Del. Dep't of Fin. v. Univar, Inc.

STATE OF DELAWARE, DEPARTMENT OF FINANCE, Plaintiff, v. UNIVAR, INC., Defendant.

C.A. No. 2018-0884-JRS

COURT OF CHANCERY OF THE STATE OF DELAWARE

May 6, 2019

ORDER DENYING APPLICATION FOR CERTIFICATION OF INTERLOCUTORY APPEAL

WHEREAS, on October 30, 2018, Plaintiff, the State of Delaware Department of Finance (the "State"), issued an administrative subpoena to Defendant, Univar, Inc., directing Univar to produce certain records in connection with the State's Notice of Examination to conduct an unclaimed property audit¹;

WHEREAS, on December 3, 2018, Univar filed suit in the United States District Court for the District of Delaware (the "District Court") against certain representatives of the State to challenge the constitutionality of several Delawareescheat laws, or the State's application of such laws, including the State's retroactive application of Section 1171²;

WHEREAS, on December 7, 2018, the State filed this action to enforce the subpoena against Univar under 12 Del. C. § 1171(4), which authorizes the State Escheator to "bring an action in the Court of Chancery seeking enforcement of an administrative subpoena issued under paragraph 3 . . . which the Court shall consider under procedures that will lead to an expeditious resolution of the action";

WHEREAS, the Court issued a bench ruling on April 8, 2019,³ and an implementing order on April 18, 2019,⁴ (together, the "Order"), granting Univar's motion to stay the Chancery litigation in favor of the District Court litigation upon concluding, for the sake of efficiency and comity, that the threshold constitutional issues raised by Univar should be adjudicated in the District Court;

WHEREAS, on April 18, 2019, the State filed an Application for Certification of an Interlocutory Appeal of the Order (the "Application")⁵; WHEREAS, the Application asserts three grounds for interlocutory appeal under Supreme Court Rule 42: (1) the Order "involves a question of law resolved for the first time in this State,"—citing Supreme Court Rule 42(B)(iii)(A); (2) the Order "determines the constitutionality . . . or application of a statute of this State"—citing Supreme Court Rule 42(B)(iii)(C); and (3) "[r]eview of the interlocutory order may serve considerations ofjustice"—citing Supreme Court Rule 42(B)(iii)(H)⁶;

WHEREAS, on April 29, 2019, Univar opposed the Application⁷; and

WHEREAS, the Court has carefully considered the Application, Univar's response and the criteria set forth in Supreme Court Rule 42,

IT IS HEREBY ORDERED, this 6^th day of May, 2019, 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 Court unless the order of the trial court decides a substantial issue of material importance that merits appellate review before a final judgment." According to Rule 42(b)(ii), 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 these reasons, "parties should only ask for the right to seek interlocutory review if theybelieve in good faith that there are substantial benefits that will outweigh the certain costs that accompany an interlocutory appeal."⁸

2. When certifying 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 justice. If the balance is uncertain, the trial court should refuse to certify the interlocutory appeal."⁹

3. After carefully reviewing the Order, I am satisfied that it does not decide a substantial issue of material importance that merits appellate review before a final judgment. Specifically, the Order did not decide a novel issue of law or address the constitutionality of a Delaware statute.¹⁰ Likewise, the interests of justice would not be served by interlocutory review because the Court did not address the claims or defenses raised by the parties on the merits, but rather simply determined that the District Court should address the threshold federal constitutional issues before this Court determines whether to enforce the State's subpoena. With no substantial issue decided and no interest of justice implicated, I cannot say thatthe remote benefits of an interlocutory appeal outweigh the certain costs. For reasons I explain below, the Application's arguments to the contrary are rejected.

4. Our "Supreme Court generally does not accept interlocutory appeals relating to motions to stay because motions to stay usually do not address the substantive merits of the parties' underlying claims, which is the central focus of the Rule 42 analysis."¹¹ There is no reason to depart from this general rule here because, as noted, the Court has yet to address the substantive merits of the parties' claims or defenses. Indeed, the Court emphasized in the Order that the decision to stay the litigation was not intended to signal any view on the merits of the State's claims in this Court or its defenses in the District Court action.¹² The Court then allowed that if the District Court decides that this Court should address the more focused constitutional issues related to the State's subpoena, the Court would invite and, indeed, welcome a motion to lift the stay.¹³

5. Contrary to the State's characterization, the Order did not decide a novel issue of law raised for the first time in Delaware or determine the constitutionality or novel application of a Delaware statute.¹⁴ While this may be the first time the State has sought to enforce a subpoena under Section 1171(4), and the stay will delay "resolution" of that effort, the State cannot ignore that its authority to issue and enforce the subpoena in furtherance of its unclaimed property audit is now the subject of pending (first-filed) litigation in federal court. By the State's lights, two courts should be deciding the threshold constitutional issues raised in the District Court action at the same time.¹⁵ I disagreed and stayed this action. This was hardly a novel or provocative application of Delaware law.¹⁶ As both this court and our Supreme Court have held time and again, "[t]he discretion to issue a stay is inherent in every court and flows from its control over the disposition of cases on itsdocket."¹⁷ The power to stay litigation is "subject only to statutory and rule constraints and the requirement to exercise discretion rationally."¹⁸ And it is a power that resides with the trial court; the parties do not get to dictate (as opposed to suggest) when or on what grounds the court exercises its discretion to stay a case.¹⁹

6. The State's concerns regarding an expeditious resolution of this dispute ring hollow when considered against its audit and litigation strategies. The record reflects that the State initiated its audit of Univar in 2015, sought records in 2016, corresponded with Univar regarding Univar's constitutionally based objections to the audit and related records requests for nearly two years, and then waited until October 30, 2018, to issue its subpoena. Even though it knew Univar challenged the statute upon which the subpoena was issued on constitutional grounds, the State did not promptly initiate an action to enforce its subpoena. On the other hand, Univar did not wait. It filed its action in the District Court on December 3, 2018, and raised each of the constitutional challenges it had been raising with the State since the unclaimed property audit began in 2015. Only then did the State rush to this Court to file its enforcement action.²⁰

7. Univar maintains that the State reflexively filed here in hopes of avoiding an adjudication of the constitutional issues in the District Court given theState's poor track record of defending its escheat practices in the federal courts.²¹ Whether that is true or not is of no moment. What is relevant, however, is the State's delay in seeking to issue and then enforce its subpoena followed by the State's unwillingness to seek expedited resolution of the threshold constitutional and preemption issues in the District Court once it was sued there. This tactic is especially perplexing given the State's position that the Third Circuit has made clear that constitutional challenges to the Delaware escheat statutes should be brought in Delaware state courts,²² and the State's motion to dismiss in the District Court onthat basis and others.²³ Rather than prosecute that motion, however, the State continues to press its strategy of having two courts litigate the same constitutional challenges to the same Delaware statutes at the same time.²⁴ The inefficiencies of this approach are apparently lost on the State. They are not lost on the Court.

8. The State's argument that a stay of this litigation will encourage future subpoena recipients to file in federal court as a means to evade or delay compliance with the State's unclaimed property subpoenas is difficult to follow. Once the constitutional issues are decided by the federal court(s) in this case, later subpoena recipients will have no reason to repeat the challenge.²⁵ Either the State's authority to enforce its subpoenas will be upheld as constitutional or it will not be. Moreover, as noted in the Order, if the State genuinely has a concern about subpoena recipients abusing federal process as a means to escape their statutory obligation to provide records, it can raise that concern with the District Court as a basis to seek expeditedadjudication of the preemption and constitutional issues regarding the exercise of its subpoena power.²⁶

9. For the foregoing reasons, I cannot certify that the likely benefits of interlocutory review outweigh the probable costs such that interlocutory review is in the interests of justice. The State's Application for Certification of Interlocutory Appeal,...