Opinion ID: 2180498
Heading Depth: 1
Heading Rank: 8

Heading: Personal Jurisdiction over FIIB

Text: From the outset of the Superior Court action, FIIB has contested whether it was subject to personal jurisdiction in Delaware. The Superior Court denied FIIB's motion to dismiss for lack of personal jurisdiction, finding that FIIB had availed itself to the laws of this State and was therefore subject to being sued in Delaware. FIIB has cross-appealed this ruling. It maintains that neither the Delaware Long Arm Statute nor the Due Process Clause of the Fourteenth Amendment support the exercise of personal jurisdiction in this case. We review a trial court's denial of a motion to dismiss for lack of personal jurisdiction under a de novo standard of review. [9] A plaintiff bears the burden of showing a basis for a trial court's exercise of jurisdiction over a nonresident defendant. [10] In determining whether a plaintiff satisfies this burden, Delaware courts will apply a two-prong analysis to the issue of personal jurisdiction over a nonresident. [11] The court must first consider whether Delaware's Long Arm Statute is applicable, and next evaluate whether subjecting the nonresident to jurisdiction in Delaware violates the Due Process Clause of the Fourteenth Amendment (the so-called minimum contacts requirement). [12]
In finding that FIIB was subject to personal jurisdiction in this State, the Superior Court relied on 10 Del. C. § 3104(c)(1). This subsection provides: (c) As to a cause of action brought by any person arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any nonresident, or a personal representative, who in person or through an agent: (1) Transacts any business or performs any character of work or service in the State .... [13] The Superior Court reasoned that FIIB transacted business in Delaware when, through its agents, CHCL and Crescent, it entered into the two separate stock purchase agreements with Cirrus. These acts ultimately resulted in Cirrus accepting the Second CHCL SPA and terminating the AeroGlobal LOI, which is this basis of the entire lawsuit. The facts relevant to establish the Superior Court's jurisdiction over FIIB are clear. There is no dispute that CHCL and Crescent were agents of FIIB. Crescent, FIIB's Delaware subsidiary, existed for the sole purpose of securing attractive investment opportunities in the United States on behalf of FIIB. CHCL was formed for the express purpose of facilitating an investment by FIIB in Cirrus. FIIB, through its agents, entered into a stock purchase agreement with Cirrus, a privately held Delaware corporation, to purchase a substantial amount of Cirrus's capital stock. The offers made by Crescent to purchase Cirrus's capital stock, the last of which led to the instant action, were made on behalf of FIIB and involved FIIB funds. [14] Furthermore, the parties expressly agreed that Delaware law governed their agreement. [15] FIIB, through its agents, was also required to approve and adopt and then cause Cirrus to adopt new bylaws [16] and a certificate of incorporation [17] pursuant to Delaware law. FIIB argues that these facts are insufficient to constitute transacting business in Delaware. FIIB relies on Greenly v. Davis, [18] for the position that its mere negotiations to purchase stock in Cirrus through its agents did not amount to a transaction of business in Delaware, especially where the negotiation and consummation of the transaction did not take place in Delaware. In Greenly, this Court found that the trial court correctly concluded that a Pennsylvania resident who allegedly breached a contract to sell a Delaware corporation was not subject to in personam jurisdiction in this State. [19] The plaintiff in Greenly was interested in purchasing two companies from the defendants who contracted for the sale. [20] In Greenly, the defendants were not Delaware residents. [21] The Greenly defendants owned a Pennsylvania corporation and a Delaware corporation. [22] Neither defendant had ever transacted business in Delaware related to the focus of the dispute in the lawsuit. [23] The trial court granted a motion to dismiss based upon factual affidavits which established that the parties negotiated the agreement in Pennsylvania with no actual contact relating to the transaction of sale in Delaware except a part of the negotiations included a proposed sale of stock of a Delaware corporation which does transact business in Delaware. [24] In affirming the trial court's decision, this Court held that the negotiation of a contract for sale of stock by Pennsylvania residents did not amount to a transaction of business in Delaware, even though part of the negotiations included a proposed sale of a Delaware corporation that transacts business in Delaware. [25] We acknowledge that the ownership of a Delaware subsidiary does not, without more, amount to the transaction of business under Delaware's Long Arm Statute. [26] However, as is the case here, the ownership of a Delaware subsidiary may constitute the transaction of business under Delaware's Long Arm Statute where the underlying cause of action arises from the creation and operation of the Delaware subsidiary. [27] This is the case where the foreign corporation created and operated the Delaware subsidiary in a manner that would avail itself of the benefits and protections of the laws of the State of Delaware. In the present case, FIIB created Crescent, its Delaware subsidiary, for the express purpose of facilitating private equity investments in the United States, including Delaware. The acquisition of Cirrus, for example, was the type of transaction contemplated by FIIB when it created and operated Cirrus under the benefits and protections of Delaware law. The totality of the circumstances in this case show that FIIB transacted business in this State within the meaning of Delaware's Long Arm Statute. Moreover, Greenly is distinguishable from the present case before this Court. Here, as compared to Greenly, the parties purposely chose Delaware law to govern the stock purchase agreement and the sale of Cirrus's stock to CHCL was more than a mere possibility. The parties in this case expressly intended that CHCL would purchase a substantial amount of Cirrus's capital stock upon the happening of stated events. This is in contrast to Greenly where there was only a mere possibility of a stock sale. While evidence of physical presence may be helpful in determining a party's intent to transact business and to show the actual transaction of business in this State, we hold that such evidence is not the sine qua non for jurisdiction under Delaware's Long Arm Statute. [28] In this case, the totality of the circumstances show that FIIB engaged in sufficient conduct to constitute transacting business in this State within the meaning of Delaware's Long Arm Statute.
We next address whether the imposition of in personam jurisdiction in this case under Delaware's Long Arm Statute violates the Due Process Clause of the Fourteenth Amendment. The focus of this inquiry is whether FIIB engaged in sufficient minimum contacts with Delaware to require it to defend itself in the courts of this State consistent with the traditional notions of fair play and justice. [29] In order to establish jurisdiction over a nonresident defendant, the nonresident defendant's contacts with the forum must rise to such a level that it should reasonably anticipate being required to defend itself in Delaware's courts. [30] Due process issues arising from the imposition of in personam jurisdiction involves a purely legal determination. Accordingly, our review on appeal is de novo. [31] We find the teachings from this Court's opinion in Papendick instructive. The Papendick case was an in rem action involving the attachment of a parent-foreign corporation's stock interest in a wholly owned Delaware subsidiary. [32] In Papendick, the litigation involved an alleged breach of contract. [33] The parent-foreign corporation had formed a Delaware subsidiary for the purpose of executing the contract which was allegedly breached. [34] This Court concluded that the foreign corporation, which had formed a Delaware subsidiary for the purpose of implementing a contract, had implicitly consented to the jurisdiction of Delaware's courts in an action brought against both the foreign corporation and its Delaware subsidiary for allegedly breaching the contract at issue. [35] In doing so, this Court followed the mandate of the United States Supreme court in Shaffer, [36] which instructed courts to focus upon the relationship between the defendant, the forum and the litigation when addressing the minimum contacts requirement. [37] A later decision by this Court explaining Papendick provided that [t]he decision of the foreign-parent corporation to maintain a direct and continuing connection between Delaware and itself, as the owner of a Delaware subsidiary, was found to be a `minimum contact' of paramount importance in the specific jurisdictional analysis of Papendick....  [38] We find particularly relevant the following language in Papendick: We do not believe that the International Shoe minimum contact due process standards were intended to deprive Delaware courts of jurisdiction by permitting an alien corporation to come into this State to create a Delaware corporate subsidiary for the purpose of implementing a contract under the protection of and pursuant to powers granted by the laws of Delaware, and then be heard to say, in a suit arising from the very contract which the subsidiary was created to implement, that the only contact between it and Delaware is the mere ownership of stock of the subsidiary. The latter point is most significant in applying International Shoe standards. There is a controlling distinction, for present purposes, between the ownership of shares of stock acquired by purchase or grant as in Shaffer, on the one hand, and ownership arising from the purposeful utilization of the benefits and protections of the Delaware Corporation Law in activities related to the underlying cause of action, on the other hand. [Here, the appellee] purposefully availed itself of the benefits and protections of the laws of the State of Delaware for financial gain in activities related to the cause of action. Therein lies the minimum contact sufficient to sustain the jurisdiction of Delaware's courts over [the appellee]. [39] The United States Supreme Court has provided further guidance for determination of whether the defendant has established minimum contacts in the forum State which would support the exercise of in personam jurisdiction. [40] In Burger King Corp., the United States Supreme Court held that the constitutional touchstone remains whether the defendant purposefully established `minimum contacts' in the forum State. [41] This Court has recognized that the minimum contacts which are necessary to establish jurisdiction must relate to some act by which the defendant has deliberately created continuing obligations between himself (itself) and the forum. [42] In Burger King Corp., the United States Supreme Court further explained: [W]here the defendant deliberately has engaged in significant activities within a State, ... or has created continuing obligations between himself and residents of the forum, ... [the defendant] manifestly has availed himself of the privilege of conducting business there, and because his activities are shielded by the benefits and protections of the forum's laws it is presumptively not unreasonable to require him to submit to the burdens of litigation in that forum as well. [43] In this case, the totality of the circumstances show that FIIB had sufficient ties to this State to satisfy the minimum contacts requirement. FIIB, through its agents, executed two stock purchase agreements with a privately held Delaware corporation. It negotiated the stock purchase agreements through Crescent, its Delaware subsidiary which advises it on various private equity investments located in the United States. The stock purchase agreement also calls for Delaware law to govern disputes arising from it. It is reasonable to infer that FIIB benefited from Delaware law by operating Crescent for commercial gain, including the benefits afforded by equity investments secured by Crescent. Having found that FIIB purposefully established minimum contacts with this State, these contacts must be considered in light of other factors to determine whether the imposition of personal jurisdiction would comport with fair play and substantial justice principles. [44] However, the United States Supreme Court has noted that the Due Process Clause may not readily be wielded as a territorial shield to avoid interstate obligations that have been voluntarily assumed. [45] When a corporate defendant who has purposefully directed its activities at the forum State seeks to defeat jurisdiction, it must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable. [46] FIIB has not presented any compelling evidence suggesting that the exercise of personal jurisdiction in the present case would be unreasonable. FIIB has simply argued that its purchase of a Delaware corporation cannot be a sufficient contact with the State to satisfy the Due Process Clause. We have previously rejected this argument because the facts here involve more than that single circumstance. Furthermore, Delaware has a legitimate interest in resolving AeroGlobal's claims. FIIB used the benefits and protections of Delaware law to maintain its corporate subsidiary. As a result, Delaware has a legitimate interest in holding accountable those responsible for operating a Delaware subsidiary corporation in such a fashion. [47] Under the totality of the circumstances in this case, the Superior Court correctly concluded that the motion to dismiss for lack of personal jurisdiction should be denied.