Opinion ID: 1540447
Heading Depth: 1
Heading Rank: 16

Heading: Delaware and Sternberg's Double Derivative Claim

Text: Once it has been decided that a defendant purposefully established minimum contacts with the forum State, these contacts must be considered in light of other factors to determine whether the assertion of personal jurisdiction would comport with fair play and substantial justice. Burger King Corp. v. Rudzewicz, 471 U.S. at 477, 105 S.Ct. at 2185. [37] However, as the United States Supreme Court also noted in that case, the due process clause may not readily be wielded as a territorial shield to avoid interstate obligations that have been voluntarily assumed. Id. at 474, 105 S.Ct. at 2183. When a corporate defendant who has purposefully directed its activities at a forum, seeks to defeat the forum's jurisdiction, it must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable. Id. at 477, 105 S.Ct. at 2185. GenCorp's final argument is an attempt to meet that burden. GenCorp points out since it is an Ohio corporation, Ohio law must be applied to one aspect of Sternberg's double derivative action. Therefore, GenCorp argues that Delaware has a tenuous connection with this litigation and should not exercise jurisdiction in this case which may require it to apply Ohio law to a portion of Sternberg's claim. A similar argument has been considered and rejected by the United States Supreme Court for three reasons in Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 104 S.Ct. 1473, 79 L.Ed.2d 790 (1984). [38] First, [t]he issue is personal jurisdiction, not choice of law. Id. at 778, 104 S.Ct. at 1480 (quoting Hanson v. Denckla, 357 U.S. 235, 254, 78 S.Ct. 1228, 1240, 2 L.Ed.2d 1283 (1958)). The question of the applicability of New Hampshire's statute of limitations to claims for out-of-state damages presents itself in the course of litigation only after jurisdiction over respondent is established, and we do not think that such choice-of-law concerns should complicate or distort the jurisdictional inquiry. Keeton v. Hustler Magazine, Inc., 465 U.S. at 778, 104 S.Ct. at 1480. GenCorp is an Ohio corporation. In this case, the applicability of Ohio law to a portion of Sternberg's claim may present itself during the course of litigation, but only after jurisdiction over GenCorp in Delaware is established. If that issue is presented, Delaware's well established conflict of laws principles require that the laws of the jurisdiction of incorporation govern internal corporate relationships. McDermott, Inc. v. Lewis, Del.Supr., 531 A.2d 206, 215 (1987). [39] However, that choice of law concern should not complicate or distort the jurisdictional inquiry. Keeton v. Hustler Magazine, Inc., 465 U.S. at 778, 104 S.Ct. at 1480. [40] Second, Delaware has a legitimate interest in Sternberg's double derivative claim. As the Court in Keeton noted: We agree that the fairness of haling respondent into a New Hampshire court depends to some extent on whether respondent's activities relating to New Hampshire are such as to give that State a legitimate interest in holding respondent answerable on a claim related to those activities.... But insofar as the State's interest in adjudicating the dispute is a part of the Fourteenth Amendment due process equation, as a surrogate for some of the factors already mentioned, ... we think the interest is sufficient. Id. at 775-76, 104 S.Ct. at 1479 (citations omitted). In this case, GenCorp used the benefits and protections of the State of Delaware to maintain a corporate subsidiary. Sternberg's double derivative suit alleges that the operation of RKO General, the wholly owned Delaware subsidiary, has caused damage to RKO General, GenCorp and the GenCorp stockholders. Delaware has an interest in holding accountable those responsible for the operation of a Delaware corporation. Moreover, just as the internal affairs doctrine mandates the application of Ohio law to the internal operations of GenCorp, that same doctrine mandates the application of Delaware law to the internal operation of RKO General. It is a basic principle of Delaware corporation law that directors of Delaware corporations are subject to fiduciary duties. Anadarko Petroleum Corp. v. Panhandle Eastern Corp., Del.Supr., 545 A.2d 1171, 1174 (1988). Specifically, the Delaware law provides that in a parent and wholly owned subsidiary context, the directors of the subsidiary are obligated only to manage the affairs of the subsidiary in the best interests of the parent and its shareholders. Id. (citing Sinclair Oil Corp. v. Levien, Del.Supr., 280 A.2d 717, 720 (1971); Goodman v. Futrovsky, Del.Supr., 213 A.2d 899, 902 (1965), cert. denied, 383 U.S. 946, 86 S.Ct. 1197, 16 L.Ed.2d 209 (1966)). The United States Supreme Court has recognized that [a] State has an interest in promoting stable relationships among parties involved in the corporations it charters. CTS Corp. v. Dynamics Corp. of America, 481 U.S. 69, 107 S.Ct. 1637, 1651, 95 L.Ed.2d 67 (1987). In particular, the Supreme Court noted that states have a substantial interest in preventing the corporate form from becoming a shield for unfair business dealing. Id. 107 S.Ct. at 1651-52. In this case, Delaware has a legitimate interest in providing a forum for hearing and applying Delaware law to a double derivative claim related to the internal operation of a wholly owned Delaware subsidiary. See id.; McDermott, Inc. v. Lewis, Del.Supr., 531 A.2d 206 (1987); Armstrong v. Pomerance, Del.Supr., 423 A.2d 174, 178 (1980). Third, Keeton noted that New Hampshire also has a substantial interest in cooperating with other States, through the `single publication rule,' to provide a forum for efficiently litigating all issues and damages claims arising out of a libel in a unitary proceeding. Keeton v. Hustler Magazine, Inc., 465 U.S. at 777, 104 S.Ct. at 1479. In this case, Delaware also has an interest in providing a forum for efficiently litigating, in a single proceeding, all issues and damages arising out of a double derivative claim alleging harm based upon the foreign parent corporation's maintenance of a Delaware subsidiary. In a shareholder's derivative suit, the shareholder sues on behalf of the corporation for harm done to the corporation. Therefore, the damages recovered in the suit are paid to the corporation. R. Clark, Corporate Law, 639-40 (1986). [41] In a single derivate suit the corporation is an indispensable party. 13 W. Fletcher Cyclopedia of the Law of Private Corporations § 5997 (rev. perm. ed. 1984). The presence of the corporation is required so that it can receive the monetary award in the event of recovery. The same logic has been held to apply in a double derivative suit. Levine v. Milton, Del.Ch., 219 A.2d 145, 146 (1966). The parent corporation is an indispensable party in a double derivative suit against a subsidiary because any recovery for losses suffered by the subsidiary that were being sued upon would go to the parent. Thus, the Court of Chancery was correct in concluding that if it did not have jurisdiction over the parent corporation, the entire double derivative suit must be dismissed. Sternberg v. O'Neil, 532 A.2d at 998-99.