Swan Energy Inc. v. Investor Protection Unit of the Delaware Department of Justice

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE SWAN ENERGY, INC., BRANDON ) DAVIS, JOHN SCHIFFNER, AND ) CODY DAVIS, ) C.A. No. N24C-03-071 MAA ) Plaintiffs, ) ) v. ) ) INVESTOR PROTECTION UNIT OF ) THE DELAWARE DEPARTMENT OF ) JUSTICE, ) ) Defendant. ) Submitted: May 6, 2025 Decided: June 24, 2025 Defendant’s Motion to Dismiss: GRANTED. OPINION Steven P. Wood, Esquire (Argued), MCCARTER & ENGLISH, LLP, Wilmington, Delaware, Attorney for Plaintiffs. Ian R. Liston, Esquire (Argued), and Evelyn H. Brantley, Esquire, Deputy Attorneys General, DELAWARE DEPARTMENT OF JUSTICE, Wilmington, Delaware, Attorneys for Defendant. Adams, J.  INRTODUCTION This action concerns the constitutionality of in-house administrative proceedings, brought by the Investor Protection Unit (“IPU”) of the Delaware Department of Justice (“DOJ”), alleging violations of the Delaware Securities Act.1 Plaintiffs,2 who are defendants in an ongoing in-house IPU proceeding, contend the IPU’s in-house proceeding violates the Delaware Constitution’s provisions for trial by jury and due process of law.3 The IPU moved to dismiss the Amended Complaint, arguing the Amended Complaint fails to state claims for which relief can be granted by this Court.4 This Opinion resolves the IPU’s Motion to Dismiss. For the reasons that follow, the IPU’s Motion to Dismiss is GRANTED. FACTS AND PROCEDURAL HISTORY The IPU commenced an in-house administrative proceeding against Plaintiffs on November 2, 2020 (the “IPU Action”).5 The IPU Action’s complaint alleges Plaintiffs sold securities without proper registration in violation of 6 Del. C. § 73- 202 and committed securities fraud in violation of 6 Del. C. § 73-201.6 The IPU Action seeks fines, restitution, and “an order to cease and desist the offer and sale of 1 6 Del. C. § 73-101. 2 Here, the Court collectively refers to Swan Energy, Inc.; Brandon Davis; John Schiffner; and Cody Davis as “Plaintiffs.” Docket Item [“D.I.”] 8 [“Am. Compl.”] ¶¶ 6-9. 3 Am. Compl. ¶¶ 1-2. 4 D.I. 10. 5 Am. Compl. ¶ 23. 6 Id. ¶¶ 24-25. 1 unregistered securities in Delaware and to Delaware investors.”7 Plaintiffs have not yet been penalized for their alleged misconduct. Plaintiffs participated in the IPU Action, first raising constitutional objections to the IPU Action’s presiding officer (the “Presiding Officer”) in December 2020.8 On October 30, 2023, the Presiding Officer issued an order (the “October 30 Order”), explaining that Plaintiffs should raise their constitutional concerns in “a court of competent jurisdiction” and declaring the Presiding Officer would not hear constitutional challenges in the IPU Action.9 On December 1, 2023, Plaintiffs filed an action in the Court of Chancery seeking: (a) a declaration that the IPU Action and IPU in-house adjudication procedures violate Plaintiffs’ constitutional rights to trial by jury and due process; and (b) an injunction preventing the IPU Action from proceeding until Plaintiffs’ declaratory judgment claims are resolved.10 On December 11, 2023, Plaintiffs and the IPU agreed to a stipulation, granted by the Court of Chancery, in which the parties agreed to stay the IPU Action pending adjudication of the constitutional questions.11 With the injunction rendered moot, the case was transferred to this Court.12 Plaintiffs seek a declaration that the IPU’s in-house adjudication procedures 7 Id. ¶ 26. 8 Id. ¶ 40. 9 Id. ¶ 46. 10 Id. ¶ 49. 11 Am. Compl. ¶ 50. 12 Id. ¶ 51. 2 and the IPU Action violate Plaintiffs’ constitutional rights to a trial by jury and due process of law.13 The IPU moves to dismiss the Amended Complaint, arguing Plaintiffs’ claims are unripe and fail to state a claim for which relief can be granted.14 This Opinion resolves the Motion to Dismiss. STANDARD OF REVIEW The IPU moves to dismiss the Amended Complaint pursuant to Superior Court Rule 12(b)(6).15 The “pleading standards governing the motion to dismiss stage . . . are minimal.”16 The court must “accept all well-pleaded factual allegations in the Complaint as true.”17 The court also must “read the complaint generously” and construe all such alleg