Litigation

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

By Morris James LLP

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. 

With regard to the foreign corporation, the Court found that its “alleged insistence on and participation in the Merger” conferred specific jurisdiction over it. The Court also looked to the foreign corporation’s other Delaware contacts, including its filing of financial statements with the Delaware Secretary of State, its entrance into a stock purchase agreement with the corporation that provided for application of Delaware law, and its stock ownership in a Delaware corporation. The Court found that these factors combined with their alleged participation in the merger made it “fair to characterize [the foreign corporation] as having transacted business by availing itself intentionally of a Delaware forum, and formed the “mix of facts” supporting jurisdiction under Delaware’s long-arm statute. As to the director/officer defendants, the Court looked to a conspiracy theory of jurisdiction. The Court found that the five-element test under this theory was met. Specifically, the Court found that according to the allegations, the merger was a substantial act in furtherance of a conspiracy to prevent Plaintiff from perfecting its security interest in Delaware, that the director/officer defendants knew of the merger, and that the resultant injury to the Plaintiff in not perfecting its security interest was a direct and foreseeable result. The Court therefore concluded that the directors/officers “acted in concert with the Merger players to agree to a substantial act without which the Merger complained of would not have occurred.” The Court therefore denied the motion to dismiss for lack of personal jurisdiction.

Full post as published by Delaware Business Litigation Report on February 03, 2008 (boomark / email).