Delaware Business Litigation Report

Chancery Finds Lack of Personal Jurisdiction Over Delaware Corporate Officers Based on Due Process Considerations

In re Bam International, LLC v. The MSBA Group Inc., C.A. No. 2021-0181-SG (Del. Ch. Dec. 14, 2021)
Two officers of a Delaware corporation were sued for alleged tortious interference with an escrow agreement between the Delaware corporation employing the officers and the plaintiff (another Delaware corporation). The plaintiff also brought a breach of contract claims against the Delaware corporation and other entity defendants. The two officers moved to dismiss for lack of personal jurisdiction arguing that, other than their status as officers of a Delaware corporation, they had no relationship with Delaware. The officers further noted that they were not signatories to the contract at issue, which, in any event, was only connected to Delaware by choice of law and forum clauses. Plaintiff contended that the officer defendants, as fiduciaries of a Delaware entity, had implicitly consented to jurisdiction pursuant to 10 Del. C. § 3114(b).

The Court of Chancery dismissed the officers from the suit. Delaware’s fiduciary consent statute provides for implied consent to personal jurisdiction by an officer of a Delaware entity when either (1) a plaintiff brings a breach of fiduciary duty action against the officer, or (2) a plaintiff brings litigation in Delaware, involving a Delaware entity, in which the officer is a necessary or proper party. As the Court observed, this is a “fiddler-crab-like consent scheme” because the breach of fiduciary duty leg of implied consent is far more limited than the leg encompassing any litigation where the officer is a proper party. But this statutory incongruity is remedied by the fact that, even if Section 3114 provides for jurisdiction, in order for the Court to properly exercise personal jurisdiction, the minimum contacts standard of constitutional due process still must be satisfied. Recognizing that the principal place of business of the Delaware corporate defendant employing the officers was California, that the officers were not signatories to the contract at issue, that they were alleged to have committed a tort outside the scope of their duties to their corporate employer, that the contract was performed in Utah, and that the contract was simply a “garden-variety” commercial contract, the Court found a lack of minimum contacts with Delaware while remarking that “Delaware had no real interest in this case other than the exercise of personal jurisdiction over officers and directors.” Accordingly, although Section 3114’s jurisdictional requirements were satisfied, the Court found that constitutional due process requirements were not, and granted the officers’ motion to dismiss for lack of personal jurisdiction.

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