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Judge Wallace Dismisses Counterclaims as Barred by Delaware's Statute of Limitations Because They Were Not "Purely Defensive"

November 7, 2019

In Coit Capital Securities, LLC v. Turbine Asset Holdings, LLC, et al., C.A. No. N17C-05-020-PRW-CCLD, Judge Wallace granted a motion to dismiss counterclaims because such counterclaims were not “purely defensive” and were brought outside of Delaware’s statute of limitations. This action, originally filed by Coit Capital Securities, LLC, involved breach of contract, tortious interference, and conspiracy claims for an alleged scheme to cut Coit out of a series of portfolio transactions. Pursuant to certain letter agreements between Coit and Turbine Asset Holdings, LLC, Coit claimed it was entitled to receive a certain portion of profits that were never paid. Faced with Coit’s allegations, Turbine filed counterclaims seeking a declaratory judgment that the letter agreements were unenforceable because Coit failed to register as a securities broker. Coit moved to dismiss this counterclaim as time-barred under Delaware’s three-year statute of limitations because the counterclaim was brought more than three years after the parties executed the last of the letter agreements. In response, Turbine argued that Coit’s allegations tolled the statute of limitations.

Ultimately, Judge Wallace found Turbine’s counterclaims time-barred. Although Turbine argued that the statute of limitations should be tolled because the counterclaims were “purely defensive,” Judge Wallace disagreed, finding that the counterclaims sought affirmative relief and were not purely in the nature of recoupment or setoff—circumstances where other courts had found counterclaims to relate back to the filing of the original action. In so holding, Judge Wallace considered the core legal issues raised in both Coit’s claims and Turbine’s counterclaims, because if Turbine’s counterclaims arose from the same legal issue as Coit’s claims, the counterclaim could be considered exclusively defensive and relate back. In performing his analysis, Judge Wallace found that Coit’s claims for breach of contract, breach of the implied covenant of good faith, and conspiracy related to duties and obligations owed under the letter agreements, while Turbine’s counterclaims related to whether the letter agreements were securities and subject to a state Securities Act. Accordingly, the counterclaims arose from different legal issues than Coit’s claims and were not exclusively defensive. Because the counterclaims were not exclusively defensive, they were time-barred.

Analysis: In analyzing the issues in this case, Judge Wallace noted that the term “counterclaim” is generic and normally understood to include the defenses of recoupment and setoff. U.S. for Use & Benefit of Greenville Equip. Co. v. U.S. Cas. Co., 218 F. Supp. 653, 655 (D. Del. 1962). In contrast, a request for declaratory relief is a claim seeking non-monetary affirmative relief and must satisfy the applicable statute of limitations. In re Delta & Pine Land Co. S’holders Litig., 2000 WL 1010584, at *4 (Del. Ch. July 17, 2000). Applying Delta & Pine, Judge Wallace concluded that the claim sought affirmative relief and was therefore barred. This case highlights the careful parsing of claims done in connection with pleadings motions and how sometimes the statute of limitations can apply to bar counterclaims, depending on the nature of the claim.

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