Securities Regulation Daily High court passes on reviewing Illinois’ application of Delaware securities law
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Tuesday, January 16, 2018

High court passes on reviewing Illinois’ application of Delaware securities law

By John M. Jascob, J.D., LL.M.

The Supreme Court has declined to review whether the Illinois courts violated the Full Faith and Credit Clause of the Constitution by refusing to apply a recent Delaware Supreme Court decision concerning the application of the Delaware Securities Act. The petitioners had sought a grant of certiorari, arguing that Illinois could not enforce Delaware law under the parties’ contractual choice-of-law provision while ignoring the interpretation of that law by Delaware’s highest court (Ritchie v. Huizenga Managers Fund, LLC, January 16, 2018).

The respondent, Huizenga Managers Fund, had invested over $10 million in Ritchie Risk-Linked Strategies, a hedge fund that sought to securitize life settlements. After the investment became worthless following the rescission of the issuer’s credit rating, Huizenga brought claims against Ritchie Risk-Linked Strategies and affiliated persons (collectively, petitioners) under both Illinois and Delaware law. The trial court dismissed the Illinois state-law claims because the contract between the parties contained a Delaware choice-of-law provision. Huizenga ultimately prevailed on its claims under the Delaware Securities Act, however, with the Illinois Court of Appeals holding that the petitioners misrepresented or omitted material facts concerning the composition and concentration of the fund’s portfolio. The Illinois Supreme Court declined review.

In their petition for certiorari to the U.S. Supreme Court, the petitioners contended that the Illinois courts violated the Full Faith and Credit Clause by refusing to consider the Delaware Supreme Court’s decision in A&R Logistics Holdings, Inc. v. FdG Logistics LLC, which was issued when the appeal in their own case was pending. In A&R Logistics, the Delaware high court affirmed the ruling of the Chancery Court that the Delaware choice-of-law provision in a merger agreement between two Delaware entities did not trigger the application of the Delaware Securities Act to the transaction. According to the petitioners, A&R Logistics stands for the proposition that the Delaware Securities Act does not apply to transactions that occur wholly out of state—even when the companies are incorporated in Delaware and the contract has a Delaware choice-of-law provision. According to the petitioners, the refusal to consider this holding was abrogation of the Illinois courts’ constitutional duty to apply Delaware law.

The petition is No. 17-610.

Attorneys: Kim M. Watterson (Reed Smith LLP) for A. R. Thane Ritchie. Christopher James Barber (Williams Montgomery & John Ltd.) for Huizenga Managers Fund, LLC.

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