A recent Delaware Court of Chancery opinion clarified the requirements for imposing personal jurisdiction on non-residents in the context of a foreign person or entity forming a Delaware entity as part of a scheme that gives rise to the Delaware litigation. The Dow Chemical Company v. Organik Kimya Holding A.S., C.A. No. 12090-VCG (Del. Ch. Oct. 19, 2017.
Background: The factual background of this case involves employees of a chemical company who left and took trade secrets that they then used to compete against the former employers around the world. At least one prior related judicial ruling found that some trade secrets were stolen.
This decision provides useful principles of personal jurisdiction that should be of widespread applicability to those engaged in Delaware commercial litigation. The procedural context of this case was a motion to dismiss for lack of personal jurisdiction based on Court of Chancery Rule 12(b)(2).
General Rule of Jurisdictional Discovery:
The court allowed extensive jurisdictional discovery on factual issues in light of the plaintiff making a “prima facie”showing of personal jurisdiction in the complaint, even in the context of a motion to dismiss.
- The court employs a two-step process to determine if the court has personal jurisdiction over a non-resident defendant: (1) whether Delaware statutory law provides a basis for jurisdiction; and (2) whether exercising personal jurisdiction complies with the Due Process Clause of the U.S. Constitution.
- The court relied on the principles in the Papendick case and its progeny for the established rule that forming a Delaware entity as an integral part of a scheme that gives rise to the Delaware litigation, qualifies as both “doing business” and also “minimum contacts” for purposes of imposing personal jurisdiction. See Section 3104(c)(1) of Title 10 allowing for jurisdiction where a single act of doing business in Delaware has a nexus to the cause of action. See also footnotes 109 – 112.
- Because the non-resident parent company in this case was instrumental in forming a Delaware entity, as part of a scheme related to the claims in the Delaware lawsuit, that satisfied the basis for personal jurisdiction – – but not so for the other foreign defendants involved.
- The court also recited the elements of the conspiracy theory of jurisdiction and found that the requirement that foreign defendants “knew or should have known about any Delaware nexus to the scheme,” was not satisfied. See footnotes 137 – 145.