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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
This is an interesting decision for its discussion on what must be pled to obtain Chancery jurisdiction in a claim seeking to pierce the corporate veil. It is not enough to just allege the entity was used to defraud. Rather, the complaint must meet the more exacting standards set out in this opinion.
It is often assumed that merely by registering an entity in Delaware as part of a business transaction that you have become subject to the jurisdiction of the Delaware courts. But as this decision points out, that is not as simple as you might think. More ›
It is often contended that the availability of a declaratory judgment in Superior Court to determine the parties’ rights may deprive the Court of Chancery of jurisdiction to grant an equitable remedy such as an injunction. After all, it is assumed that the parties will obey the decision of the Court in deciding their rights. More ›
It is conventional wisdom that the director long arm statute only confers jurisdiction for breaches of fiduciary duty. Yet as this decision points out, that limitation is not firmly grounded in the words of the statute. Hence, this decision may expand the sort of claims for which a director may be subject to Delaware court jurisdiction when the tort or other claim is only “related and predicated” on conduct that implicates a breach of fiduciary duty.
There are often disputes over funds held in escrow under earn out or indemnification provisions in various deals. This decision confirms that the Court of Chancery will take jurisdiction over a suit seeking specific performance of the distribution provision of the escrow agreement. This seems particularly desirable because that Court has the most experience with why such escrows are put in place and has resolved many such disputes in the past.
This decision upholds service of process by mail under the Hague Convention.
After the Delaware Supreme Court's Martinez decision dismissing a case on forum grounds, some thought that Delaware might reject other cases as well. This decision limits Martinez's scope and makes it clear that Delaware entities will be subject to Delaware jurisdiction in the circumstances where the activities of the entity "implicates [the Court of Chancery's] fundamental and immutable responsibility to supervise the entities chartered and formed under Delaware law." While that mandate is clearly limited to some set of cases less than the universe of disputes a corporation may be subject to, what is covered remains to be seen.
Under the Delaware LLC Act, a manager or a person who acts like a manager is subject to jurisdiction in Delaware in a breach of duty case arising out of her management. Because the LLC agreement usually sets out who is a "manager," that is usually not disputed. However, it is often less clear who had exercised management duties sufficient to be subject to jurisdiction in Delaware. This decision helps decide that question. It points out that just being named an officer is not enough to submit to jurisdiction and that the nature of the defendant's' duties compared to what it is alleged she did improperly may also be determinative. In other words, if you "managed" X project but are sued for what you did on the Y project, there is no jurisdiction over you..
This decision clarifies the Court of Chancery's jurisdiction under the clean up doctrine and when a contract subject to specific performance has not yet been breached.
The so-called conspiracy theory of jurisdiction over a non-resident is often misunderstood. This decision is useful because: (1) it explains the relationship between jurisdictional discovery and the burden of alleging facts sufficient to establish jurisdiction and (2) it again explains what must be shown to warrant jurisdiction under the conspiracy theory.
This is an interesting decision dealing with jurisdiction over foreign entities. The Court will not take jurisdiction when the assets involved are located outside the US and not owned by a Delaware entity
The alter ego and conspiracy theories of jurisdiction are among the hardest to understand. This decision carefully and clearly applies those theories to a complicated fact pattern.
The Court of Chancery has upheld a bylaw that selects Delaware as the only forum for internal corporate disputes. The Court did leave open the possibility that such a bylaw might be later challenged on narrow grounds that it was improper in limited circumstances.
For some time the conspiracy theory of jurisdiction, first set out in the famous Istituto Bancario decision, has had little success in conferring jurisdiction over foreign entities. With this new decision by the Delaware Supreme Court, that trend may be reversed. The key holding is that the defendant should have known that it was involved with a Delaware corporation and the dissolution of that company as part of the alleged conspiracy was enough to give jurisdiction over the non-US defendant. While the parameters of this possible extension of jurisdiction are to be determined later, it may be very broad.
This is a troubling decision. One plaintiff, through the efforts of the other plaintiff who is a lawyer, used a false verification when the complaint was filed. The Court of Chancery requires all complaints be verified. As a result, the Court dismissed the complaint under the rule of Parfi where the dismissal is on the merits.
Seems right so what is troubling? Delaware lawyers typically believe their clients when they are sent a verification that the client did what the verification says, appeared before a notary to sign it. This is an odd case because there was some indication that was not being done. Still, how far should we go? The short answer is that we need to ask the client: "Did you get this signed in front of a notary like it says"?