Litigation

: Delaware Corporate and Commercial Litigation Blog

No Personal Jurisdiction Over Directors of Non-Delaware Corporation Despite Contract Granting Exclusive Delaware Jurisdiction Over Corporation

By Francis G. X. Pileggi, Esq. (all)

In Ruggiero v. FuturaGene, plc, et al., (Del. Ch., Feb. 1, 2008), read opinion here, the Chancery Court refused to exercise personal jurisdiction over the directors of a British corporation despite a merger agreement  which granted exclusive jurisdiction to Delaware courts over any issues arising out of the merger. The court acknowledged that because the plaintiff has the evidentiary burden to establish jurisdiction and is not limited in a Rule 12(b)(2) motion to the pleadings, discovery on the jurisdictional issue will be allowed absent a frivolous claim.  However, the court determined here that the claim for personal jurisdiction was frivolous (the court's word), and thus, denied discovery. The familiar two-step approach to the analysis of personal jurisdiction was recited. First, one examines the Delaware long-arm statute, and then after establishing a statutory basis, one must satisfy the Due Process concerns under the Fourteenth  Amendment.

The Chancery Court recognized that one may agree by contract to be subject to the personal jurisdiction of a particular court, in which case a minimum contact analysis is not required.

However, officers and directors are not parties to their corporation's contract and generally are not liable on corporate contracts as long as it is clear that they did not sign in their individual capacities. Here, although their non-Delaware company agreed to the personal jurisdiction of Delaware courts, the officers and directors did not. Slip op. at 8-9 (citing Amaysing Tech. Corp. v. Cyberair Commc'ns, Inc. 2005 WL 578972, at *3 (Del. Ch., Mar. 2, 2005)). Although some of the individual defendants served on the board of a Delaware subsidiary and section 3114 of title 10 of the Delaware Code authorizes service over directors of a Delaware entity, it does so only when a cause of action is based on the breach of a duty to that corporation. None of the claims here related to the internal affairs or the corporate governance of the Delaware entity.

Plaintiffs also failed to establish that the officers and directors were subject to jurisdiction under section 3104(c) of title 10 of the Delaware Code. Namely, the court rejected the argument that their foreign corporation was their "agent" when it entered into a merger. A director or officer can only be said to use his corporation as his 'agent" when it is proven to be his 'alter ego" or the piercing of the corporate veil is warranted. (See n. 27.) Otherwise, the general rule applies that corporations can only act through their agents, and the actions of a corporation through its agents alone cannot satisfy the personal contacts needed for personal jurisdiction over those persons.

The Chancery Court in this decision also considered and rejected the argument that, based on the facts of this case, the civil conspiracy theory of personal jurisdiction applied. See here for article I co-wrote with my colleague Leslie Spoltore several years ago on the topic of the civil conspiracy basis of personal jurisdiction (which was written prior to the Chancery decision in CyberAir Tech. v. CyberAir Commc'ns, Inc., supra, on which the Ruggiero court relied heavily in the above opinion, and which has been cited in many other decisions. Ms. Spoltore and I represented the defendant in the CyberAir case.)

Finally, the court rejected the argument that "pendent jurisdiction" applied. Under Delaware law if personal jurisdiction is appropriate for a particular claim, Delaware courts may assert jurisdiction over the defending party where another claim is "sufficiently related" to the plaintiff's independent claims. See n. 41 and 42.

In sum, the court refused to interpret the jurisdiction clause broadly and would not agree that the provision covered claims only tangentially related to the underlying contract.

Compare this decision to the very recent Chancery decision in Sample v. Morgan summarized here, that discussed similar legal issues in the context of very different facts and reached a different conclusion regarding personal jurisdiction over a company's non-Delaware lawyer.

Full post as published by Delaware Corporate and Commercial Litigation Blog on February 10, 2008 (boomark / email).