A recent Delaware Court of Chancery opinion should have a place in the toolbox of litigators who need to be familiar with the latest iteration of Delaware law on the nuanced aspects of the consent statute as a potential basis to impose personal jurisdiction on officers and directors of Delaware corporations by virtue of their service in that capacity.  In BAM International, LLC v. The MSBA Group, Inc., C.A. No. 2021-0181-SG (Del. Ch. Dec. 14, 2021), the court engaged in a thorough analysis of the multi-faceted determinations that need to be made if jurisdiction by virtue of the consent statute can be used as the basis for personal jurisdiction–when there is no breach of the fiduciary duty that the director or officer owes to the corporation or its stockholders.

Issue Addressed:

The court specifically addressed the issue of whether officers of a Delaware entity can be haled into a Delaware court for a contract-related claim despite having no relationship with Delaware other than their status as officers of a Delaware entity?  This opinion remains noteworthy because Delaware law on this topic has evolved since the Delaware Supreme Court changed Delaware law on this issue not long ago, and the trial courts are still trying to clarify the contours of the jurisdictional issues involved with the consent statute at 10 Del. C. § 3114(a) and § 3114(b).

Key Principles:

Section 3114(a) of Title 10 of the Delaware Code, applicable to directors, and Section 3114(b) applicable to officers of Delaware corporations, each impose personal jurisdiction on those who have consented to serve in those roles in two situations: (1) actions alleging breach of their duty to the corporation and its stockholders; or (2) where litigation is brought in Delaware involving the corporation, to which the officer or director is a “necessary” or “proper” party.  See Hazout (Delaware Supreme Court decision, and its progeny, highlighted on these pages).

The court in this recent decision determined that although Section 3114 was satisfied, due process was not satisfied given the nature of the action and the paucity of the contacts with the state.  The court observed that the plaintiffs in this case did not seek to rely on the long-arm statute, but instead relied only on the consent statute.

Jurisdiction by Contract:

By way of general reference, the court noted that parties can agree to personal jurisdiction by contract, in which case a minimum contacts analysis would not be required.  See Slip op. at 14.  The court described the 3-part test that Delaware employs to determine when a non-signatory is bound to a forum selection clause.  See footnote 68 and accompanying text.

Consent Statute:

The court provided the historical background of the consent statute which was originally enacted with respect to directors in 1977 and extended to officers in 2004.  The court described the constitutional due process issues that the consent statute raises as causing “Delaware courts some amount of headache.”  See footnote 79 and accompanying text.

Because the only substantive claim against the officers in their individual capacities in this case was for tortious interference, the claim did not arise out of their duties owed to the company for which they served as officers, but instead from torts allegedly committed against another entity.  Therefore, the court explained that in order to impose jurisdiction based on the consent statute, the officers must be “necessary or proper parties,” to the lawsuit against the company for whom they serve as officers.

Necessary or Proper Party:

The court provides a definition of what it means to be a “necessary party” in this context: “If her rights must be ascertained and settled before the rights of the parties to the lawsuit can be determined.”  See Slip op. at 21.  The court instructed that a “party is proper if she has a tangible legal interest in the matter separate from the corporation’s, and if the claims against her arise out of the same facts and occurrences as the claims against the corporation.”  Id.

Minimum Contacts:

Although the court found that the individual officers were proper parties for purposes of the consent statute, the court also reasoned that the necessary minimum contacts to satisfy due process were not present.  The court described the contract at issue in this case as a “guardian-variety commercial contract, rather than one necessarily implicating Delaware interests.”  The court cited Turf Nation v. UBU Sports, Inc., 2017 WL 4535970 (Del. Super. Oct. 11, 2017), as involving a similar fact pattern and applicable analysis.  As in the Turf case, the court explained that the simple commercial contract at issue does not involve Delaware corporate law nor does it involve a contract to be performed in Delaware.  Rather, the court emphasized that Delaware has “no real interest in this case other than the exercise of personal jurisdiction over officers and directors, which is, in my view, insufficient in light of the constitutional due process rights owed . . ..”  Slip op. at 25.  The court added that the actions allegedly giving rise to liability were not taken as officers of the company that they serve nor were the harms alleged to have been committed breaches of fiduciary duties.

Lastly, the court noted that the simple fact that Delaware law governs the contract and Delaware was selected as a forum for settling disputes, is not sufficient alone to satisfy constitutional due process without more—because, in part, the officers in this case are not signatories to  those agreements that called for Delaware as a forum.

In the context of cross-claims of fraudulent inducement by parties to a merger, the Court of Chancery discussed several principles of Delaware law that serve as useful references for those involved in corporate and commercial litigation.  The opinion in LVI Group Investments, LLC v. NCM Group Holdings, LLC, C.A. No. 12067-VCG (Del. Ch. Mar. 28, 2018), provides useful iterations of the following principles of Delaware law:

·     The extended scope of the director consent statute which allows for the imposition of personal jurisdiction on officers and directors of Delaware entities even when the claims are not for breach of fiduciary duty.  This opinion amplifies the Delaware Supreme Court’s recent Hazout decision which reversed decades of prior precedent on this topic, highlighted on these pages, interpreting Section 3114 of Title 10 of the Delaware Code.

·     The court also discusses the general rule that a civil conspiracy may not be formed between a director and the corporation that she represents, however, there are exceptions to this rule which are explored in this opinion.  For example, the court noted that it was unaware of any Delaware authority in support of a per se rule that a private equity firm and its principal cannot conspire with a company controlled, but not wholly owned, by them.  The court cited to several decisions addressing this issue including Prairie Capital III, L.P. v. Double E Holding Corp., 132 A.3d 35, 60 (Del. Ch. Nov. 24, 2015), which was highlighted on these pages.  The court also cited Prairie Capital for the principle that a corporate officer can be held personally liable for the torts he commits and cannot hide behind a corporate shield when he is a participant in the tort.

·     The court also considered the extent to which a fraud claim can be pursued in the presence of a non-reliance clause and an integration clause.  The court explained that this was not a bar to claims that representations within the agreement itself were fraudulently made.  See Abry Partners V, L.P. 891 A.2d at 1064 (“To the extent that the stock purchase agreement purports to limit the Seller’s exposure for its own conscious participation in the communication of lies to the Buyer, it is invalid under the public policy of this State.  That is, I find that the public policy of this State will not permit the Seller to insulate itself from the possibility that the sale would be rescinded if the Buyer can show either:  (1) that the Seller knew that the Company’s contractual representations and warranties were false; or (2) that the Seller itself lied to the Buyer about the contractual representations and warranty.”)  See also Prairie Capital III, L.P., 132 A.3d at 61. 

·     The court also explained that equitable fraud claims, also known as negligent misrepresentation claims, require a special relationship, such as a fiduciary relationship, as a prerequisite in order for the scienter requirement of common law fraud to be waived.

This is the twelfth year that I am providing an annual list of key Delaware corporate and commercial decisions. In one of my past annual reviews, I listed only three key cases, and in other years I listed a few dozen. This year I am taking the middle ground and selecting eleven cases that should be of widespread interest to those who engage in corporate and commercial litigation in Delaware, or to those who follow the latest developments in this area of law. In preparing this list, I eschewed some widely-reported 2016 cases that have already been the subject of extensive commentary in other legal publications. Thus, the list this year may omit one or more blockbuster cases that readers likely have already read about elsewhere. This list is an admittedly subjective exercise, and I invite readers to contact me with suggestions for cases that they believe should be added to–or deleted from–this list. (Unlike last year, this year I don’t have the benefit of adopting the list of cases that a member of the Delaware Court of Chancery publicly described as the 2015 opinions that he thought were especially noteworthy.)

Delaware Supreme Court Decisions

Hazout v. Tsang. This opinion changed the law that prevailed for the last 30 years regarding the basis for imposing personal jurisdiction in Delaware over corporate directors and officers. The accepted case law for the last three decades limited jurisdiction over directors and officers of Delaware corporations, if that position was the only basis for imposing jurisdiction, to claims such as breaches of their fiduciary duties. Now, however, Delaware courts can impose personal jurisdiction over directors and officers if they are “necessary or proper parties” to a lawsuit even if there are no fiduciary duty claims or violations of the DGCL. This opinion from Delaware’s high court features a new interpretation of Section 3114 of Title 10 of the Delaware Code, which provides that when a party agrees to serve as a director or officer of a Delaware entity, she thereby consents to personal jurisdiction in Delaware. This opinion also provided a new application of the registration statutes found at Section 371 and 376 of Title 8. A more detailed discussion of the case appeared previously on these pages.

Genuine Parts Co. v. Cepec. In contrast to the foregoing Hazout case, which made it easier to impose personal jurisdiction in Delaware over certain parties to a lawsuit, this opinion did the opposite. Again departing from thirty years of prior Delaware case law, in connection with Delaware’s long-arm statute found at Section 3104 of Title 10 of the Delaware Code, this ruling reasoned that: “In most situations where the foreign corporation does not have its principal place of business in Delaware, that will mean that Delaware cannot exercise general jurisdiction over the foreign corporation.” A prior overview of this case appeared on these pages.

OptimisCorp v. Waite. This ruling provides indispensable insights from Delaware’s high court on the duties and limitations imposed on directors who are appointed by particular stockholders. These board members, sometimes referred to as “blockholder directors,” are often torn between their allegiance to the corporation and their ties to the stockholder that appointed them–often by written agreement as a condition to an investment in the company. Although it reads like an opinion, the format of this ruling is an Order of the court. (The name of the plaintiff is not a typo; it’s a conjoined name with no space, but with a capital in the middle.) Most readers know that transcript rulings and Orders can be cited in briefs as authority in Delaware, and this Order contains many eminently quotable gems. The decision affirmed a 213-page opinion by the Court of Chancery, but provided slightly different reasoning and more authoritative insights. Specifically, the Court expressed displeasure with a “Pearl Harbor-like . . . ambush” of a stockholder board member when that stockholder had the ability to remove the directors that ambushed him if he had known of their insurgent intentions prior to the meeting. Highlights of this ruling previously appeared on these pages.

El Paso Pipeline GP Co., LLC v. Brinckerhoff. This decision features a relatively rare reversal of a Court of Chancery decision on the perplexing issue of whether a stockholder claim is derivative or direct–or both. It should be encouraging, even for those who follow this area of the law, that this issue can be so nuanced and difficult to understand that even the Chancellor could be mistaken, though his friends on the Supreme Court called his reversed decision “thoughtful.” In sum, this ruling rejected the Chancery Court’s conclusion that a merger occurring after trial but before the decision of the court had been issued, did not extinguish the plaintiff’s derivative claims. Because the claims were only derivative, the claims were extinguished.

In a concurrence, the Chief Justice argued that the Delaware Supreme Court’s 2006 decision in Gentile v. Rossette should be overruled because it “cannot be reconciled with the strong weight of our precedent.” He argues that Gentile is wrong “to the extent that it allows for a direct claim in the dilution context when the issuance of stock does not involve subjecting an entity whose voting power was held by a diversified group of public equity holders to the control of a particular interest….”

Court of Chancery Decisions

Marino v. Patriot Rail Company LLC. This Court of Chancery opinion is noteworthy for providing the most detailed historical analysis, doctrinal underpinning and legislative exegesis of the statutory scheme that requires corporations under certain circumstances to provide advancement to former directors and officers that has come along in many years. The decision also explains why companies are barred from terminating such advancement for former directors and officers unless certain prerequisites are satisfied. An overview of this decision previously appeared on these pages.

In Re Trulia Inc. Stockholder Litigation.  This Court of Chancery decision has been the subject of such extensive commentary that virtually every reader of this blog has already read about it. This decision sharply curtailed (but did not entirely eliminate) the viability of stockholder class actions based on claims that insufficient disclosures were made in the context of a challenged merger. This decision was issued in January 2016. The Chancery Daily reports that the number of lawsuits filed in the Delaware Court of Chancery during the year 2016 subsequently declined substantially. Of course, some of these disclosure suits might have been filed in other states during 2016. Extensive expert commentary is available at this link, including from Professor Stephen Bainbridge, a good friend of this blog and a nationally prominent corporate law scholar often cited in Delaware court opinions addressing corporate law issues.

Amalgamated Bank v. Yahoo! Inc. This opinion provides a treasure trove of corporate law jewels. Those who need to keep abreast of this area of the law should read this scholarly 74-page gem. This decision will likely be cited often, and it belongs in the pantheon of seminal Delaware decisions because it is the first opinion to directly and comprehensively discuss directors’ obligations to produce electronically stored information (ESI) in connection with a stockholder’s request for corporate books and records pursuant to DGCL Section 220. The court also required the production of relevant personal emails of directors and officers from personal email accounts. Additionally, the court provided exemplary guidance in how to fulfill fiduciary duties when considering and approving executive compensation proposals. A synopsis of the case appeared on these pages.

Though not related in any way to my recommendation that this opinion is a must-read, as an added bonus, at page 20, the court’s opinion cited to a law review article recently co-authored by yours truly in which it was argued that ESI should be included within the scope of DGCL Section 220.

Obeid v. Hogan. This Court of Chancery opinion will be cited often for fundamental principles of Delaware corporate and LLC law, including the following: (1) even in derivative litigation when a stockholder has survived a motion to dismiss under Rule 23.1, for example where demand futility pursuant to DGCL Section 141 is in issue, the board still retains authority over the “litigation assets” of the corporation, and if truly independent board members exist or can be appointed to create a special litigation committee (SLC), it is possible for the SLC to seek to have the litigation dismissed under certain circumstances; (2) if an LLC Operating Agreement adopts a form of management and governance that mirrors the corporate form, one should expect the court to use the cases and reasoning that apply in the corporate context; (3) even though most readers will be familiar with the cliché that LLCs are creatures of contract, the Court of Chancery underscores the truism that it may still apply equitable principles to LLC disputes; (4) a bedrock principle that always applies to corporate actions is that they will be “twice-tested,” based not only on compliance with the law, such as a statute, but also based on equitable principles. This opinion is also noteworthy because it provides a roadmap for how a board should appoint an SLC with full authority to seek dismissal of a derivative action against a corporation. Additional highlights about this decision were previously noted on these pages.

Medicalgorithmics S.A. v. AMI Monitoring, Inc. This opinion earns a place among my annual list of noteworthy cases for its counterintuitive finding that a non-signatory was bound by the agreement at issue. Although other Delaware opinions have found that non-signatories were bound by the terms of an agreement, in this decision, the non-signatory was an affiliate of the signatory, and was controlled by the signatory; moreover, the agreement applied to affiliates. Additionally, the non-signatory also accepted the benefits of the agreement. See generally provisions of the Delaware LLC Act that bind non-signatory members of an LLC Operating Agreement to the terms of that agreement, and amendments by a majority of members that do not include the non-signatory. A prior overview of this case appeared on these pages.

Bizzarri v. Suburban Waste Services, Inc. This decision should be read by all those who advise directors or their corporations on what corporate records a director is entitled to–or not. This opinion provides an excellent recitation of the many nuanced prerequisites for demanding corporate books and records and when the otherwise unfettered right of directors to corporate records can be circumscribed and restricted. In addition to being noteworthy for providing corporations with defenses to demands for corporate records from directors and stockholders, this ruling explores the types of data that one can demand in connection with asserting the proper purpose of valuation of an interest in a closely-held company. A fuller discussion of this case appeared previously on these pages.

Larkin v. Shah. This Court of Chancery decision should be read by those interested in one of the most pithy restatements in any recent opinion of basic corporate governance principles such as the: (1) articulation of the fiduciary duties of directors; (2) presumption of the BJR as a standard of review; (3) when the BJR applies; and (4) how the BJR is rebutted. This opinion also provides an eminently clear articulation and application of the various permutations of one-sided or both-sided controlling stockholder transactions, and what standard of review applies in those circumstances, as well as the standard that applies in this case, where there is no controlling stockholder, but there is stockholder approval. An overview of the opinion appeared previously on these pages.

Supplemental Bonus: For the last twenty years, I have published a bimonthly column on legal ethics for the American Inns of Court. Because of the importance of legal ethics, which of course apply generally to the corporate and commercial litigation focus of this blog, and in particular in light of a controversial proposal by the ABA to amend the Model Rules to make it unethical to oppose, notwithstanding good faith religious reasons, certain behavior that until a few months ago was completely legal, I include a link to my recent article that quotes the views of nationally prominent legal scholars on a new ABA rule of professional conduct.

In addition, in honor of the passing in 2016 of U.S. Supreme Court Justice Antonin Scalia, I include a link to highlights that appeared on these pages of a concurrence by Justice Alito and Justice Thomas in the recent Caetano case that emphasizes the importance of the natural right of self-defense and in which those members of this country’s highest court rebuke Massachusetts’ highest court for flagrantly ignoring the clear authority expressed in the U.S. Supreme Court decisions in Heller and in McDonald regarding each person’s natural right to self-defense.

We previously highlighted on these pages a Delaware Supreme Court decision in Hazout v. Tsang, that expanded the orthodox interpretation of a Delaware statute with the net result of making it easier to sue in Delaware an officer or director who has agreed to serve in that capacity for a Delaware entity. Now, readers have the benefit of an expanded article I wrote on the case that appears in the current edition of the national publication of the National Association of Corporate Directors, called Directorship.

Postscript: Professor Bainbridge graciously links to this post.

 The Delaware Supreme Court decided today, over a dissenting opinion, that a non-Delaware corporation cannot be sued in Delaware, even if it is registered to do business in Delaware, if the basis for the suit against it in Delaware is unrelated to the fact that it is registered to do business in Delaware as a foreign corporation. Genuine Parts Co. v. Cepec, Del. Supr., No. 528, 2015 (April 18, 2016). This ruling should be compared generally with an unrelated recent opinion of the Delaware Supreme Court, in Hazout v. Tsang, highlighted on these pages, that interpreted a statute to make it easier to impose jurisdiction in Delaware over directors and officers of Delaware corporations.

This recent Supreme Court opinion in Genuine Parts needs to be read by anyone who wants to understand the latest iteration of Delaware law on the two types of personal jurisdiction and, in particular, the difference between general jurisdiction and specific jurisdiction as it applies to foreign corporations who are registered to do business in Delaware. The court distances itself from a decision of almost thirty years ago in Sternberg v. O’Neil, 550 A.2d 1105 (Del. 1988), in connection with applying the registration statutes at Sections 371 and 376 of Title 8, as well as the long-arm statute at Section 3104 of Title 10 of the Delaware Code.

In sum, Delaware’s high court applies the U.S. Supreme Court decision in Daimler AG v. Bauman, 143 S. Ct. 746 (2014), to interpret the Delaware statutes requiring foreign corporations to register to do business in Delaware to mean, for purposes of an analysis of personal jurisdiction consistent with the Due Process Clause of the U.S. Constitution, as follows: “In most situations where the foreign corporation does not have its principal place of business in Delaware, that will mean that Delaware cannot exercise general jurisdiction over the foreign corporation.” This ruling has wide application for those engaged in the practice of commercial litigation in Delaware and other types of civil litigation involving corporations.


The Delaware Supreme Court recently interpreted the statutory basis for imposing jurisdiction over directors and officers of Delaware corporations in a manner that is broader than the interpretation that previously prevailed in Delaware courts for the last 30 years. Hazout v. Tsang, No. 353, 2015 (Del. Supr., Feb. 26, 2016).

Directors and officers of Delaware corporations are deemed to consent to the personal jurisdiction of the Delaware courts by virtue of their agreement to serve as directors and officers of Delaware corporations.  The prevailing interpretation of the applicable statute, Section 3114 of Title 10 of the Delaware Code, for the last 30 years or so, has been to limit personal jurisdiction over directors and officers to claims against them in their capacity as directors and officers only for such things as breach of fiduciary duties or claims by stockholders that they violated sections of the Delaware General Corporation Law.  In essence, for reasons related to concern over minimum contacts required by due process under the U.S. Constitution, the case law over the last three decades has, in the words of the Supreme Court, “excised” a phrase in Section 3114 that allows the imposition of jurisdiction where a director or officer was merely a “necessary or proper party.”

This opinion has now rejected more than a generation of cases interpreting Section 3114 to the extent that the Delaware courts (until a few days ago), did not enforce the provision of the statute that allowed for the imposition of jurisdiction over directors or officers when they were merely “necessary or proper parties,” even if there was no breach of fiduciary duty or related claim.

Delaware’s high court based its thorough analysis on statutory construction principles and the intent of the General Assembly.  The holding also acknowledged the benefit, and likely legislative intent, of efficiency and avoiding piecemeal litigation.

The Supreme Court reasoned that there is no constitutional impediment to its conclusion because the statute requires that there be a close nexus between the claims against the corporation and those against the officer and director, and “that the claims against the officer and director involved conduct taken in his official corporate capacity.  In other words, this safeguard ensures that the implied consent mechanism of Section 3114 only applies when a director or officer faces claims that arise out of his exercise of his corporate powers.”

The court explained that the defendant in this case satisfied the statutory language because he was a “necessary or proper party to a civil action brought in this State against the corporation of which he is an officer and director.”  Moreover, he consented to suit in Delaware for certain types of lawsuits by virtue of his service as an officer and director of a Delaware corporation, and, moreover: (i) the dealings that gave rise to the suit were focused on a change of control of the Delaware corporation based on an infusion of capital or loan, and (ii) the parties to those dealings agreed to Delaware law as their common language of commerce.  Thus, the defendant had no basis to complain that his due process rights would be offended by Delaware’s exercise of personal jurisdiction over him.

The court’s conclusion was also bolstered by underscoring the public policy reason why “Delaware has a legitimate interest in providing a forum for efficient redress of claims against a Delaware corporation and a fiduciary whose actions are at the heart of those claims.”

The court explained that the defendant was “obviously a proper party because he has a tangible legal interest in the matter” that is separate from the interest of the corporation involved and because the claims against him arise out of the same facts and occurrences as the claims against the corporation involved.

In sum, the court declined to “excise” the provisions in Section 3114 that allow for the imposition of personal jurisdiction over directors and officers who are either “a necessary or proper party,” even though Delaware cases have been excising that phrase in the statute for many years as a result, apparently misplaced, of due process concerns.  Moreover, the court emphasized that it was not enough to make that “necessary or proper party” determination, but rather the court must also find that the exercise of personal jurisdiction, as in this case, was also consistent with constitutional expectations of due process.

By becoming a director and officer of the corporation involved, the defendant purposely availed himself of certain duties and protections of Delaware law.  The claims against him involved his actions in his official capacity of negotiating contracts that involved the change of control of the Delaware company.  The defendant executed written agreements which chose Delaware law to govern the disputes that formed the basis of the claims.

To make the point about choosing Delaware law more colorful, the court observed that other parties in the case were from Hong Kong and Canada, but the court found that all the parties “understood that as to the course of their respective actions relevant to this case, the jurisdiction that was their focus was the home of the fried oyster sandwich, and not the home of poutin or dim sum.”  Therefore the court concluded that requiring him to defend the lawsuit in this state does not “offend traditional notions of fair play and substantial justice.”

Supplement: A lengthier overview of this case appears in an article I wrote for the publication of the National Association of Corporate Directors. The nationally-recognized corporate law expert, Professor Stephen Bainbridge, kindly links to the article.