Vichi v. Koninklijke Philips Electronics, No. 2578-VCP (Del. Ch. Dec. 1, 2009), read opinion here. This Chancery Court opinion of 55-pages in its original format, involves multiple non-U.S. residents and foreign companies engaged in international business transactions. A central fact on which the legal issues were based, was a loan of 250 million Euros by an Italian businessman to an "affiliated Delaware subsidiary" of the Dutch conglomerate Philips. The Court addresses the following issues that I will cursorily cover in a format of bullet points.
- Personal jurisdiction based on Sections 3104(c)(1) and 3104(c)(3) of Title 10 of the Delaware Code. As is required, the two-step analysis was performed to determine if personal jurisdiction exists over a nonresident defendant. This includes the statutory basis, as well an analysis of whether exercising personal jurisdiction over a nonresident comports with the Due Process Clause of the 14th Amendment. Of particular note is the reiteration of established Delaware law that “a single act of incorporation in Delaware [of an entity], if done as part of a wrongful scheme, will suffice to confirm personal jurisdiction over the nonresident defendants responsible for the scheme.” (citing Papendick v. Bosch, 410 A.2d 148, 152 (Del. 1979)).
- One interesting aspect of this case is that the Court denied a motion to dismiss a fiduciary duty claim based on Dutch law against a Dutch company (over which the Court determined it has jurisdiction in Delaware). That claim will thus proceed in Delaware.
- The Court, however, did dismiss a claim by a creditor that was deemed to be a direct claim for a breach of fiduciary duty under Delaware law. In Gheewalla, the Delaware Supreme Court established that creditors are barred from asserting direct claims against directors (or in this case, against managers of an LLC.)
- The Court also discussed the well established parameters of the conspiracy theory of exercising jurisdiction as well as the “apparent agency test” which allowed Philips to be held directly responsible for the actions of its agents in relation to the wrongful incorporation of a company in Delaware as part of a larger scheme.
- Among the claims dismissed was one based on the Delaware Securities Act. See 6 Del. C. Sections 7303 and 7323. The Court reasoned that there was an insufficient nexus to Delaware to apply the Act. The Delaware Supreme Court had ruled many years ago that the Delaware Securities Act would not be incorporated via the "internal affairs doctrine". See footnotes 138 to 140. Moreover, the Chancery Court in this case determined that Section 7303 provided a remedy of restitution in a criminal proceeding–not in civil litigation.
- The Court also addressed the three-year statute of limitations in Delaware for claims of unjust enrichment, fraud and breach of fiduciary duty based on 10 Del. C. Section 8106(a), and also discussed were the three tolling doctrines that can potentially forestall the applicable deadlines until one either discovers or "should have discovered" the cause of action. Moreover, the Court referred to the Delaware Borrowing Statute at 10 Del. C. Section 8121 which refers to situations where a cause of action arises outside of Delaware and the statute of limitations in that state is shorter than the statute of limitations in Delaware. In those situations, the cause of action may be barred by the shorter statute of limitations.
- The Court also referred to the longer six year statute of limitations for actions on promissory notes but that statute of limitations must truly arise directly out of a breach of that promissory note and not ancillary claims (e.g., such as fraudulent inducement to enter into the note, to which the longer period would not apply). See 10 Del. C. Section 8109 and cases cited at footnotes 117 and 118.
- The Court also addressed the “overwhelming hardship” threshold and other factors applied for the very rarely granted motion to dismiss based on forum non conveniens. See footnotes 82 to 88.
- This opinion is replete with many detailed facts and extensive legal analysis throughout its 55-pages that could very easily warrant a much more extensive synopsis, but my intent here was to merely highlight the key legal issues addressed by the Court so that any interested readers can download the entire opinion at the above link.