Sample v. Morgan

Delaware Court of Chancery · 2007 · Corporations

CorporationsPersonal jurisdictionDelaware long-arm statuteAiding and abetting breach of fiduciary duty10 Del. C. § 3104(c)(1)10 Del. C. § 3104(c)(3)specific jurisdictionsingle act jurisdiction

Facts

Randall Bearings was a Delaware corporation whose top managers allegedly used a certificate amendment lowering par value and an equity incentive plan to obtain 200,000 voting shares for $200 and entrench themselves. While acting as company counsel, Boeckman advised on these Delaware law matters, drafted the proxy materials, and helped implement the plan, while the complaint supported an inference that he knowingly assisted the managers' entrenchment scheme. After stockholder approval, Baker & Hostetler, under Boeckman's supervision, prepared and sent the certificate amendment to Delaware through CSC for filing with the Secretary of State. The plaintiff then sued Boeckman and the firm in Delaware for aiding and abetting the managers' alleged fiduciary breaches.

Issue

May Delaware exercise personal jurisdiction over a nonresident lawyer and law firm on aiding-and-abetting claims arising from advice and services provided to a Delaware corporation, where they prepared and caused the filing in Delaware of a challenged certificate amendment and regularly provided Delaware-law advice related to the alleged fiduciary misconduct? Does such jurisdiction satisfy both Delaware's long-arm statute and constitutional due process?

Rule

Under Delaware's long-arm statute, a nonresident transacts business in Delaware under § 3104(c)(1) and causes tortious injury in Delaware by an act in Delaware under § 3104(c)(3) when the defendant prepares and arranges the filing in Delaware of a corporate instrument that is integral to the challenged conduct and that injures a Delaware corporation. Due process is satisfied when the defendant purposefully directs conduct and Delaware-law services toward a Delaware corporation such that the defendant should reasonably anticipate being sued in Delaware over disputes arising from that conduct, even without physical presence in the state.

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

An Arizona law firm served as outside counsel to Mesa Forge, Inc., a Delaware corporation headquartered in Phoenix. At management’s request, the firm drafted a certificate of designation creating a new class of preferred stock, emailed it to a Delaware filing service in Wilmington for filing, and the filing became a central step in a later stockholder suit alleging the firm knowingly assisted directors in an unfair control transaction.

Is Delaware most likely able to exercise specific personal jurisdiction over the law firm under § 3104(c)(1)?

Explanation. The majority held that a nonresident lawyer or firm transacts business in Delaware under § 3104(c)(1) when it prepares and sends for filing in Delaware a corporate instrument that is integral to the challenged conduct. Physical presence is unnecessary, and conspiracy imputation is unnecessary where the defendants themselves arranged the filing. The claim must also be closely intertwined with that Delaware contact, which it is here.