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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 5 posts in Jurisdiction/Venue/Standing.
Delaware Supreme Court Sets A New Standard And Clarifies The Spectrum Of Forum Non Conveniens Standards
Under the Cryo-Maid factors, a Delaware court may dismiss a suit on forum non conveniens grounds only after the defendant shows that litigating in Delaware would impose overwhelming hardship. Under the McWane doctrine, when a Delaware action is not the first-filed suit on the subject matter because there is a prior pending suit elsewhere, however, a Delaware court has discretion to dismiss or stay the later-filed suit whether or not the defendant faces overwhelming hardship. This decision deals with a particular convergence of these two doctrines, answering the question: when a first-filed suit elsewhere is procedurally dismissed and thus no longer pending, is a motion to dismiss for forum non conveniens in a later-filed Delaware suit still subject to the more plaintiff-friendly overwhelming hardship standard? The short answer is no. But that doesn’t mean the suit should be subject to the more defendant-friendly McWane standard instead. Rather, as the Court holds here, there is a middle ground, tilted to neither plaintiff nor defendant. The Court rules that the Cryo-Maid factors relevant to a showing of overwhelming hardship control the analysis, but requires only that the factors favor dismissal, rather than establish overwhelming hardship.
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.
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.
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.