Can Federal Courts Exercise Powers Assigned to the Delaware Chancery Court?

Such as removing directors?

Our friend and frequent interlocutor Keith Bishop recently asked:

Can A Federal Court Remove A Corporate Director?

Keith cites Van Steenwyk v. Van Steenwyk,¹ as support for an affirmative—albeit non-statutory—answer. The plaintiff argued that a federal court sitting in diversity can exercise the power to remove directors per § 304 and, moreover, “has the equitable power to remove directors and officers.” The defendants contended that a federal “court does not have this equitable power regardless of the remedies provided for under state law.”

The court opined that:

[A federal district court] has the equitable power to remove or enjoin Defendants from acting as directors and officers of the Companies. Equitable relief in federal courts is “subject to restrictions: the suit must be within the traditional scope of equity as historically evolved in the English Court of Chancery[;] a plain, adequate and complete remedy at law must be wanting[;] explicit Congressional curtailment of equity powers must be respected[; and] the constitutional right to trial by jury cannot be evaded[.]”

It has been a “fundamental principle for well over a century that state law cannot expand or limit a federal court’s equitable authority.” For this reason, a “state statute does not change the nature of the federal courts’ equitable powers.” “That a State may authorize its courts to give equitable relief unhampered by any or all such restrictions cannot remove these fetters from the federal courts.” “State law cannot define the remedies which a federal court must give simply because a federal court in diversity jurisdiction is available as an alternative tribunal to the State’s courts.” “Contrariwise, a federal court may afford an equitable remedy for a substantive right recognized by a State even though a State court cannot give it.” …

Accordingly, Plaintiff is incorrect—the court’s equitable powers cannot be expanded by California and Texas laws, even if those laws enable their respective state courts to remove corporate directors. Defendants, however, interpret too narrowly the court’s equitable powers. Injunction is one of the “categories of relief” that was “typically available in equity.”

What I don’t understand about this case is why the court ignored § 304. The opinion neither claims that a federal court could exercise the powers granted to a California superior court by § 304 nor claims that a federal court may not do so. Perhaps an experienced California practitioner can explain.

In any case, let’s talk about something important. I.e., what the answer would be under Delaware law.