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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 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.
ShareCourt 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.
ShareDistrict 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 ›
ShareDistrict 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 ›
ShareDistrict 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 ›
ShareDistrict 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 ›
ShareDistrict Court Finds Claims Don't Implicate ERISA, Remands to Superior Court
Gallagher v. E.I. Du Pont de Nemours & Co., C.A. No. 07-47-JJF (D. Del. June 19, 2007).
In this suit for breach of contract, specific performance, and wages under the Delaware Wage Payment and Collection Act, Plaintiff filed the action in Superior Court. Defendant subsequently filed Notice of Removal to the District Court, asserting that the state law claims were completely preempted by ERISA. The Court held that Plaintiff’s claims did not implicate ERISA, and no grounds existed for federal jurisdiction. Plaintiff’s Motion to Remand to Superior Court was therefore granted. More ›
ShareCourt of Chancery Denies Stay Even When Not First Filed
In re: The Topps Company Shareholder Litigation, C.A. No. 2786-VCS (Del. Ch. May 9, 2007).
The race is not always won by the first to start. In this case the Court of Chancery declined to stay a Delaware case attacking a proposed merger even though a similar New York case had been filed earlier. Explaining that the internal affairs doctrine leaves to the state of incorporation the right to decide internal corporate legal issues, the Court of Chancery held it would proceed with this case. More ›
ShareDistrict Court Rejects Federal Jurisdiction Over Breach Claims, Remands to Superior Court
CIT Commc’ns Fin. Corp. v. Level 3 Commc’ns, LLC, 2007 WL 951799 (D.Del. Mar. 29, 2007).
In this suit alleging breach of contract, unjust enrichment and conversion, Plaintiff moved for the District Court to remand the case to Delaware Superior Court, asserting that the District Court did not have subject matter jurisdiction. Plaintiff leased a telephone system to a company that later filed for bankruptcy. Through that bankruptcy, Defendants acquired the telephone system lease from the debtor, and the debtor was later liquidated pursuant to the Bankruptcy Court’s Confirmation Order. After the dissolution, Plaintiff filed several claims in the bankruptcy proceedings related to lease payments due by the debtor prior to Defendants’ acquisition of the lease. Plaintiff later filed the breach of contract, unjust enrichment and conversion claims against Defendants in the Delaware Superior Court, based on non-payment of Defendants’ non-payment of obligations under the acquired lease. Defendant filed notice of removal of the suit to federal court, alleging that the claims were pending in, and therefore related to, the bankruptcy proceedings, such that the District Court had subject matter jurisdiction over the claims. In seeking remand, Plaintiff argued that the claims against Defendants existed independent of the bankruptcy, such that the federal court did not have subject matter jurisdiction. More ›
ShareCourt of Chancery Limits Forum Selection
Troy Corporation v. Schoon, C.A. No. 1959-VCL (Del. Ch. March 26, 2007).
Forum selection clauses will be upheld by Delaware courts. However, when the dispute that is the subject of litigation in Delaware is not clearly subject to a contract clause requiring the dispute to be litigated elsewhere, the Delaware courts will not enforce such an unclear contract provision to bar litigation here.
In this decision, the contract required any litigation to be filed in federal court in New York. However, the federal courts lacked jurisdiction over the dispute set out in the complaint filed in Delaware. Thus, the Court of Chancery held that the forum selection clause was not enforceable.
This result illustrates the need to carefully draft forum selection clauses as they will not be read expansively.
ShareFederal Court Grants Renewal of Motion To Demonstrate Jurisdiction
Remote Solutions Co., Ltd. v. FGH Liquidating Corp., Civil Action No. 06-004-KAJ, 2006 WL 3498657 (D. Del. Dec. 5, 2006).
Plaintiff filed a Motion for Reconsideration and to Amend the Court’s earlier Memorandum Order in which it denied the plaintiff’s motion to vacate or modify an arbitration award for failing to demonstrate a proper basis for subject matter jurisdiction. The plaintiff now sought to have the Court amend its order so it could cure the jurisdictional defect. The Court granted the motion to the extent that the plaintiff could renew its prior motion to vacate or modify the arbitration award by demonstrating proper subject matter jurisdiction.
The Court also permitted the motion to relate back to the date of the original filing. It further permitted the defendant to move independently for confirmation of the arbitration award regardless of the course of action chosen by plaintiff.
ShareFederal Court Permits Motion To Transfer Using Multi-Factor Balancing Test
Weisler v. Barrows, C.A. No. 06-362 GMS, 2006 WL 3201882 (D. Del. Nov. 6, 2006).
Plaintiff, a shareholder of Sycamore Networks, Inc. (“Sycamore”), a Delaware corporation with its principal place of business in Massachusetts, brought this derivative action against several of its directors and officers, including its chairman, CEO and CFO. The complaint alleged six counts: (1) a count against each director for section 14(a) violations of the Securities and Exchange Act of 1934 (“Exchange Act”); (2) one count of disgorgement against four directors under section 304 of the Sarbanes-Oxley Act of 2002 (“Oxley Act”); (3) one count of breach of fiduciary duty against all directors; (4) one count of unjust enrichment against five directors; (5) one count of gross mismanagement against all defendants; and (6) one count of waste of corporate assets against all defendants.
The defendants moved to transfer the matter pursuant to 28 U.S.C. § 1404(a) and the Court granted the motion because it would convenience the parties and witnesses and serve the interests of justice.
The plaintiff alleged that the defendants had jointly and severally breached their fiduciary duties of care, loyalty, good faith, and candor by failing to: (1) discover or prevent the intentional manipulation of stock option grants between 1999 and 2004; (2) prevent the misreporting of earnings that was caused by the manipulation of the option grants; (3) oversee the administration of Sycamore’s stock-based compensation plans; (4) ensure Sycamore operated in compliance with applicable state and federal laws pertaining to dissemination of financial statements; (5) ensure the company did not engage in any improper or illegal practices; and (6) ensure that the company’s financial statements were compliant with GAAP. The conduct is alleged to have violated section 14(a) of the Exchange Act and section 304 of the Oxley Act.
The Court permitted the transfer of the matter on its individualized consideration of the motion under section 1404(a) and on whether it would convenience the parties and witnesses and serve the interests of justice. The Court also held that it was the defendants’ burden to establish the need for transfer. The Court observed that the standard for transfer did not demand a demonstration of compelling circumstances; rather, the defendants only needed to show that the case would be better off if transferred to the other jurisdiction. That inquiry required a “multi-factor balancing test” that consisted of not only the convenience of the parties and the witnesses but also the examination of certain public and private interests. The Court listed the private interests as: (1) a plaintiff’s choice of forum; (2) the defendant’s preference; (3) where the claim arose; (4) the convenience of the parties and witnesses; and (5) the location of the books and records. The Court listed the public interests as: (1) the judgment’s enforceability; (2) practical trial considerations making it easy, expeditious or inexpensive; (3) the administrative difficulty presented in the two fora; (4) local interest in deciding the controversy at home; and (5) the public policies of the fora under consideration. The Court found that the private and public factors weighed in favor of transfer and therefore permitted the defendants’ motion.
ShareFederal Court Dismisses Class Action For Lack Of Diversity
Davis v. Union Pacific Railroad Co., C.A. No. 06-128 KAJ, 2006 WL 3218707 (D. Del. Nov. 7, 2006).
Plaintiff, an incarcerated citizen of Nebraska, instituted a diversity-based class action for personal injuries allegedly sustained from lead poisoning from the soil in that state. Defendant, a Delaware corporation with its principal place of business in Nebraska, moved to dismiss for lack of subject matter jurisdiction. The Court dismissed the Complaint for lack of diversity under 28 U.S.C. § 1332 because both parties were citizens of Nebraska. The Court ruled that a corporation’s citizenship may be derived from its place of incorporation and its principal place of business.
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