Opinion ID: 1540447
Heading Depth: 1
Heading Rank: 14

Heading: Shaffer Distinguished

Text: One of the first in rem actions to come before this Court after Shaffer involved the attachment of a parent-foreign corporation's stock interest in a wholly owned Delaware subsidiary. Papendick v. Bosch, Del.Supr., 410 A.2d 148 (1979), cert. denied, 446 U.S. 909, 100 S.Ct. 1837, 64 L.Ed.2d 262 (1980). In Papendick, the litigation involved an alleged breach of contract. The parent foreign corporation had formed a Delaware subsidiary for the purpose of executing the contract which was in dispute. This Court found that a foreign corporation which had formed a Delaware subsidiary for the purpose of implementing a contract, had implicitly consented to the jurisdiction of the Delaware courts in an action brought against both corporations alleging a breach of that contract. Id. at 152. In Papendick, this Court followed the directive of Shaffer to focus upon the defendant, the forum, and the litigation. Id. [27] In Papendick, after distinguishing the facts in Shaffer, this Court acknowledged its obligation to apply the International Shoe minimum contact standard, in accordance with the Shaffer holding. This Court was not only aware that the standards of International Shoe were to be applied, but that [t]he requirements of International Shoe ... must be met as to each defendant over whom a state court exercises jurisdiction. Rush v. Savchuk, 444 U.S. 320, 332, 100 S.Ct. 571, 579, 62 L.Ed.2d 516 (1980). Jurisdiction over a wholly owned Delaware subsidiary does not automatically establish jurisdiction over the parent corporation in any forum. Cf. Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634 (1925). [28] Therefore, both the parent and the subsidiary corporation's contacts with the forum state must be assessed individually. Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 781 n. 13, 104 S.Ct. 1473, 1481-82 n. 13, 79 L.Ed.2d 790 (1984). [29] The 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: 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. [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 [by forming a Delaware subsidiary]. Therein lies the minimum contact sufficient to sustain the jurisdiction of Delaware's courts over [the appellee]. Papendick v. Bosch, 410 A.2d at 152. [30] Since this Court's decision in Papendick, the United States Supreme Court has provided further guidance for an assessment of individual contacts with the forum state which would support an exercise of specific jurisdiction. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985). Burger King Corp. held that the constitutional touchstone [of the determination whether an exercise of personal jurisdiction comports with due process] remains whether the defendant purposefully established `minimum contacts' in the forum State. Id. at 474, 105 S.Ct. at 2183 (citing International Shoe Co. v. Washington, 326 U.S. at 316, 66 S.Ct. at 158). In other words, 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. Consequently, his (its) activities are shielded by the benefits and protection of the forum's laws and it is not unreasonable to require him (it) to submit to the forum's jurisdiction. Burger King Corp. v. Rudzewicz, 471 U.S. at 475-76, 105 S.Ct. at 2183-84. [31] The Burger King Corp. rationale is entirely consistent with our holding in Papendick that the creation of a Delaware subsidiary is such an act. Burger King Corp. supports our conclusion in Papendick that a foreign corporation cannot use the laws of this State to govern the operations of its subsidiary and then, in a suit relating to the operation of the subsidiary, claim that jurisdiction in Delaware offends traditional notions of fair play. Papendick v. Bosch, 410 A.2d at 152-53. [32] GenCorp seeks to distinguish Papendick on two grounds. First, it alleges that GenCorp did not form RKO General as a subsidiary corporation but instead purchased it after it had already been formed. Second, GenCorp argues that in Papendick, it was appropriate for Delaware to assert jurisdiction over the contract dispute but that in the present case, Delaware has little or no connection with Sternberg's double derivative action. We do not find either of GenCorp's arguments to be persuasive.