Supreme Court Imposes Jurisdiction on Foreign Party Based on Civil Conspiracy Claim

In Matthew v. Flakt Woods Group SA, Del. Supr., No. 150, 2012 (Nov. 20, 2012), the Delaware Supreme Court ruled that Delaware courts could impose jurisdiction on a foreign party involved in this case, based on the “conspiracy theory of jurisdiction”.Photo of the Supreme Court Courthouse in Dover

Quick Background: This well-recognized basis for subjecting non-Delaware parties to the jurisdiction of Delaware courts, was first applied in Delaware in the 1982 Supreme Court decision of Istituto Bancario Italiano, SpA v. Hunter Engineering Co., Inc., 449 A.2d 210 (Del. 1982). This civil conspiracy basis for jurisdiction provides, in essence, that if Delaware has undisputed jurisdiction over one party in a conspiracy, the other parties to the conspiracy may also be hailed into Delaware courts if a multi-part test is satisfied, even if they would otherwise not be subject to Delaware jurisdiction and otherwise had no contact with Delaware. (Coincidentally, as the astute reader can discern, the 1982 Delaware Supreme Court decision involved an Italian bank. This Delaware Supreme Court opinion also involves an Italian company, though the company is not part of the case caption.) The Supreme Court building in Dover is shown in the above photo.

Many prior Delaware decisions addressing this basis for jurisdiction have been highlighted on these pages. See, e.g., here and here. I also co-authored an article on this topic, available here.

Brief Factual Overview: The foreign company involved in this case, Flakt Woods Group, is based in Switzerland, but through affiliates does business around the world. It allegedly conspired with other defendants in this case to divest the appellant of his interest in a joint venture. The plan was accomplished, in part, by causing the dissolution of a Delaware LLC.  One of the elements of the conspiracy theory of jurisdiction requires that facts be alleged from which the court may infer that a foreign defendant knew or should have known that the conspiracy would have a Delaware nexus. The Court of Chancery found this element lacking. The Supreme Court had a different view and reversed.

Analysis

Delaware’s High Court explained that the filing of a certificate of dissolution in Delaware constitutes the transaction of business in Delaware pursuant to Section 3104(c)(1) of Delaware’s long-arm statute. This action of the co-conspirators provided a basis to make Flakt Woods subject to personal jurisdiction in Delaware. The court described several reasons why Flakt Woods knew or should have known that it was dealing with a Delaware entity. For example, it should have known that it entered into an agreement with a Delaware company. It was also aware of a dispute involving the legality of a decision to dissolve the Delaware entity. A superficial inquiry would have alerted them to the state of formation at that point.

 At the trial level, an issue was whether Flakt Woods knew about the Delaware nexus prior to the certificate of dissolution being filed. The Supreme Court found that the conspiracy appeared to have continued after the dissolution to the extent that after the dissolution the assets of the Delaware joint venture entity were assigned wrongfully to the other members of the joint venture–except for the plaintiff who was forced out. It was clear that Flakt Woods was aware of the Delaware nexus after the certificate of dissolution was filed in Delaware.

The last requirement to establish the civil conspiracy basis of jurisdiction as outlined in the Istituto Bancario case is that the: “act in Delaware was a direct and foreseeable result of the conduct in furtherance of the conspiracy.” The filing of the certificate of dissolution in Delaware was a critical step in the conspiracy. Bottom line: Flakt Woods will need to schedule a trip to Delaware for the trial of this case.