Preston Hollow Capital, LLC v. Nuveen LLC, et al., Ca. No. 2019-0169-SG (Del. Ch. Aug. 13, 2019)
Preston Hollow Capital followed its first ruling concerning various business torts with an insightful analysis into the limitations on the Court of Chancery’s authority to enjoin defamatory statements. The analysis began with the general principal that equity will not enjoin a libel. While the case law recognizes a few limited exceptions, Preston Hollow Capital refused to deviate from the general rule in dismissing the plaintiff’s defamatory claims. To prevent libelous statements, parties should pursue their defamation claims in a court of law.
Preston Hollow Capital LLC sought to enjoin Nuveen LLC and its affiliates from making further statements to participants in the bond market regarding the plaintiff’s business practices. The Nuveen entities moved to dismiss the complaint, which the court granted in part. Preston Hollow’s defamation claim was the lone survivor. The parties submitted supplemental briefing, and the Vice Chancellor ultimately dismissed the defamation claim on jurisdictional grounds.
The Delaware Court of Chancery seldom enjoins future wrongdoing, and an injunction based on a defamation claim is rare. The court adheres to the maxim that equity will not enjoin a libel, which is based on the premise that a jury, rather than a judge, should decide whether a statement is defamatory. Evidence of trade libel—“a libelous statement to consumers that falsely disparages a plaintiff’s goods or services”—may give rise to an exception to the general rule. Citing Organovo Holdings, Inc. v. Dimitrov, which is explained in further detail here, the court may exercise jurisdiction over trade libel claims to the extent that the plaintiff has asserted “a separate business tort that is furthered by the speech, thereby invoking the application of equity to a wrong other than ‘mere’ defamation.” Like Organovo Holdings, the court dismissed all of Preston Hollow’s claims for relief except defamation. Having found that the complaint does not give rise to the trade libel exception, the Court of Chancery afforded Preston Hollow the opportunity to transfer its defamation claim to the Delaware Superior Court, where a jury of its peers could determine whether or not the relevant speech was defamatory.
Preston Hollow Capital serves as a reminder of the limitations on the Court of Chancery’s authority. Merely styling a claim as one for injunctive relief will not suffice; rather, the plaintiff must plead claims in equity to derive the benefit of the court’s expertise. To prevent future libelous statements, a party would be wise to pursue its claim in a court of law. Given the harmful effect of a defamatory statement on one’s business and the near certain delay in obtaining relief from a trial by jury, an injured party may feel like it is drowning, in which case, equity will not serve as a life preserver unless the defamatory statements are incidental to a business tort that falls within the Court of Chancery’s jurisdiction.