Posts in Jurisdiction

Court of Chancery Upholds Jurisdiction Over Nonresident Partner

Total Holdings USA Inc. v. Curran Composites, Inc., C.A. 4494-VCS (October 9, 2009).

In a case of first impression, the Court of Chancery has upheld its jurisdiction over a nonresident partner in a Delaware partnership. The current version of the Delaware Uniform Partnership Act authorizes jurisdiction over nonresident partners for disputes arising out of the internal affairs of the partnership. Here the parties' joint venture agreement expressly created a partnership "under Delaware law," and that was enough to support the Court's jurisdiction over a partner who had no other contact with Delaware.

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Superior Court Holds Chancery Has Exclusive Jurisdiction To Appoint Arbitrator

Firemen's Insurance Co. v. Birch Pointe Condo. Assoc., Inc., C.A. No. 08C-04-081 JAP (Del. Super. Dec. 17, 2008).

In this decision, the Superior Court ruled sua sponte that it lacked subject matter jurisdiction over an action seeking declaratory relief and requesting the appointment of an arbitrator. The court held that under 10 Del. C. § 5704 the Court of Chancery has exclusive jurisdiction to appoint an arbitrator when the parties’ agreed upon method of appointment fails for any reason.   

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Court of Chancery Denies Jurisdiction Over Stock Appreciation Rights Suit

Testa v. Nixon Uniform Service, Inc., C.A.3886-VCS (Del. Ch. Nov. 21, 2008)

In a novel attempt to invoke the jurisdiction of the Court of Chancery, the plaintiff tried to rely upon Section 111(a)(2) of the Delaware General Corporation Law that provides the Court of Chancery jurisdiction in disputes over stock. Here the plaintiff was really seeking money damages for the failure to be paid the full value of his SARs. The court held this was a claim for money damages that it did not have jurisdiction to decide, not a claim over ownership of stock.

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District Court Denies Motion to Dismiss, Allows Duty of Care, Loyalty and Fraud Claims to Proceed

Ad Hoc Comm. of Equity Holders of Tectonic Network, Inc. v. Wolford, 2008 WL 212 7464 (D. Del. May 21, 2008)

The District Court recently allowed claims for breach of the duties of care and loyalty against former directors and officers of Tectonic Network, Inc. (the “Company”) to go forward, rejecting Defendants’ jurisdiction, standing and insufficient claim arguments. Plaintiff, an Ad Hoc Committee of Equity Holders in the Company, sued Defendants for purportedly improper conduct in connection with the acquisition of three businesses and the resulting sale of one of the Company’s subsidiaries. Plaintiff alleged that Defendant Officers (Officer #1 and Officer #2) committed fraud related to the Company’s actions, and all Defendants breached their fiduciary duties. Specifically, Plaintiff alleged that the Defendants breached their fiduciary duties in recommending and/or approving the acquisition of the three businesses, all of which Officer #1 had a majority interest in. Plaintiff also alleged that the Defendant Officers committed fraud in making material misrepresentations to the board regarding the profitability of the acquired businesses and the prospective profitability of a future business plan that resulted in the sale of the Company’s subsidiary. Subsequent to acquisitions and sales, the Company’s financial picture worsened, and it filed for voluntary Chapter 11 bankruptcy. The Bankruptcy Court lifted the stay to allow Plaintiff to press its claims outside of the bankruptcy proceedings. More ›

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District Court Dismisses Declaratory Relief, Contract Claim for Lack of Personal Jurisdiction

Solae, LLC v. Hershey Canada Inc., 2008 WL 2011914 (D. Del. May 9, 2008)

Solae LLC (“Solae”), a Delaware LLC with a principal place of business in Missouri, brought a declaratory relief and breach of contract action in Delaware District Court against Hershey Canada, Inc. (“Hershey Canada”), a Canadian corporation with its principal place of business in Ontario. The claims arose out of a contract for Solea’s provision of soy lecithin to Hershey Canada’s Ontario facility. A shipment of the product contained salmonella, prompting a recall of Hershey Canada’s product in Canada and a Canadian government investigation. Hershey Canada informed Solae that it was liable for any ensuing damages from the recall and investigation, and also refused to accept or pay for additional deliveries of the product under the contract. Solae thereafter initiated this declaratory relief and breach action, and Hershey Canada sought dismissal, among other things, on lack of personal jurisdiction grounds.  More ›

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Court of Chancery Upholds LLC Agreement Voting Rights

Fisk Ventuers LLC v. Segal, C.A. 3017-CC (Del. Ch. May 7, 2008)

A Delaware LLC is a creature of the members' contract. Here the LLC agreement gave voting rights to a class of members that effectively gave them veto rights over certain actions. When those members exercised those veto rights, the other members sued claiming that constituted a breach of duty. The Chancellor flatly rejected that argument as an attack on the veto rights that were given in the LLC Agreement.

The opinion also holds that a member's consultation with his designated managers on the LLC Board does not give Delaware jurisdiction over that member under the long arm statute's provisions that subject managers to jurisdiction in Delaware.

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Delaware Retains Top Ranking for Fairness of Litigation Climate

For the seventh year in a row, Delaware received the highest score in a nationwide survey of state liability systems undertaken by the U.S. Chamber Institute for Legal Reform.  Delaware ranked at the top of eight of the twelve categories ranked, including judicial competence, judicial impartiality, timeliness of summary judgment or dismissal, treatment of class action suits, and overall treatment of tort and contract litigation.  The survey did record a slight decline from last year in Delaware's rankings of jury predictability and jury fairness.  The report can be viewed at www.instituteforlegalreform.com. Share

District Court Finds That Participation in Delaware Merger Confers Jurisdiction, Denies Motion to Dismiss

G & G LLC v. White, 2008 WL 205150 (D. Del. Jan. 25, 2008)

In this opinion declining to dismiss for lack of personal jurisdiction, the District Court found that it had personal jurisdiction over both the directors/officers of a Delaware corporation and over a foreign corporation that invested in a Delaware corporation. Plaintiff was a Virginia limited liability company that loaned $2.5 million to a Utah corporation. Plaintiff was granted a security interest in the Utah corporation’s assets, and perfected that interest by filing the required financing statements in Utah. However, the Utah corporation subsequently was merged with and into a Delaware corporation. Plaintiff asserted that this was done at the insistence of various defendants that were seeking to invest in the Utah corporation after Plaintiff informed them that it would not agree to subordinate its security interest to theirs. Plaintiff posited that the investor defendants thereafter controlled the Utah corporation and the Delaware corporation it was merged into, and fraudulently concealed the merger to prevent Plaintiff from perfecting its security interest upon the merger, while at the same time perfecting their own in Delaware. Plaintiff pointed to numerous instances where the Utah corporation, the Delaware corporation, their counsel, the directors/officers of the Delaware corporation (who were appointed by the investor defendants), and the investor defendants failed to notify Plaintiff of the merger and/or made misrepresentations regarding the continuing status of the corporation as a Utah corporation. Taking the allegations as true, the Court found that the actions of the investor defendants and the directors they appointed was sufficient to confer specific jurisdiction over them.  More ›

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Superior Court: Equitable Counterclaim Does Not Equal Ticket to Chancery

Rembrandt Technologies, LP v. Harris Corp., 2007 WL 4237752 (Del. Super. Nov. 30, 2007). 

This decision demonstrates the willingness of Delaware courts to uphold the plaintiff’s choice of forum (between the Superior Court and the Court of Chancery), despite an argument by the defendant that transferring courts would allow the hearing of all claims and thus promote judicial economy.  More ›

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Court of Chancery Upholds Jurisdiction Over Nonresident Attorney

Sample v. Morgan, C.A. No. 1214-VCS (November 27, 2007).

In this major decision, the Court of Chancery has upheld its jurisdiction over a non-Delaware attorney who is alleged to have aided and abetted a breach of fiduciary duty by directors. Given the breadth of this decision, it has major implications for counsel to Delaware corporations.

First, the Court held that the attorney's arranging for the filing of a certificate with the Delaware Secretary of State satisfied the single act required to permit service of process on the attorney and his law firm under the Delaware Long Arm Statute. That is nothing new under Delaware law as other decisions have held that filing of such a certificate meets the statutory requirement for service.

Second, the Court held, in what may prove to be its most controversial decision, that Due Process was satisfied in subjecting the attorney to jurisdiction by a Delaware court. Noting that this "is a highly unusual case", the Court had no problem holding that giving advice on Delaware law and controlling the course of litigation in Delaware justified subjecting the attorney to jurisdiction here. What may prove to be controversial, however, are sections of the opinion that suggest that regularly providing advice on Delaware corporate law is sufficient to satisfy the requirement of Due Process in asserting jurisdiction over the non-Delaware lawyer for claims arising out of that advice.

Finally, the opinion holds that an attorney may be held liable for aiding and abetting a breach of fiduciary duty when he knows his advice is being used to carry out the breach. This is important because the knowledge requirement may be satisfied when the lawyer claims expertise in Delaware law and his advice is wrong. The inference then is that he knows his advice is wrong. While this seems to go too far, it is not clear how far the logic of the opinion may be stretched by other courts.

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Court of Chancery Limits Jurisdiction Over Officers

Ryan v. Gifford, C.A. No. 2213-CC (November 21, 2007).

In 2003, Delaware amended its long arm statute to cover corporate officers who served in that capacity after January 1, 2004. Past decisions under the director section of this statute have focused on when a defendant is subject to it for acts committed before the date the statute deems the defendant's holding a corporate office is consent to jurisdiction by a Delaware court. Consistent with that case law, this decision holds that prior bad acts do not constitute continuing wrongs that subject the defendant to Delaware jurisdiction after January 1, 2004.

Of course, the decision also holds that there are acts some of the defendants committed before that date which were further implemented after that date and that may subject them to jurisdiction. For example, receiving a back dated option before January 1, 2004 does not subject the officer to jurisdiction in Delaware unless after that date he commits further acts, such as concealing that the option was back dated.

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District Court Grants All Motions to Dismiss in Anti-Trust Class Action

Howard Hess Dental Laboratories Inc. v. Dentsply Int'l, 2007 WL 2807292 (D.Del. Sept. 26, 2007)

This opinion resolved several motions filed in two different antitrust class actions (the “Hess” action and the “Jersey Dental” action). The District Court denied Plaintiffs’ motion for partial summary judgment in the Hess action and granted various Defendants’ motions to dismiss in the Jersey Dental action. Plaintiffs were dental laboratories that purchased dental products from one Defendant, Dentsply, a manufacturer and distributor of dental products. In the Hess action, Plaintiffs sued Dentsply for alleged antitrust violations in connection with an adopted policy providing that dental dealers promoting Dentsply’s product not add competitive product lines. In the Jersey Dental action, Plaintiffs sued Dentsply and twenty six dental dealers alleging antitrust violations arising from the same Dentsply policy.  More ›

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District Court Grants Canadian Corporation's Motion to Dismiss for Lack of Jurisdiction

Alcoa Inc. v. Alcan Inc., C.A. No. 06-451-SLR (D.Del. July 17, 2007)

 

In this action for declaratory judgment, Plaintiff sought a ruling that it was not liable to various Defendants for the clean-up costs associated with environmental contamination on a property Plaintiff formerly owned. Plaintiff sold the contaminated property to Defendant 1 pursuant to an acquisition agreement that provided for a 12 year indemnification for certain environmental liabilities. Defendant 1 then sold the property to Defendant 2 with a separate indemnification agreement. Defendant 3 later acquired Defendant 2 and its subsidiary. When Defendant 3 sought to sell the contaminated property, the contamination was detected. Defendant 3 sought indemnification from Defendant 1, which then sought indemnification from Plaintiff. Plaintiff rejected the indemnification demand under the argument that it was outside the scope of the acquisition agreement, and sought declaratory judgment that it was not liable to any of the Defendants. Defendant 3, a Canadian corporation, moved to dismiss for lack of personal jurisdiction. More ›

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District Court Allows Estoppel, Breach of Contract, Fraud Claims Against LLC Member, Dismisses Other Defendants

Christ v. Cormick, 2007 WL 2022053 (D.Del. Jul 10, 2007)

In this action for damages based on promissory estoppel, breach of contract, fraud and civil conspiracy, Plaintiff sued the founding member of a Delaware LLC (“Member Defendant”), as well as various foreign individuals and entities (“other Defendants”) associated with the Member Defendant. Plaintiff’s claim arose out of an alleged agreement with the Member Defendant to invest $350,000 in exchange for a 50% equity interest in a South African investment management corporation and a Delaware LLC which owned certain intellectual property rights. Plaintiff claimed that the Member Defendant accepted $250,000 from Plaintiff, but diverted the money to another entity he was affiliated with. Plaintiff further alleged that the Member Defendant promised to repay Plaintiff the $250,000 that was invested, but did not do so. The Defendants moved to dismiss the action under F.R.C.P. Rule 12(b)(2) for lack of personal jurisdiction. The Defendants also moved for dismissal of the conspiracy claim under F.R.C.P. Rule 12(b)(6) for failure to state a claim, and dismissal of both the fraud and conspiracy claims as being outside the statute of limitations. Finally, the Defendants moved for a stay of the action under principles of comity in favor of Plaintiff’s earlier filed action in South Africa. More ›

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District Court Declines to Exercise Supplemental Jurisdiction Over Fiduciary Duty Claims, Grants Motion to Dismiss

Lemon Bay Partners LLP v. Hammonds, C.A. No. 05-327 (D.Del. June 26, 2007)

 

In this shareholder derivative action for breach of fiduciary duties against various corporate defendants, the Court held that the state law claims asserted so predominated the lone federal claim that exercise of supplemental jurisdiction was inappropriate. Plaintiffs, former shareholders of MBNA Corporation, asserted various claims against the defendants based on breach of fiduciary duties in connection with earnings reports and the merger of MBNA with Bank of America. Defendants moved to dismiss based on lack of subject matter jurisdiction, arguing that the Plaintiffs’ sole claim that rested on federal jurisdiction was so predominated by the state law claims as to make the exercise of the Court’s supplemental jurisdiction inappropriate. The Court concurred with the defendants, concluding that Plaintiffs’ federal law claim bore only a tangential relationship to the rest of the claims. The Court therefore granted Defendants’ motion to dismiss for lack of subject matter jurisdiction.  More ›

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