Rabkin v. Hunt Chemical Corp.

Delaware Court of Chancery · Corporations

Corporationsfiduciary dutymergerspersonal jurisdictiondirect vs. derivative claimsDelaware corporation lawminimum contactspurposeful availment

Facts

Olin acquired Hunt's controlling block from Turner & Newall for $25 per share under an agreement requiring Olin to pay $25 per share as well if, within one year beginning March 1, 1983, it acquired all or substantially all remaining Hunt shares. Olin publicly disclosed that commitment and also stated in its Schedule 13D that any later acquisition price might be higher or lower than $25 depending on business and economic developments. Plaintiffs alleged that Olin had already decided to acquire the minority interest before the one-year commitment expired but deliberately waited until three weeks after expiration to propose a merger at $20 per share. The amended complaint also targeted Olin, its merger subsidiary, Olin-affiliated Hunt directors, and the remaining Hunt directors for various fiduciary and merger-related wrongs.

Issue

Whether Delaware could exercise personal jurisdiction over Olin; whether the complaint stated claims against Olin Acquisition and Hunt; whether the claims against the Olin-affiliated Hunt directors were direct or derivative; and whether the complaint stated claims against the remaining Hunt directors for their conduct before and in response to the merger proposal.

Rule

Delaware may exercise personal jurisdiction over a foreign corporation consistent with due process when the corporation purposefully avails itself of Delaware law by creating and using a Delaware subsidiary to effect the challenged transaction. To state an aiding-or-knowing-participation claim in a fiduciary-duty breach, the complaint must allege a fiduciary relationship, breach, and knowing participation by the nonfiduciary. Whether a stockholder claim is direct or derivative turns on the nature of the alleged injury; a claim is direct if it alleges a special injury distinct from that suffered by all stockholders or implicates shareholder rights, and a merger challenge harming only minority stockholders is direct. For merger-approval claims against directors, plaintiffs must plead facts supporting an inference that directors were uninformed or grossly negligent; for neglect claims based on ignorance or failure to act, directors may be liable if they failed to use the care ordinarily careful and prudent persons would use in similar circumstances.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

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

Granite Forge Holdings, a Nevada corporation based in Phoenix, bought control of Bay Harbor Plastics, a Delaware corporation. To complete a freeze-out, Granite Forge formed Harbor Merger Sub in Delaware and filed a Delaware certificate of merger to cash out Bay Harbor's minority stockholders. The minority later sued Granite Forge in Delaware, alleging the merger price was unfair.

Granite Forge moves to dismiss for lack of personal jurisdiction, arguing it has no offices, employees, or operations in Delaware. How should the Delaware court rule?

Explanation. The majority held that due process is satisfied when a foreign corporation purposefully avails itself of Delaware law by creating and using a Delaware subsidiary to effect the very transaction under attack. Here, Granite Forge did exactly that by forming Harbor Merger Sub in Delaware and filing the merger certificate there. Physical presence is unnecessary, and jurisdiction does not depend on first proving the merger was unfair. (Derived from Rabkin v. Hunt Chemical Corp. (n.d.).)