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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
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 ›
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..