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Armstrong v. Pomerance

Supreme Court of Delaware · Civil Procedure

Civil ProcedurePersonal JurisdictionService of ProcessDerivative ActionsDelawarepersonal jurisdictiondirectorsderivative suit

Facts

Plaintiffs brought consolidated derivative suits on behalf of Morrison-Knudsen Company, Inc., a Delaware corporation, alleging that the individual defendants breached fiduciary duties as directors in transactions involving the repurchase of company stock from Crane Company. The company had its principal place of business in Idaho, conducted no business in Delaware beyond what was necessary to remain a Delaware corporation, none of the individual defendants were Delaware residents, and no board meeting had ever been held in Delaware. Plaintiffs alleged no Delaware connection for the defendants other than their status as directors of a Delaware corporation who allegedly breached fiduciary duties to it. Service was attempted under 10 Del. C. § 3114, but some defendants had been elected to their current terms before September 1, 1977, while others were elected in May 1978.

Issue

Whether Delaware could constitutionally exercise in personam jurisdiction under 10 Del. C. § 3114 over nonresident directors in a derivative action alleging breach of fiduciary duty, and whether service under the statute was valid as to all of these defendants. More specifically, the court had to decide whether accepting election as a director of a Delaware corporation after the statute's effective date supplied a sufficient jurisdictional basis consistent with due process.

Rule

Under 10 Del. C. § 3114, a nonresident who accepts election or appointment as a director of a Delaware corporation after September 1, 1977, or who serves in that capacity after June 30, 1978, is deemed to consent to service and in personam jurisdiction in Delaware in actions relating to that capacity. Constitutionally, in shareholder derivative litigation alleging breach of fiduciary duties, acceptance of a Delaware directorship with statutory notice, together with the benefits and protections of Delaware corporate law and Delaware's strong interest in supervising fiduciaries of its domestic corporations, is a sufficient contact so that jurisdiction does not offend traditional notions of fair play and substantial justice.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Sierra Beacon Energy, Inc. is incorporated in Delaware but headquartered in Phoenix, Arizona. In 2021, nonresident director Nora Patel, who lives in Nevada and has never visited Delaware, accepted election to the board; shareholders later filed a derivative action in Delaware alleging she approved a self-dealing transaction that injured the corporation.

Does Delaware most likely have personal jurisdiction over Nora under the governing rule?

Explanation. The majority held that where a nonresident accepts election as director of a Delaware corporation after the statutory effective date, and the suit relates to alleged breaches of fiduciary duty in that role, Delaware may constitutionally exercise in personam jurisdiction. The analysis focuses on the quality and nature of the contact and the relationship among the defendant, the forum, and the litigation, not physical presence. By accepting the directorship with statutory notice and the benefits of Delaware corporate law, Nora purposefully availed herself of Delaware. (Derived from Armstrong v. Pomerance (n.d.).)