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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Court Of Chancery Addresses The Need For Legally-Distinct Co-Conspirators Under A Conspiracy Theory Of Jurisdiction
The general rule is that personal jurisdiction based on a conspiracy theory cannot rely on allegations of an individual officer conspiring with his corporate employer. There is a possible exception, however, when the officer acted not in his official capacity but for a “personal benefit” other than his corporate compensation. This decision explains that exception and when it does not apply. It also deals with when the filing of a certificate with the Secretary of State’s office is sufficient to confer personal jurisdiction under Delaware’s long-arm statute, 10 Del. C. § 3104. In short, the filing itself has to be part of the alleged wrongdoing.
Merely incorporating a business in Delaware does not automatically subject you to personal jurisdiction in the Delaware courts. But, when the act of incorporation is part of the events forming the basis for a claim, it may be enough. This decision explains the parameters of jurisdiction based on incorporating in Delaware.
Court Of Chancery Declines To Exercise Personal Jurisdiction Based On A Choice Of Law Provision In A Stockholders’ Agreement
This decision holds that owning shares in a closely-held Delaware corporation and entering into a stockholders’ agreement containing a Delaware choice of law provision is not a sufficient basis, standing alone, for a Delaware court to exercise personal jurisdiction over a non-resident under Delaware’s long-arm statute. While these circumstances may be factors in the long-arm and due process analysis, more is required to purposefully avail oneself of Delaware law and be subject to personal jurisdiction in its courts.
As this decision explains, the Court of Chancery will not have jurisdiction based on the claim an injunction is needed to force a defendant to comply with the proper interpretation of a contract. Rather, the presumption is that once the Superior Court interprets the contract that the defendant will honor that judgment.
The Delaware LLC Act provides for personal jurisdiction in Delaware over those who manage a Delaware LLC—i.e., those who are named as managers in the LLC agreement, and those who participate materially in the LLC’s management. This decision explains what it means to participate materially in the LLC’s management by a thorough analysis of the precedents. In effect, it means the person must have the management role usually undertaken by a corporate director—a control or decision-making role. Just acting as an officer is not enough when that person is subject to the control of others.
Delaware recently amended Section 111 of the DGCL to confer jurisdiction on the Court of Chancery over certain actions arising out of asset sales. The intent was not to divest Superior Court of jurisdiction when the dispute was not really over how to interpret a sale or merger agreement’s terms, an area of Chancery expertise, but more of a straightforward asset sale. This decision explains that distinction.
This is a significant decision because it explains how filing suit somewhere other than in the contractually-designated jurisdiction does not toll the time to sue in the proper jurisdiction. Hence, if the improperly-filed suit is dismissed, it may be too late to bring suit in the proper jurisdiction.
Under Delaware law, an entity doing any business in Delaware must register to do so and thereby appoint a registered agent to receive process. For years this was held to confer general jurisdiction over that entity, even for claims that did not arise out of the business it did in Delaware. This decision reverses that old law and confines jurisdiction over non-Delaware entities to claims that arise out of what they have done in Delaware. Of course, there are still exceptions to that general rule, such as when an entity expressly agrees to jurisdiction in Delaware.
Rejecting the Court of Chancery’s narrow reading of the director/officer implied consent statute in Hana Ranch, Inc. v. Lent, 424 A.2d 28, 30 (Del. Ch. 1980), an interpretation that had been followed by lower courts for decades, the Delaware Supreme Court ruled that a non-resident officer sued in Delaware is subject to personal jurisdiction in actions brought “by or on behalf of, or against” the corporation if that officer “is a necessary or proper party” to the case, even if the case does not involve an alleged breach of the officer’s fiduciary or statutory duties. More ›
Under the fairly new provisions of Section 205 of the DGCL, the Court may validate certain “defective corporate acts,” including “any act or transaction purportedly taken by or on behalf of the corporation that is … within the power of a corporation …, but is void or voidable due to a failure of authorization.” More ›
This is the rare decision where a suit against a Delaware entity is dismissed on the basis that Delaware is a too inconvenient forum. When foreign law is both unclear and will establish the basis for any relief, a foreign plaintiff may find it hard to sue in Delaware unless the suit contains the allegation that the very formation of the Delaware entity is part of the alleged wrong.
This decision applies Delaware’s forum non conveniens law to a suit against a Delaware corporation arising out of events in India. The analysis is helpful for other cases because it deals with all the various factors to be considered, such as availability of discovery in a foreign country. As a result, it is a precedent for upholding jurisdiction over a Delaware entity is proper even if the events occurred far away.
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 ›