In Alliance Compressors LLC v. Lennox Indus. Inc., the Court of Chancery held that monetary damages and declaratory relief would be sufficient to remedy the alleged harm in question. In this case, plaintiff Alliance Compressors LLC (“Alliance” or “Plaintiff”) was formed by large air conditioner manufacturers to make “scroll” compressors for use in residential and commercial air conditioners manufactured by its members. Alliance’s members included Defendant Lennox Industries Inc. and its subsidiary, defendant Allied Air Enterprises LLC (together, “Lennox” or “Defendants”).
Under a purchase and supply agreement (the “Supply Agreement”), Lennox agreed to purchase from Alliance a certain minimum percentage of the total number of compressors that Lennox requires for its business until December 31, 2046. A few years ago, Defendants notified Plaintiff that Defendants intended to calculate their contractual purchase obligation differently than they had in the past. This new method of calculation would allegedly permit Defendants to avoid purchasing Plaintiff’s compressors altogether.
Plaintiff’s complaint asserts three claims against Lennox. The first claim alleges that Lennox breached the Supply Agreement and requests that the Court order specific performance of the contract. The second claim alleges that Lennox anticipatorily repudiated the Supply Agreement by virtue of its notification. The third claim seeks a declaration that, for the life of the Supply Agreement, Lennox shall purchase from Alliance at least its purchase commitment. Defendants have moved to dismiss the complaint for lack of subject matter jurisdiction, arguing that the claim for specific performance is insufficient to invoke this Court’s equitable jurisdiction.
As Delaware’s Constitutional court of equity, the Court of Chancery can acquire subject matter jurisdiction over a case in only three ways, namely, if (1) one or more of Plaintiff’s claims for relief is equitable in character, (2) Plaintiff requests relief that is equitable in nature, or (3) subject matter jurisdiction is conferred by statute. Although specific performance is an equitable remedy upon which equity jurisdiction might be predicated, that is true only if the complaint, objectively viewed, discloses a genuine need for such equitable relief. Under Delaware law, the party seeking an equitable remedy has the burden to show that a legal remedy would be inadequate.
To meet its burden, Plaintiff argues that money damages in this case would be impracticable and not readily quantifiable.
Plaintiff’s arguments resemble those that Vice Chancellor Glasscock rejected in Athene Life & Annuity Co. v. American General Life Insurance Co.
In Athene, the Court of Chancery concluded that the plaintiff’s specific performance claim boiled down to a request that the Court make a finding of contractual breach and then direct the defendant to “go, and breach no more,” which was “entirely unnecessary” to remedy the alleged breach.
As to the claim for injunctive relief, the Vice Chancellor observed that this Court “does not enjoin hypothetical future breaches of contract” and that nothing in the record indicated “special circumstances compel[ling] equity to act.”
In reaching this conclusion, Athene distinguished a 1970 Delaware Supreme Court case, Diebold Computer Leasing, Inc. v. Commercial Credit Corp. In Diebold, the Court of Chancery found that a declaratory judgment in Superior Court would provide an adequate remedy at law and dismissed the case for lack of subject matter jurisdiction. The Delaware Supreme Court reversed on appeal, holding that the plaintiff’s request for injunctive relief conferred equitable jurisdiction on the Court of Chancery.
Based on the facts, the Court found that a “collision course” between the parties was imminent, and “equity serves to avoid in the exercise of its traditional jurisdiction [to] prevent a threatened breach of contract.”
Distinguishing Diebold, the Court in Athene found no similar “collision course” compelling equity to act.
The reasoning of Athene is persuasive and the same outcome is appropriate in this case. As in Athene, the complaint in this case alleges that Lennox has already breached the Supply Agreement by failing to include the total number of compressors used by Lennox. Money damages will suffice to remedy any alleged breach to date, and declaratory relief will establish the proper method of calculating Total Usage under the Supply Agreement. A decision clarifying the Supply Agreement, identifying any breaches thereof, and imposing damages would “change the incentives of the parties to the contract.”
Any future breach following a court’s ruling would be hypothetical, such that instructing Lennox to “go, and breach no more” would be “entirely unnecessary” and thus inappropriate.
In this case, there is no analogous “approaching harm” or imminent “collision course” requiring equity to intervene. As Plaintiff alleges, the breach has already occurred. And the ongoing nature of the Supply Agreement does not present the sort of “special circumstance” existing in Diebold that would justify an exercise of this Court’s equitable jurisdiction.
The court held that Plaintiff’s request for specific performance did not confer subject matter jurisdiction on this Court, and therefore granted Defendant’s motion.