court of Chancery may dissolve such corporation and may by appointment of 1 or more trustees or receivers with all the powers and title of a trustee or receiver appointed under § 279 of this title, administer and wind up its affairs. Either or both of the above periods may be extended by agreement of the stockholders, evidenced by a certificate similarly executed, acknowledged and filed with the Court of Chancery prior to the expiration of such period.

The parties have not agreed to a plan of dissolution. Instead, on October 31, 1989, British Fish filed a notice of removal of the dissolution action to this Court. British Fish intends next to move for transfer of this action from this district to the Southern District of New York, for consolidation with the action already proceeding there. Currently before the Court is Wheeler's motion to remand the dissolution action back to the Delaware Court of Chancery.

DISCUSSION

Wheeler's motion to remand is based on three alternative grounds presented in successive fashion. It argues that remand is appropriate because: (1) this Court lacks subject matter jurisdiction; (2) this Court lacks the equity power necessary to grant the relief requested, and thus lacks "equity jurisdiction"; or (3) even if this Court possesses both jurisdiction and the requisite equity power, it should abstain from exercising them, and remand the action to the state court. Each argument will be addressed in turn.

Subject Matter Jurisdiction

Wheeler argues that removal of the dissolution action to federal court was improper because this Court does not have original subject matter jurisdiction over such a cause of action. See 28 U.S.C. § 1441(a) (only civil actions over which federal courts have original jurisdiction may be removed from state to federal court). It asserts that the dissolution action is not adversarial in nature and that there exists no "controversy" between the parties over which this Court may exercise diversity jurisdiction.

Wheeler bases its argument on the observations of the Delaware Court of Chancery in In re Arthur Treacher's Fish & Chips of Ft. Lauderdale, Inc., 386 A.2d 1162 (Del.Ch.1978). One of the parties owning fifty percent of the stock of the Arthur Treacher's corporation filed a petition for corporate dissolution pursuant to section 273. The other stockholder responded to the petition by filing several counterclaims against the petitioner in the Court of Chancery.

The petitioner in Arthur Treacher's moved for dismissal of these counterclaims, arguing that "to permit such claims to be asserted ... would transform a petition for a corporate dissolution into an adversary proceeding contrary to the intent and purpose of the statute" and further that section 273 "does not contemplate opposing parties and ... it necessarily follows that petitioner and respondent are therefore not such parties, thus precluding the assertion of a counterclaim." Arthur Treacher's, 386 A.2d at 1164. The Chancellor agreed with petitioner's position and dismissed the counterclaims, finding that in a section 273 action the stockholders' individual interests are affected only indirectly and that the proceeding had not from the outset been against an opposing party. The Chancellor concluded that the fact that petitioner might gain a benefit from the action was not in and of itself sufficient in a section 273 dissolution to permit the filing of counterclaims. Id. at 1165-66. The Delaware Court of Chancery later relied upon the Arthur Treacher's decision for the proposition that "actions which are adversarial in nature" cannot be raised in a section 273 proceeding. In re Cambridge Fin. Group, Ltd., No. 9279 slip op. at 7-8 (Del.Ch. Nov. 9, 1987) (available on Westlaw at 1987 WL 19677 slip op. at 3).

Wheeler argues that the Arthur Treacher's decision provides clear authority for the proposition that a section 273 action does not involve an adversarial proceeding. Wheeler therefore asserts that this federal court can not exercise diversity jurisdiction over the dissolution action because there is no "controversy" between the citizens of different states.¹ This argument...