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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 111 posts in Jurisdiction.
Court of Chancery Addresses Personal Jurisdiction and Negligent Misrepresentation Claims Involving Accounting Firm KPMG
This decision grants a motion to dismiss by accounting firm KPMG on jurisdictional and substantive grounds in litigation involving creditors and bondholders of a KPMG client. The plaintiffs claimed fraud by the company and its bank. They sued several KPMG entities, and sought over $1 billion in damages, claiming they relied to their detriment on KPMG’s audits. While the decision involved various interesting aspects, two are particularly noteworthy. More ›
This decision has two helpful analyses. First, it addresses the conspiracy theory of jurisdiction under the well-known Instituto Bancario decision, which permits a Delaware court to exercise jurisdiction over a defendant based on the Delaware acts of its co-conspirators. Notably, the plaintiff in this case was a Delaware entity with its principal place of business in the State, providing a jurisdictional hook for that theory. Second, it explains when a plaintiff is on inquiry notice so as to end any tolling period and start the statute of limitations clock.
This is an important decision that applies recent United States Supreme Court jurisdiction cases to a non-resident’s Delaware complaint. While the opinion carefully reviews a string of such cases ending with Bristol-Meyers Squibb Co. v. Superior Court of California that is worth reading, the bottom line is that it holds that a non-resident of Delaware cannot bring a tort claim against a non-Delaware entity unless she can show its actions in Delaware that directly lead to her injury. This may effectively end the past practice of filing mass tort litigation in the Delaware Superior Court on behalf of non-residents of Delaware, at least against non-Delaware entities.
This decision clarifies that negligent representation claims can only be brought in the Delaware Court of Chancery. The opinion is also a useful review of the law on when opinions and projections may be used as the basis for a fraud claim. The short answer is that mere opinions and projections disclosed as just that are not generally sufficient to show fraud.
This decision holds that a case will not be dismissed on forum grounds just because it involves the interpretation of another state's law. Note that it is a different situation when the case involves the law of another country.
In Hazout v. Tsang Mun Ting, 134 A.3d 274 (Del. 2016), the Delaware Supreme Court expanded the basis for personal jurisdiction over nonresident directors and officers of Delaware corporations under 10 Del. C. § 3114, the so-called director consent statute. Hazout overruled long-standing Court of Chancery precedent that narrowly construed Section 3114’s “necessary or proper party” clause to actions alleging the director or officer had breached a fiduciary duty owed to the corporation. This decision is notable because it explains and applies Section 3114’s expanded scope.
The facts underlying this summary judgment decision are rather remarkable. The case is long-pending, and involved years of jurisdictional discovery granted for the purpose of allowing the plaintiff to explore its pleading-stage theory of personal jurisdiction under the so-called conspiracy theory. The gist of that theory is that a Delaware court can exercise personal jurisdiction over all co-conspirators when one commits an act in the State that is central to carrying out the conspiracy. It is a theory oft-invoked but rarely satisfied. And, as this decision demonstrates, it is a theory that could be subject to some abuse by a clever litigant. In this case, the evidence ultimately showed that the plaintiff misled the Court by claiming to be the victim of a Delaware-based conspiracy, when, in fact, the plaintiff was the architect of the very wrongdoing used to advance his conspiracy theory. Thus, some ten years into the litigation, the non-resident defendant was dismissed from the case based on a lack of personal jurisdiction.
The conspiracy theory of jurisdiction developed in the Istituto Bancario decision is often misunderstood, for good reasons. This decision explains the theory in a careful and detailed way that is useful for those trying to obtain jurisdiction over non-residents of Delaware.
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.
Under the Papendick v. Bosch decision, incorporating an entity in Delaware may give rise to long-arm jurisdiction over the entity’s parent, even a foreign one with no other contacts with the State of Delaware. The act of incorporating in Delaware, however, must be an “integral component” of the alleged wrongdoing. This decision explains how to meet that test, which is heightened slightly after the plaintiff conducts jurisdictional discovery. The test was satisfied in this case based on allegations that the defendant, desiring to enter the U.S. market, misappropriated the plaintiff’s trade secrets and incorporated a Delaware entity to profit from the misappropriation.
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.