Hazout v. Tsang Mun Ting ( 2016 )

IN THE SUPREME COURT OF THE STATE OF DELAWARE
MARC HAZOUT, §
§
Defendant Below-Appellant, § No. 353, 2015
§
v. § Court Below: Superior Court
§ of the State of Delaware
TSANG MUN TING, §
§ C.A. No. N14C-12-067
Plaintiff Below-Appellee. §
Submitted: January 20, 2016
Decided: February 26, 2016
Before STRINE, Chief Justice; HOLLAND and SEITZ, Justices.
Upon appeal from the Superior Court. AFFIRMED.
David L. Finger, Esquire (Argued), Finger & Slanina, LLC, Wilmington,
Delaware, for Appellant.
M. Duncan Grant, Esquire (Argued), Christopher B. Chuff, Esquire, Pepper
Hamilton LLP, Wilmington, Delaware; Alan Howard, Esquire, Jared Levine,
Esquire, Crowell & Moring LLP, New York, New York, for Appellee.
STRINE, Chief Justice:
I. INTRODUCTION
The plain language of § 3114(b) of Title 10 states that a nonresident officer
of a Delaware corporation, by virtue of accepting and holding office, has consented
to the exercise of personal jurisdiction over him in the Delaware courts in two
classes of cases: (i) ―all civil actions or proceedings brought in this State, by or on
behalf of, or against such corporation, in which such officer is a necessary or
proper party‖; or (ii) ―any action or proceeding against such officer for violation of
a duty in such capacity.‖1 This case involves a straightforward application of that
language.
Here, Marc Hazout—a Canadian resident who is the President, CEO,
Principal Financial and Accounting Officer, and a director of a Delaware
corporation, Silver Dragon Resources, Inc.—has been sued for acts taken in his
official capacity on behalf of a Delaware corporation based in Canada. As alleged
in the complaint, Hazout was the lead negotiator for Silver Dragon in negotiating a
capital infusion from a group of affiliated investors including Tsang Mun Ting and
other residents of Hong Kong (the ―Investor Group‖). That capital infusion when
consummated would have required a change of control of Silver Dragon from
Hazout and certain others to Tsang and his fellow investors, who would have
achieved the right to control Silver Dragon‘s board. The capital infusion was to be
1
10 Del. C. § 3114(b).
1
consummated by way of a series of agreements, four of which specified that
Delaware law was to govern their terms, with one of those four agreements further
providing that any dispute over it was to be litigated in Delaware. We shall refer to
the interrelated set of agreements as the ―Change of Control Agreements.‖ The
primary agreement provided that the Investor Group would lend Silver Dragon
$3.4 million, subject to certain conditions, including a security interest in all of
Silver Dragon‘s assets and the resignation of four directors. We will call that
agreement the ―Loan and Board Replacement Agreement.‖ When all terms were
negotiated and the Change of Control Agreements were ready to be inked, Tsang
pushed send on the first $1 million of the $3.4 million in capital to be infused,
based on his assurance that Hazout and the other directors of Silver Dragon would
soon execute the Loan and Board Replacement Agreement. Hazout and two other
Silver Dragon directors did sign the Loan and Board Replacement Agreement, but
a fourth refused. Rather than return the $1 million to Tsang, however, Hazout not
only caused Silver Dragon to keep it, but also had Silver Dragon send $750,000 of
it to Travellers International, Inc., a corporation that Hazout controlled.
Tsang therefore brought this suit in the Superior Court of Delaware against
Silver Dragon, Hazout, and Travellers for unjust enrichment, fraud, and fraudulent
transfer in violation of the Delaware Uniform Fraudulent Transfer Act. Hazout
moved to dismiss on the ground that there was no basis for the exercise of personal
2
jurisdiction over him in Delaware because Tsang was not suing Hazout as a
stockholder of Silver Dragon for breach of any fiduciary or other duty owed to
Silver Dragon as an entity or Tsang as a stockholder. The Superior Court
disagreed and found that § 3114(b) provided a proper basis for personal
jurisdiction.2 We accepted a certified interlocutory appeal on the personal
jurisdiction question from the Superior Court.
In this decision, we affirm. Under the clear language of § 3114(b), this is a
―civil action[]‖ against the Delaware corporation of which Hazout was an officer
and director, and Hazout is a ―proper party‖ to that action because he has a legal
interest in the dispute that is separate from Silver Dragon‘s interest, and because
Tsang‘s claims against him arise out of the same facts and occurrences as the
claims against Silver Dragon and it serves judicial economy to consider those
claims together.3 Here, as the Superior Court found, all of the claims against
Hazout arise out of actions taken in his official capacity, and they include using his
authority as a Silver Dragon fiduciary to cause funds paid to Silver Dragon by
Tsang to be not only retained by it, but also to be transferred to Hazout‘s own
affiliated company. Thus, there is no rational argument that the terms of § 3114(b)
are not satisfied.
2
Tsang Mun Ting v. Silver Dragon Res., Inc., 2015 WL 3551871, at *4 (Del. Super. June 3,
2015).
3
See 10 Del. C. § 3114(b); 67A C.J.S. Parties § 2 (2015); Party, BLACK‘S LAW DICTIONARY
(10th ed. 2014).
3
Hazout, however, argues that the provision of § 3114 that applies to civil
actions brought in this state against a corporation in which such director and officer
is a necessary or proper party (the ―Necessary or Proper Party Provision‖) was read
out of the statute by the Court of Chancery in Hana Ranch, Inc. v. Lent,4 and that
the only operative provision of § 3114 is the one dealing with actions against a
director and officer ―for violation of a duty in such capacity‖5 (the ―Internal Affairs
Claim Provision‖). Because Hazout is not being sued by Tsang for breach of a
fiduciary or statutory duty owed to Sliver Dragon or Tsang as a stockholder,
Hazout says that there is no basis for this state to exercise personal jurisdiction
over him.
We disagree with that argument. Contrary to Hazout, we do not believe that
it is a proper role for the Judiciary to excise a clear category set forth in § 3114(b),
simply because there might be cases where it is susceptible to an overly broad
reach. We understand that a decision of the Court of Chancery issued many years
ago took that approach, but this Court has never ruled on that approach and we do
not embrace it. Rather, under settled principles of statutory interpretation, it is our
obligation to give effect to the plain language of statutes to the extent we can do so
without offending any supervening constitutional limits. As both Chancellor
4
424 A.2d 28 (Del. Ch. 1980).
5
10 Del. C. § 3114.
4
Allen6 and Chancellor Chandler7 pointed out, that can be done in the case of
§ 3114 by ensuring that any exercise of personal jurisdiction under the statute is
also consistent with due process, by applying the established minimum contacts
test from International Shoe and its progeny.8
Here, that test is easily satisfied because the issues at the heart of this case
involve Hazout‘s conduct in retaining and then diverting $1 million that Silver
Dragon obtained control over in the course of negotiating and coming to
near-closure on the Change of Control Agreements, which included four
agreements that provided for the application of Delaware law, one of which also
stated that ―[a]ny dispute or cause of action arising hereunder shall be litigated in
the State or Federal courts situated in the State of Delaware‖9 and that involved a
contract that would have transferred control of a Delaware corporation from its
current controllers to the Investor Group. The geography of where Hazout, as the
lead operative for Silver Dragon, and Tsang, as the lead investor, were located
when they negotiated the transaction, was not the focus of their shared interaction.
6
See In re USACafes, L.P. Litig., 600 A.2d 43, 53 (Del. Ch. 1991) (―An alternative approach [to
reading the ‗necessary or proper‘ provision of § 3114 out of the statute] might have been to give
the legislature‘s word its ordinary meaning, but to protect against unconstitutional use of the
statute on a case-by-case basis—employing the test of the International Shoe line of cases to do
so.‖).
7
See Ryan v. Gifford, 935 A.2d 258, 269 n.24 (Del. Ch. 2007) (agreeing with the approach
suggested by Chancellor Allen in In re USACafes).
8
See Int’l Shoe Co. v. Wash., Office of Unemployment Comp. & Placement, 326 U.S. 310
(1945); see also Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985); World-Wide Volkswagen
Corp. v. Woodson, 444 U.S. 286 (1980); McGee v. Int’l Life Ins. Co., 355 U.S. 220 (1957).
9
App. to Answering Br. at 47 (Line of Credit Loan Agreement at 7 (Section 9 (Governing
Law))).
5
Rather, the key expectancies for all concerned were focused on Delaware, both as
reflected in the precise terms of the Agreements they were negotiating, and the
main focus of the Loan and Board Replacement Agreement, under which control
over the governance of a Delaware corporation would pass in return for a major
capital infusion. Because of these facts and the reality that all of Hazout‘s actions
relevant to the suit could not have been accomplished without the power of his
offices in a Delaware corporation, there is no due process problem in exercising
personal jurisdiction over Hazout.
Furthermore, we also recognize that in crafting § 3114, the General
Assembly included a safeguard against overreaching, because a nonresident officer
and director can only be served in a case in which the corporation itself is a party,
and in which the officer and director is a necessary or proper party to that suit. By
that means, the statute requires that there be a close nexus between the claims
against the corporation and those against the officer and director, and that the
claims against the officer and director involve conduct taken in his official
corporate capacity. In other words, this safeguard ensures that the implied consent
mechanism of § 3114 only applies when a director or officer faces claims that arise
out of his exercise of his corporate powers.
Finally, we note that the ability of a defendant to move for dismissal on
forum non conveniens grounds provides an additional tool to ensure that officers
6
and directors are not subjected to suit in Delaware in a way that is unduly
burdensome. Our precedent makes clear that even Delaware corporations can
avoid facing suit in Delaware, where the connection between the claims at issue
and Delaware are attenuated and the defendant corporation faces an undue
burden.10 That avenue for relief is also open to nonresident officers and directors.
Accordingly, we affirm the Superior Court‘s judgment denying Hazout‘s
motion to dismiss claims against him for lack of personal jurisdiction.
II. THE BUSINESS DEALINGS THAT FRAME THE PERSONAL
JURISDICTION QUESTION11
As the introduction makes clear, this appeal turns on the interpretation of a
statute, and whether personal jurisdiction can be exercised over Hazout, either
because he: (i) is a ―necessary or proper party‖ to an action against the corporation;
or (ii) violated a statutory or fiduciary duty in his capacity as a director and
officer.12 And as we shall further see, the reason this appeal has been certified
from our Superior Court is because the claims against Hazout, although arising
entirely out of acts he took in his corporate capacity as the President and CEO, and
a director of a Delaware corporation, are commercial in nature and brought by an
arm‘s-length bargaining partner, Tsang. Although Tsang was a stockholder of the
10
See, e.g., Martinez v. E.I. DuPont de Nemours & Co., Inc., 86 A.3d 1102 (Del. 2014).
11
Because of the procedural posture, we principally rely on the version of events set forth in
Tsang‘s complaint and therefore relied upon by the Superior Court in addressing the motion to
dismiss for lack of personal jurisdiction.
12
10 Del. C. § 3114.
7
Delaware corporation, the claims he seeks to press do not involve claims for
breach of fiduciary duty for harm done to the corporation and therefore indirectly
to him as a stockholder. Rather, Tsang plainly alleges that Hazout and Silver
Dragon itself defrauded him, stole his funds, and will not return them.
Because this is a personal jurisdiction case, geography remains germane,
despite its waning relevance in many aspects of commerce. The
defendant-appellant, Hazout, resides in Toronto, Canada. He serves as a director
and as the President, CEO, and Principal Financial and Accounting Officer of
Silver Dragon. For its part, Silver Dragon is a Delaware corporation whose
principal place of business is in Toronto. Silver Dragon is a public mining and
metals company that focuses on the acquisition, exploration, development, and
operation of silver mines. At the time of the negotiations that gave rise to this
dispute, Silver Dragon‘s shares were not traded on a stock exchange or on the pink
sheets.13
Hazout is also the sole owner of one of Silver Dragon‘s creditors and largest
stockholders, Travellers, a private investment bank incorporated in Ontario that
also has its principal place of business in Toronto. Hazout is Travellers‘s President
13
See Silver Dragon Res., Inc., Annual Report (Form 10-K), at 39 (Mar. 31, 2014) [hereinafter
Silver Dragon 2013 Form 10-K] (―Our Common Stock is quoted on the Over-the-Counter Grey
market.‖). As of July 21, 2014, Silver Dragon‘s common stock began trading on OTC Market
Group‘s OTCQB marketplace, which is for companies that are in their development stage. See
Silver Dragon Res., Inc., Annual Report (Form 10-K), at 23 (Mar. 27, 2015). We take judicial
notice of Silver Dragon‘s public filings.
8
and CEO. Silver Dragon and Travellers were also named as defendants in this
action, but are not parties to this appeal. There are different reasons for that.
Because Silver Dragon is a Delaware corporation, it had no basis to contest
jurisdiction in Delaware. By contrast, Travellers is a Canadian corporation and
Tsang was unable to identify any act in Delaware relevant to the case that would
justify the exercise of personal jurisdiction over Travellers in Delaware under our
state‘s long-arm statute, 10 Del. C. § 3104. For that reason, Travellers‘s motion to
dismiss for lack of personal jurisdiction was granted.
The plaintiff-appellee, Tsang, resides in Hong Kong and specializes in
global investments and financial transactions. The other members of the Investor
Group also reside in Hong Kong.
The unusual last acts that gave rise to this lawsuit arose out of a fairly
common situation in the life cycle of a corporation. It appears that in 2012, Silver
Dragon was having trouble meeting its financial obligations and moving forward
with its business plans because of a lack of cash.14 Negotiations therefore ensued
between Hazout, on behalf of Silver Dragon and its board, and Tsang and the
Investor Group, over the terms under which the Investor Group would make a
substantial capital infusion into Silver Dragon. Although Silver Dragon is
14
See Silver Dragon Res., Inc., Annual Report (Form 10-K), at 47 (Apr. 26, 2013) (―Our current
level of cash is significantly insufficient to satisfy our current debt obligations and to fund our
business as currently planned for 12 months. We will need significant additional funds to satisfy
such obligations and to continue operations, which we may not be able to obtain.‖).
9
putatively a public corporation, it had a less-than-Godzilla enterprise value more
characteristic of a very early stage business.15 The parties therefore were
discussing an infusion of millions of dollars, but deemed that level of contribution
so material that the infusion would result in a transfer of corporate control to the
Investor Group.
By late December 2013, the parties memorialized the terms of the Change of
Control Agreements in which the Investor Group would lend Silver Dragon
$3,417,265, and receive a security interest in all of Silver Dragon‘s assets. This
recapitalization would allow Silver Dragon to pay its existing creditors and move
forward with its business plans. But, in exchange for this infusion, the Investor
Group would secure control over Silver Dragon‘s board, because four of the five
members of Silver Dragon‘s board, including Hazout, were required to resign, and
be replaced by designees chosen by the Investor Group. Hazout was also required
to give up his position as an officer of Silver Dragon. The terms of the Change of
Control Agreements were negotiated and finalized. These Agreements included:
(a) the Loan and Board Replacement Agreement; (b) a Line of Credit Loan
Agreement; (c) a Secured Line of Credit Note; (d) an Equity Interest Pledge and
All Asset Security and Agreement; and (e) a Warrant for the Purchase of Shares of
Common Stock of Silver Dragon. At least four of these five contracts contained a
15
See Silver Dragon 2013 Form 10-K, at F-3.
10
Delaware choice-of-law provision.16 The Line of Credit Loan Agreement further
provided that any disputes arising under the agreement would be litigated in
Delaware courts.17 By year-end 2013, the Change of Control Agreements‘ terms
were finalized and ready for execution.
Consistent with that, Hazout allegedly represented to Tsang and the Investor
Group that the then-current directors would all sign the Loan and Board
Replacement Agreement and resign on New Year‘s Eve, and that the deal would
close that day. Violating a fundamental playground rule of Yankee commerce,
Tsang did not wait until all of the signed Agreements were in hand to send the
16
App. to Answering Br. at 31 (Loan and Board Replacement Agreement at 9 (Section 5.6)):
Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
Id. at 47 (Line of Credit Loan Agreement at 7 (Section 9)):
Governing Law. The validity, interpretation and performance of this Agreement
shall be governed and construed in accordance with the laws of the State of
Delaware without regard to any conflict of law provisions or rule that would
cause the application of the laws of any jurisdiction other than the State of
Delaware.
Id. at 52 (Form of Secured Line of Credit Note at 3):
This Credit Note is executed as a sealed instrument and shall be governed by and
construed in accordance with the internal laws of the State of Delaware applicable
to contracts to be performed wholly within such State.
Id. at 62 (Equity Interest Pledge and All Asset Security and Agreement at 8 (Section 7(g))):
Choice of Law. This Pledge Agreement shall be governed by and construed and
enforced in accordance with the laws of the state of Delaware, except to the extent
that the validity or perfection of the security interests hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the state of Delaware.
The Warrant for the Purchase of Shares of Common Stock of Silver Dragon was not provided in
the record.
17
See id. at 47 (Line of Credit Loan Agreement at 7 (Section 9)) (―Governing Law. . . . Any
dispute or cause of action arising hereunder shall be litigated in the State or Federal courts
situated in the State of Delaware.‖).
11
money. Instead, in alleged reliance on Hazout‘s assurances that all the necessary
Silver Dragon signatures were forthcoming, Tsang caused the first installment of
$1,014,140 under the Agreements to be wired to Silver Dragon on December 30,
2013.
The next day, Hazout forwarded to the Investor Group an email chain among
Silver Dragon‘s board members, which indicated that the company had ―received
the first tranche of funds‖ and that it had ―signed the attached Line of Credit
Agreement, Line of Credit Note, and Equity Pledge.‖18 The written
correspondence further provided that Silver Dragon ―has also received approval
from [directors] Glen MacMullin, Charles McAlpine and Marc Hazout‖ and that
―[u]pon approval from Manuel Chan today and his funds advanced the transaction
will close and all resignations will take effect as of this day December 31, 2013.‖19
Later that day, Silver Dragon‘s attorney informed the Investor Group‘s
counsel that the company was still awaiting director Chan‘s signature. At the same
time, Silver Dragon‘s attorney sent over Hazout‘s signatures to all of the
Agreements on behalf of Silver Dragon, and Hazout‘s signatures on behalf of
Travellers and another associated entity of Silver Dragon of which he is the
President. Silver Dragon‘s attorney also sent over signatures to the Loan and
18
App. to Opening Br. at 15 (Compl. ¶ 28) (internal quotation marks omitted).
19
Id. (Compl. ¶ 29).
12
Board Replacement Agreement from three of the company‘s directors, including
Hazout.
But then things went pear-shaped. Hazout and Silver Dragon told the
Investor Group that Chan would not sign. But Hazout and Silver Dragon did not
send back the Investor Group‘s money. Rather, on April Fools‘ Day 2014, they
told Tsang that Silver Dragon had already spent a quarter of the million dollars to
pay off debts, and they weren‘t joking.
Three days later, the defendants further informed Tsang that Hazout and
Silver Dragon transferred approximately $750,000 of the payment to Travellers.
Between April and August of 2014, Tsang repeatedly asked Silver Dragon to give
back the money, but Silver Dragon, Hazout, and his affiliate refused to return it.
To get the Investor Group‘s money back, Tsang filed a complaint in the
Court of Chancery against Silver Dragon, Travellers, and Hazout. For purposes of
understanding the current appeal, it is important to understand what claims Tsang
made and did not make. In his complaint, Tsang alleged that Hazout and Silver
Dragon (i) committed fraud against him and the Investor Group; (ii) were unjustly
enriched by the Investor Group‘s $1,014,140 payment; and (iii) fraudulently
transferred that payment to Hazout‘s affiliate in violation of the Delaware Uniform
Fraudulent Transfer Act.
13
Notably absent from the complaint was any claim against Hazout for breach
of fiduciary duty. The reason for that is rather plain: Tsang was not suing to
protect Silver Dragon, or his stockholder investment in it. Tsang was suing
Hazout, Silver Dragon, and Travellers to get the Investor Group‘s money back.
Although it is conceivable that another Silver Dragon investor could sue Hazout
over this alleged course of action,20 Tsang did not do so, and his and the Investor
Group‘s interests were adverse to Silver Dragon and make them unsuitable
derivative plaintiffs. Consistent with Tsang‘s failure to allege a breach of fiduciary
20
As the Superior Court noted, if the course of conduct Hazout engaged in transpired as Tsang
alleges, his behavior would have serious fiduciary implications. See Tsang, 2015 WL 3551871,
at *4. If, for example, he exposed Silver Dragon to liability to Tsang in order to facilitate
improper payments to his own affiliates, such as Travellers, a claim by Silver Dragon to require
Hazout to make it whole for any liability it incurred could be stated. Likewise, under Delaware
law, a corporation cannot seek profit by using illegal means, and if Hazout knowingly did so and
exposed Silver Dragon to liability, that would form a basis for a potential fiduciary duty claim by
a derivative plaintiff whose interests were aligned with that of Silver Dragon. See, e.g., In re
Walt Disney Co. Derivative Litig., 906 A.2d 27, 67 (Del. 2006) (―‗A failure to act in good faith
may be shown, for instance, where the fiduciary intentionally acts with a purpose other than that
of advancing the best interests of the corporation, [or] where the fiduciary acts with the intent to
violate applicable positive law . . . .‘‖) (internal citation omitted); In re Am. Int’l Grp., Inc.,
Consol. Derivative Litig., 976 A.2d 872, 889 (Del. Ch. 2009), aff’d sub nom. Teachers’ Ret. Sys.
of La. v. Gen. Re Corp., 11 A.3d 228, 2010 WL 5394004 (Del. 2010) (Table) (―[I]t is generally
accepted that a derivative suit may be asserted by an innocent stockholder on behalf of a
corporation against corporate fiduciaries who knowingly caused the corporation to commit
illegal acts and, as a result, caused the corporation to suffer harm.‖); Desimone v. Barrows, 924
A.2d 908, 934–35 (Del. Ch. 2007) (―Delaware corporate law has long been clear on [the]
notion [] that it is utterly inconsistent with one‘s duty of fidelity to the corporation to consciously
cause the corporation to act unlawfully. The knowing use of illegal means to pursue profit for
the corporation is director misconduct.‖); see also 8 Del. C. § 102(b)(7)(ii) (providing that an
exculpatory charter provision cannot limit a director‘s personal monetary liability ―for acts or
omissions not in good faith or which involve intentional misconduct or a knowing violation of
law‖).
14
duty claim, Tsang transferred his case to the Superior Court because it otherwise
faced dismissal for lack of equity jurisdiction.
On January 7, 2015, Hazout and Travellers moved to dismiss the claims
against them in the Superior Court for lack of personal jurisdiction. The Superior
Court issued its opinion on June 3, 2015. In that opinion, the trial court granted
Travellers‘s motion but denied Hazout‘s motion based on its finding that although
Hazout was not subject to its jurisdiction under Delaware‘s long-arm statute,21
jurisdiction over Hazout was proper under the officer consent statute.22
In its analysis, the Superior Court acknowledged the effect Hana Ranch had
of limiting the application of § 3114 to suits that involve claims of breach of a
corporate fiduciary‘s duty.23 Being mindful of that constraint, the Superior Court
strained to find jurisdiction over Hazout under the Internal Affairs Claim
Provision.24 Even though the trial court acknowledged that Tsang did not allege
that Hazout breached a duty that he owed in his official capacity, it determined that
―the alleged misconduct would be adverse to Hazout‘s fiduciary duty to Silver
21
See 10 Del. C. § 3104.
22
Tsang, 2015 WL 3551871, at *2–3.
23
Id. at *3 (quoting In re USACafes, 600 A.2d at 52 (citing Pestolite, Inc. v. Cordura Corp., 449
A.2d 269 (Del. Super. 1982); Hana Ranch, 424 A.2d 28)) (―It is true that earlier cases of
Delaware courts have implied that it ‗would be unconstitutional for Delaware to attempt to
compel the appearance of directors here to litigate any claims other than claims for breach of
their fiduciary duty to the corporation . . . .‘‖).
24
Id. at *4.
15
Dragon.‖25 The Superior Court also observed that ―Hazout acted in his corporate
capacity as Silver Dragon‘s Director, President, CEO and Principal Financial and
Accounting Officer when he transferred the money to his company, Travellers.‖26
On those grounds, the trial court determined that the Internal Affairs Claim
Provision could be used to exercise jurisdiction over Hazout.27
In addressing whether its exercise of jurisdiction over Hazout comported
with his rights to due process, the Superior Court adhered to established
constitutional principles and determined that jurisdiction was constitutionally
proper based on Hazout‘s contacts with Delaware. In doing so, the Superior Court
noted that ―Hazout accepted certain duties under Delaware law‖28 when he
accepted a position as Silver Dragon‘s fiduciary and that ―this State has a public
interest in enforcing these duties.‖29 It also observed that Tsang‘s claims arise out
of alleged misconduct by Hazout in his capacity as a fiduciary of Silver Dragon,
and concluded that it ―is in keeping with traditional notions of fairness and
substantial justice‖30 to require him to defend claims that arose out of his
―management of the corporation.‖31
25
Id.
26
Id.
27
Id.
28
Id.
29
Id.
30
Id. (citing Shaffer v. Heitner, 433 U.S. 186, 222–24 (1977) (Brennan, J., concurring in part and
dissenting in part)).
31
Id.
16
After issuing its decision, the Superior Court certified Hazout‘s interlocutory
appeal to this Court, which we accepted.
III. ANALYSIS
We review the Superior Court‘s denial of Hazout‘s motion to dismiss the
claims against him for lack of personal jurisdiction de novo.32 We also conduct a
de novo review of the Superior Court‘s interpretation of § 3114.33
At one level, this case is a rather simple one. As we shall discuss, this is
plainly a suit in which Hazout is a ―necessary or proper party‖ to a ―civil
action[] . . . brought in this State . . . against [the] corporation‖ of which he is an
officer and director.34 Not only that, we believe that given that Hazout was on
notice that he had consented to suit in Delaware for certain classes of suits by
virtue of his service as an officer and director of a Delaware corporation, the reality
that the dealings that gave rise to this suit were focused on the change of control of
that Delaware corporation, and that the parties to those dealings were clearly using
Delaware law as their common language of commerce, Hazout has no basis to
complain that his due process rights would be offended by Delaware‘s exercise of
personal jurisdiction over him.
32
See AeroGlobal Capital Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 437 (Del. 2005).
33
Del. Bay Surgical Servs., P.C. v. Swier, 900 A.2d 646, 652 (Del. 2006) (―Questions of
statutory interpretation are questions of law reviewed de novo.‖).
34
10 Del. C. § 3114.
17
But, there is another level on which this suit is complex. In Hana Ranch,
more than a generation ago, Chancellor Marvel essentially read the Necessary or
Proper Party Provision out of the consent statute.35 The former Chancellor did so
on the ground that if he gave effect to that provision, it could be susceptible to an
overbroad reach that could endanger the constitutionality of § 3114.36 This fear
was an understandable one, given the importance of § 3114 and its inspiration by
Shaffer v. Heitner, a case that struck down the previous method that had been used
to secure personal jurisdiction in Delaware over nonresident fiduciaries of
Delaware corporations.37
On this appeal, Hazout‘s primary argument is that Hana Ranch is a sound
interpretation of § 3114 and that it should be adopted by this Court. Although
Hazout acknowledges that this Court has never had occasion to address whether
Hana Ranch was correct, he notes that the Court of Chancery has adhered to it for
years, despite the reality that two Chancellors have noted their view that it was not
correctly decided.38 In stressing Hana Ranch, Hazout acts consistently with his
arguments below, where the shadow of that decision loomed over the Superior
Court. The Superior Court rationalized its decision below as implicating the
35
See Hana Ranch, 424 A.2d at 30–31.
36
See id.; see also DONALD J. WOLFE & MICHAEL A. PITTENGER, CORPORATE & COMMERCIAL
PRACTICE IN THE COURT OF CHANCERY § 3.04[a][2], at 3-55 (2013) (citing Hana Ranch, 424
A.2d at 30–31) (noting that ―[t]he Chancellor [was] apparently fearful of the potential for
unconstitutional application of the statute if read so broadly‖).
37
See 433 U.S. at 216–17.
38
See supra notes 6–7.
18
Internal Affairs Claim Provision on the grounds that although Hazout was not
being accused in this suit of breaching duties he owed to Silver Dragon or its
investors as a fiduciary, his conduct was taken in his official capacity and that
allegations of the complaint could form the basis for a claim for breach of fiduciary
duty by a disinterested Silver Dragon stockholder.
Hazout also emphasizes that Hana Ranch was preceded by this Court‘s
decision in Armstrong v. Pomerance, which says: ―[Section] 3114 authorizes
jurisdiction only in actions which are inextricably bound up in Delaware law and
where Delaware has a strong interest in providing a forum for redress of injuries
inflicted upon or by a Delaware domiciliary, i.e., the Delaware corporation.‖39 He
argues that this language—which was dictum because the case dealt with a
garden-variety fiduciary duty claim that is grist for the mill of the Internal Affairs
Claim Provision—somehow read the Necessary or Proper Party Provision out of
the statute, at least as to claims not formally governed by Delaware law.
In addressing Hazout‘s arguments, Tsang counters that Hana Ranch is an
erroneous interpretation of § 3114, which this Court has never had occasion to
address. Pointing to the plain language of § 3114, Tsang argues that Hana Ranch
involved a judicial determination to excise a plain provision of a carefully crafted
statute, a determination that goes beyond the proper judicial role. Not only that,
39
423 A.2d 174, 176 n.5 (Del. 1980).
19
Tsang contends that it is unnecessary to strike any provision of § 3114 to preserve
its constitutionality because § 3114 alone cannot serve as an ultimate basis for the
exercise of personal jurisdiction. Rather, in each case where § 3114 is used, it
must also be consistent with principles of due process, as measured by the
minimum contacts test of the International Shoe line of cases, to exercise personal
jurisdiction over the nonresident defendant in Delaware. Alternatively, Tsang
strains to contend that this is a suit that implicates the Internal Affairs Claim
Provision, if we conclude that we should adopt the approach taken by Hana Ranch.
We approach the parties‘ contending arguments by focusing first on their
primary clash, which is over whether the Necessary or Proper Party Provision is
still viable. Settled principles of statutory determination are critical to our
resolution of that dust-up and, to our mind, compel the conclusion we reach.
In interpreting any statute, we ―ascertain and give effect to the intent of the
legislature.‖40 Where the statute is unambiguous, we must adhere to the plain
meaning of the statutory language.41 Of special relevance to this case are the
principles that guide courts in addressing statutes that may be susceptible to
40
Swier, 900 A.2d at 652 (quoting Coastal Barge Corp. v. Coastal Zone Indus. Control Bd., 492
A.2d 1242, 1246 (Del. 1985)) (internal quotation marks omitted); see also Eliason v. Englehart,
733 A.2d 944, 946 (Del. 1999) (citing Street v. State, 669 A.2d 9, 13 (Del. 1995)) (―The goal of
statutory construction is to determine and give effect to legislative intent.‖).
41
Eliason, 733 A.2d at 946 (―If a statute is unambiguous, there is no need for judicial
interpretation, and the plain meaning of the statutory language controls.‖) (internal citation
omitted); Coastal Barge Corp., 492 A.2d at 1245–46 (―If the statute as a whole is unambiguous,
there is no reasonable doubt as to the meaning of the words used and the Court‘s role is then
limited to an application of the literal meaning of the words.‖).
20
unconstitutional application. In those cases, courts should avoid interpretations
that would render a statute unconstitutional, if that can be done without impairing
the legislature‘s purpose.42 But, courts are not authorized to strike provisions of a
statute simply because that will make it easier for the Judiciary to apply the statute
in the future without challenges to its constitutionality, as applied in particular
cases.43 As-applied challenges are well-understood, and striking a provision by
42
See Commodity Futures Trading Comm’n v. Schor, 478 U.S. 833, 841 (1986) (quoting
Aptheker v. Sec’y of State, 378 U.S. 500, 515 (1964)) (noting that although a court ―will often
strain to construe legislation so as to save it against constitutional attack, it must not and will not
carry this to the point of perverting the purpose of a statute . . . or judicially rewriting it‖)
(internal quotation marks omitted); United States v. Locke, 471 U.S. 84, 96 (1985) (quoting
Moore Ice Cream Co. v. Rose, 289 U.S. 373, 379 (1933)) (―We cannot press statutory
construction ‗to the point of disingenuous evasion‘ even to avoid a constitutional question.‖);
Wash. Mkt. Co. v. Hoffman, 101 U.S. 112, 115–16 (1879) (―We are not at liberty to construe any
statute so as to deny effect to any part of its language. It is a cardinal rule of statutory
construction that significance and effect shall, if possible, be accorded to every word. . . . ‗[A]
statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence,
or word shall be superfluous, void, or insignificant.‘ This rule has been repeated innumerable
times.‖); Richardson v. Wile, 535 A.2d 1346, 1350 (Del. 1988) (citing Atlantis I Condo. Ass’n v.
Bryson, 403 A.2d 711 (Del. 1979)) (―[W]here a possible infringement of a constitutional
guarantee exists, the interpreting court should strive to construe the legislative intent so as to
avoid unnecessary constitutional infirmities.‖); Sturgill v. M & M, Inc., 329 A.2d 360, 362 (Del.
1974) (―Our duty is to read statutory language so as to avoid constitutional questionability and
patent absurdity and to give the language a reasonable and suitable meaning.‖) (internal citation
omitted); State v. Baker, 679 A.2d 1002, 1007 (Del. Super. 1996) (citing Snell v. Eng’d Sys. &
Designs, Inc., 669 A.2d 13, 20 (Del. 1995)) (―If possible to do so, statutes must be construed to
achieve a common sense result, a result which is in harmony with constitutional principles, and
to avoid a construction which would lead to unreasonable or absurd results.‖); see also 82 C.J.S.
Statutes § 395 (2009) (internal citations omitted) (―The primary duty of a court in interpreting a
statute is to ascertain and give effect to the intention and purpose of the legislature. The
fundamental rule of statutory construction to which all other rules are subordinate is that the
court must ascertain and implement the legislative intent, as expressed in the statute, unless it is
in conflict with constitutional provisions.‖).
43
See, e.g., Wash. State Grange v. Wash. State Republican Party, 552 U.S. 442, 449–50 (2008)
(―In determining whether a law is facially invalid, we must be careful not to go beyond the
statute‘s facial requirements and speculate about ‗hypothetical‘ or ‗imaginary‘ cases.‖) (internal
citation omitted); United States v. Raines, 362 U.S. 17, 22 (1960) (―The delicate power of
21
judicial fiat is something that should result from a facial challenge to the validity of
a statute. Consistent with this principle, it is also understood that blanket judicial
invalidation of a statute‘s words should not ensue if the statute can be applied
constitutionally in a wide class of cases, but might operate overbroadly in some
more limited class of cases.44
These established principles of jurisprudence lead us to conclude that we
cannot embrace the approach taken by Hana Ranch. We recognize the
high-minded motivation that impelled that ruling, but we cannot square it with
pronouncing [a legislative act] unconstitutional is not to be exercised with reference to
hypothetical cases thus imagined. . . . [A] limiting construction could be given to the statute by
the court responsible for its construction if an application of doubtful constitutionality were in
fact concretely presented. We might add that application of this rule frees the Court not only
from unnecessary pronouncement on constitutional issues, but also from premature
interpretations of statutes in areas where their constitutional application might be cloudy.‖); see
also Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934, 948–49 (Del. Ch. 2013)
(―The plaintiffs‘ burden on this motion [for judgment on the pleadings] challenging the facial
statutory and contractual validity of the bylaws is a difficult one: they must show that the bylaws
cannot operate lawfully or equitably under any circumstances. . . . The plaintiffs voluntarily
assumed this burden by making a facial validity challenge, and cannot satisfy it by pointing to
some future hypothetical application of the bylaws that might be impermissible. The answer to
the possibility that a statutorily and contractually valid bylaw may operate inequitably in a
particular scenario is for the party facing a concrete situation to challenge the case-specific
application of the bylaw . . . .‖) (internal citations omitted) (emphasis in original); 16 C.J.S.
Constitutional Law § 163 (2015), Westlaw (updated December 2015) (―In an as-applied
challenge to the constitutionality of a law, a court assesses the merits of the challenge by
considering the facts of the particular case, not hypothetical facts in other situations; under such a
challenge, the challenger must show that his or her constitutional rights were actually
violated. . . . On a facial challenge to the constitutionality of a law, the court must be careful not
to go beyond the statute‘s facial requirements and speculate about hypothetical or imaginary
cases.‖).
44
See, e.g., United States v. Salerno, 481 U.S. 739, 745 (1987) (―The fact that [an act] might
operate unconstitutionally under some conceivable set of circumstances is insufficient to render
it wholly invalid, since we have not recognized an ‗overbreadth‘ doctrine outside the limited
context of the First Amendment.‖) (internal citation omitted); Parker v. Levy, 417 U.S. 733, 760
(1974) (―This Court has . . . repeatedly expressed its reluctance to strike down a statute on its
face where there were a substantial number of situations to which it might be validly applied.‖).
22
what we understand to be our duty in giving effect to our General Assembly‘s
enactments. When confronting Hana Ranch as precedent in In re USACafes, L.P.
Litigation, Chancellor Allen recognized the problematic nature of Hana Ranch‘s
approach.45 In that decision, Chancellor Allen noted that the possible
unconstitutional application of the Necessary or Proper Party Provision could be
dealt with by the requirement to ensure that any exercise of personal jurisdiction
under a Delaware service of process statute—be it § 3114 or the long-arm statute—
be consistent with constitutional principles of due process.46 Feeling bound as a
trial judge to adhere to the precedent of his own court,47 Chancellor Allen did not
depart from Hana Ranch, and instead concluded that jurisdiction was proper under
the Internal Affairs Claim Provision because the defendant directors violated the
duty of loyalty that they owed to the partnership and its limited partners in their
capacity as corporate fiduciaries.48 In a later case, Chancellor Chandler also
adhered to Hana Ranch,49 but signaled his agreement with Chancellor Allen that
the better approach to interpretation was to give effect to the Necessary or Proper
45
See 600 A.2d at 53.
46
See supra note 6.
47
See In re USACafes, 600 A.2d at 53 (noting that ―[t]he doctrine of stare decisis‖ removed the
option of hewing to the plain language of the Necessary and Proper Party Provision and applying
the minimum contacts analysis to guard against unconstitutional application of that provision).
48
See id.
49
Gifford, 935 A.2d at 269 (―I am duty bound to follow the law as it is currently
interpreted . . . .‖).
23
Party Provision, and to use the minimum contacts test to police any overbreadth.50
Candor requires us to acknowledge that Hazout is correct in pointing out that the
Court of Chancery has adhered to Hana Ranch,51 although Hazout is unable to
identify a case when the Court of Chancery was actually faced with the precise
argument that Tsang now makes and where resolution of the jurisdictional question
turned on whether the Necessary or Proper Party Provision was still viable.
As important, Hazout admits that this Court has never been presented with
this question before. In our prior decisions involving § 3114, we assumed that the
General Assembly intended there to be two categories of cases to which directors
and officers had consented to service.52 We did that for the obvious reason that the
50
See id. at 269 n.24.
51
See, e.g., Corp. Prop. Assocs. 14 Inc. v. CHR Holding Corp., 2008 WL 963048, at *10 (Del.
Ch. Apr. 10, 2008) (internal citations omitted):
Section 3114, despite its broad language, has been interpreted over the last
quarter-century to be limited to granting personal jurisdiction only for claims
against directors in their capacity as directors. Moreover, case law has interpreted
§ 3114 as applying only in suits brought by a stockholder directly or by or on
behalf of the corporation itself involving violations of the Delaware General
Corporation Law (the ―DGCL‖), the corporate charter and bylaws, and breaches
of the fiduciary duties owed to the corporation and its stockholders (i.e.,
―Corporate Claims‖). Those interpretations of the director consent subsection of
§ 3114 also apply to the officer consent subsection of § 3114.
But, the argument in Corporate Property Associates was not based on the Necessary or Proper
Party Provision but rather on the argument that ―if a complaint contained a plausible, but still
dismissable, Corporate Claim against a director served under § 3114, other claims related to the
facts giving rise to the unsuccessful Corporate Claim, if viable, could be prosecuted against the
director in this court.‖ Id. (internal citation omitted).
52
See, e.g., Istituto Bancario Italiano SpA v. Hunter Eng’g Co., 449 A.2d 210, 227–28 (Del.
1982) (―Service on a director pursuant to [§ 3114] is only contemplated in actions ‗in which such
director, trustee or member is a necessary or proper party, or in any action or proceeding against
such director, trustee or member for violation of his duty in such capacity, whether or not he
continues to serve as such director, trustee or member at the time suit is commenced.‘‖) (internal
24
Necessary or Proper Party Provision and the Internal Affairs Claim Provision are
separated by the word ―or‖ and that there is no other reasonable reading that can be
given to the statute.53 In none of our cases did we assume that the Necessary or
Proper Party Provision was invalid.
In noting that we have never decided the question before us, we do not
ignore Hazout‘s citation to dictum in Armstrong. But that dictum is just that, and
its focus is on precisely the kind of factors that properly are taken into account in
the application of the minimum contacts test. In this case, as we discuss, the
conduct underlying all the claims was in fact Delaware-focused and involved
parties using Delaware law as their language of commerce in negotiating the
change of control of a Delaware corporation. We need not make a choice-of-law
analysis at this juncture to conclude that this is a case in which Delaware has a
legitimate interest in providing a forum for efficient redress of claims against a
Delaware corporation and the fiduciary whose actions are at the heart of those
claims.
Additionally, we are unable to find any proper basis now for determining
that the Necessary or Proper Party Provision is facially invalid, as Hazout would
citations omitted) (emphasis added); Armstrong, 423 A.2d at 176 n.5 (―We emphasize here that
[§] 3114 authorizes service only in actions where directors, trustees or members of the governing
body of a Delaware corporation are necessary or proper parties or where the cause of action is
grounded on such individuals‘ breach of the fiduciary duties owed to the corporation and its
owners.‖) (emphasis added).
53
See 10 Del. C. § 3114.
25
have us declare.54 Starting with the language of the Necessary or Proper Party
Provision, we note that the provision contains its own safeguards against
overbreadth. By its plain terms, the Necessary or Proper Party Provision limits the
exercise of jurisdiction over a nonresident director or officer to cases in which the
corporation is a named party, and to which the corporate fiduciary is also a
―necessary or proper party.‖55 Through this means, the General Assembly
therefore required that there be a close nexus between the claims involving the
corporation which made it a party to the suit, and the conduct of the nonresident
fiduciary.
As a result, only claims that involve conduct by the nonresident fiduciary
using his corporate power will make him a necessary or proper party. In choosing
the words ―necessary or proper party,‖ the General Assembly did not invent new
terms. Rather, they used terms that had a lineage in our tradition of law. Courts
have historically identified and included ―necessary‖ parties to a suit on the ground
that those parties have ―rights which must be ascertained and settled before the
rights of the parties to the suit can be determined.‖56 And ―proper‖ parties appear
54
See, e.g., Wash. State Grange, 552 U.S. at 449 (―[A] facial challenge must fail where the
statute has a ‗plainly legitimate sweep.‘‖) (internal citation omitted).
55
10 Del. C. § 3114.
56
67A C.J.S Parties § 3 (internal citations omitted); see also id. (―It is generally held that the
necessary parties to a proceeding, regardless of its nature, that is, whether it is in rem, at law, or
in equity, are those, and those only, who have an interest in the subject matter of the suit and
whose rights may be materially affected or concluded by the judgment, and without whom the
court will not proceed to a final determination of the controversy, even as between parties
26
before a court because they have a separable legal interest in the suit.57 We must
give effect to the terms carefully selected by the General Assembly and presume
that they intended to reflect the established meaning of those terms. 58
Furthermore, by authorizing jurisdiction over corporate fiduciaries who use
their position to commit wrongs on behalf of the corporation in actions where the
corporation is properly before the court, the General Assembly could be thought to
properly before the court.‖) (internal citations omitted); Party, BLACK‘S LAW DICTIONARY
(defining a ―necessary party‖ as ―[a] party who, being closely connected to a lawsuit, should be
included in the case if feasible, but whose absence will not require dismissal of the
proceedings‖).
57
See, e.g., 67A C.J.S Parties § 2 (―A proper party to an action or proceeding is a party who has
an interest in the controversy or subject matter which is separable from the interest of the other
parties before the court so that it will not necessarily be affected by a decree which does
complete justice between the other parties. . . . A proper party is not the same as a necessary or
indispensable party. The term includes those without whom a substantial decree or judgment
may be made but not a decree or judgment which will completely settle all the questions
involved and conclude the rights of all persons who have any interest in the subject matter of the
litigation.‖) (internal citations omitted); 59 AM. JUR. 2d Parties § 8 (2012) (―In every civil case,
there must be a proper party plaintiff and a proper party defendant. A ‗proper party‘ is one
whose interest may be affected by a judgment but whose presence is not essential for the
adjudication of an action. Only those persons who are legally affected are proper parties to a
lawsuit. A party is ‗legally affected‘ by a cause of action, so as to be a proper party to the action,
if the party has a legal interest in rights that are the subject matter of the cause of action. All
those having an interest in the subject matter of the litigation that may be conveniently settled
therein are proper parties.‖) (internal citations omitted); Party, BLACK‘S LAW DICTIONARY
(defining a ―proper party‖ as ―[a] party who may be joined in a case for reasons of judicial
economy but whose presence is not essential to the proceeding‖).
58
See, e.g., Morissette v. United States, 342 U.S. 246, 263 (1952) (―[W]here [the legislature]
borrows terms of art in which are accumulated the legal tradition and meaning of centuries of
practice, it presumably knows and adopts the cluster of ideas that were attached to each
borrowed word in the body of learning from which it was taken and the meaning its use will
convey to the judicial mind unless otherwise instructed. In such case, absence of contrary
direction may be taken as satisfaction with widely accepted definitions, not as a departure from
them.‖); 82 C.J.S. Statutes § 385 (―Courts presume that the legislature understood the meaning of
the words that it used and that it intended to use them. . . . [C]ourts presume that the words in a
statute have been used . . . in their legal sense, if they have a well-settled legal meaning.‖)
(internal citations omitted).
27
have had an interest in conserving litigant and judicial resources by enabling
plaintiffs to seek redress against the corporation and the fiduciary for injuries in
one, rather than multiple forums, for claims arising out of the same facts or
occurrences. And because of the nexus requirement in the Necessary or Proper
Party Provision, the General Assembly could easily have deemed it reasonable for
nonresident fiduciaries to have consented to subjecting themselves to jurisdiction
in the chartering states in cases where their conduct in their official corporate
capacity renders them a necessary or proper party in a case to which the
corporation is also a defendant. Moreover, § 3114 provided explicit notice to
Hazout that, by accepting a position as a director and officer of a Delaware
corporation, he consented to appear in this state to defend claims that fall under
either the Necessary or Proper Party Provision or the Internal Affairs Claim
Provision.59
Most important, although one can conceive of cases where applying the
plain terms of the Necessary or Proper Party Provision might compromise a
59
See, e.g., Armstrong, 423 A.2d at 176 (―[The defendants‘] status as directors and their power
to act in that capacity arise exclusively under the Delaware corporation statutes. The defendants
accepted their directorships with explicit statutory notice, via [§] 3114, that they could be haled
into the Delaware Courts to answer for alleged breaches of the duties imposed on them by the
very laws which empowered them to act in their corporate capacities.‖); HMG/Courtland Props.,
Inc. v. Gray, 729 A.2d 300, 306 (Del. Ch. 1999) (―[Section] 3114 is in the Delaware Code and
provides clear notice to any reasonably informed director that accepting service as a director of a
Delaware corporation brings with it an obligation to defend official capacity suits here. This fact
is the underpinning of § 3114‘s constitutionality.‖).
28
nonresident fiduciary‘s due process rights,60 it is equally easy to conceive of cases,
such as this one, where Delaware‘s exercise of personal jurisdiction under the
Necessary or Proper Party Provision would pose no constitutional difficulty. And,
as Chancellors Allen and Chandler pointed out, the way to police that concern is to
apply the method we do when implementing our state‘s long-arm statute, which is
to give effect to its terms, and to use the minimum contacts analysis required by
International Shoe to ensure that the statute is not used in a situationally
inappropriate manner.61
Nor are principles of personal jurisdiction the only way to address the
burden to nonresident fiduciaries of addressing litigation in our state. As we have
recently pointed out, the doctrine of forum non conveniens remains a viable tool
for even Delaware residents, including corporations, when sued on claims that
have little connection to Delaware, where Delaware law is not at stake, and where
60
For example, if plaintiffs attempted to drag corporate officers and directors into Delaware by
naming them as defendants in a products liability case where the products had been designed and
distributed from a state other than Delaware to diverse consumers, most of whom were in states
other than Delaware, the minimum contacts test would provide substantial protection. It would
be constitutionally questionable, to say the least, for Delaware to exercise personal jurisdiction
when Delaware‘s status as the state of incorporation had no rational connection to the cause of
action, where the conduct is governed by the laws of other states, and where there is no reason
why a corporate fiduciary should expect to be named as a party at all, much less in a suit where
the underlying conduct and claims have no rational connection to Delaware and provide no
rational basis for Delaware to apply its own law. Not only that, the traditional protections of the
corporate shield are unaffected by this decision, and there are serious limits on the ability of
plaintiffs to use veil-piercing to hold corporate fiduciaries or stockholders financially responsible
for actions of the corporation itself.
61
See supra notes 6–8.
29
the burdens of defending the suit in Delaware are substantial and not justified by
any legitimate interest of the plaintiff in suing in Delaware.62
Finally, we also note the value of following regular order in the
interpretation of § 3114. That can be illustrated by the dilemma faced by our
Superior Court in this case. Facing the uncertainty posed by Hana Ranch, the
Superior Court purported to base its recommendation on the Internal Affairs Claim
Provision, but in a case that did not involve any claim against Hazout involving a
breach of a duty he owed to Silver Dragon or its stockholders as a fiduciary.
Rather, the Superior Court posited that Hazout‘s conduct, if as alleged, could
constitute not only a tort against Tsang and the Investor Group, but also a fiduciary
breach against Silver Dragon and its stockholders (if a suit of that kind were
brought by Silver Dragon or one of its disinterested stockholders later). To our
minds, it is counterproductive to embrace Hana Ranch and then create an incentive
to read the Internal Affairs Claim Provision overbroadly. Rather, the historical
view of the Court of Chancery that the Internal Affairs Claim Provision addressed
only claims against nonresident fiduciaries of Delaware corporations for internal
affairs claims involving an argument that they breached statutory or fiduciary
62
See Martinez, 86 A.3d at 1108–11 (affirming the Superior Court‘s dismissal of a foreign
plaintiff‘s complaint based on the doctrine of forum non conveniens because the defendant
corporation faced overwhelming hardship and inconvenience in having to defend a suit that
involved complex and unsettled issues of foreign tort law where the plaintiff was not a Delaware
resident and was not injured in Delaware, and the fact that the defendant corporation was
incorporated in Delaware had no rational connection to the cause of action).
30
duties they owed to the corporation or its stockholders is the correct one dictated
by the language of that provision.63 In this case, Hazout is not being sued for
having breached any duty he owed to Silver Dragon or its stockholders. He is
being sued by Tsang for torts he allegedly committed against Tsang and the
Investor Group in the course of negotiating on behalf of Silver Dragon and by
using his powers at Silver Dragon to divert their funds to his affiliate.
If there is jurisdiction over Hazout under § 3114, it is under the Necessary or
Proper Party Provision. Under the clear terms of that provision, Hazout is subject
to service of process. Although he is not a necessary party to the case against
Silver Dragon because the Superior Court can proceed to a final determination of
the action with Silver Dragon alone,64 Hazout is obviously a proper party because
he has a tangible legal interest in the matter that is separate from Silver Dragon‘s
interest, and because the claims against him arise out of the same facts and
occurrences as the claims against Silver Dragon—alleged wrongs that Hazout
63
It has long been the case, of course, that once a nonresident director or officer is properly
subject to personal jurisdiction in Delaware for a claim for breach of fiduciary duty under the
Internal Affairs Claim Provision, the trial court may also subject that fiduciary to personal
jurisdiction for claims that are ―sufficiently related‖ or ―[not] distantly related‖ to the breach of
fiduciary duty claim. See, e.g., In re USACafes, 600 A.2d at 54 (observing that the court could
exercise personal jurisdiction over ―claims [that] arose from the same acts or transactions as
[breach of fiduciary duty] claims between the same parties over which the court did have
personal and subject matter jurisdiction,‖ including claims that are not ―distantly related to the
alleged breach of fiduciary duty‖); N. Am. Catholic Educ. Programming Found., Inc. v.
Gheewalla, 2006 WL 2588971, at *1 (Del. Ch. Sept. 1, 2006), aff’d, 930 A.2d 92 (Del. 2007)
(explaining that a plaintiff may also succeed in obtaining jurisdiction over ―claims [that] are
adequately alleged to be ‗sufficiently related‘ to a viable fiduciary duty claim‖).
64
See supra note 56.
31
committed in his capacity as the company‘s President and CEO.65 Because that is
so and because we decline to excise the Necessary or Proper Party Provision from
the statute, § 3114 provides a proper statutory basis for the Superior Court to
exercise personal jurisdiction over him.
As we have indicated, that determination is not enough to affirm. Rather,
we must examine whether the exercise of personal jurisdiction over Hazout in this
case is consistent with his constitutional expectations of due process. As we have
noted, in this case, that is not in our view a close question. By becoming a director
and officer of a Delaware corporation, Hazout purposefully availed himself of
certain duties and protections under our law.66 More important, the claims against
Hazout involve his actions in his official capacity of negotiating contracts that
involved the change of control of a Delaware public corporation. By their plain
terms—which Hazout represented as final and which Hazout himself executed—
the Agreements reflected the parties‘ choice to use the law of Delaware as their
common language of commerce, and their understanding that litigation over later
65
See supra note 57.
66
See Sternberg v. O’Neil, 550 A.2d 1105, 1120 (Del. 1988) (citing Burger King, 471 U.S. at
475–76)) (―[T]he minimum contacts which are necessary to establish jurisdiction must relate to
some act by which the defendant has deliberately created continuing obligations between
himself [] and the forum. Consequently, his [] activities are shielded by the benefits and
protection of the forum‘s laws and it is not unreasonable to require him [] to submit to the
forum‘s jurisdiction.‖); Armstrong, 423 A.2d at 176 (―[T]he defendants, by purposefully availing
themselves of the privilege of becoming directors of a Delaware corporation, have thereby
accepted significant benefits and protections under the laws of this State.‖).
32
contractual differences could ensue in Delaware.67 As to the claims in this case,
therefore, there is a strong argument that all sides to the matter understood that as
to the course of their respective actions relevant to this case, the jurisdiction that
was their focus was the home of the fried oyster sandwich, and not the home of
poutine or dim sum. That Tsang happened to be in Hong Kong and Hazout in
Canada was a matter of geography having little bearing on what was a cross-border
transaction involving a change of control of a Delaware corporation and involving
the negotiations of agreements using the language of Delaware. 68 For these
67
Burger King, 471 U.S. at 482 (observing that ―[a]lthough [a choice-of-law] provision standing
alone would be insufficient to confer jurisdiction,‖ when combined with other meaningful
contacts, ―it reinforce[s] deliberate affiliation with the forum State and the reasonable
foreseeability of possible litigation there‖); World-Wide Volkswagen, 444 U.S. at 297 (―[T]he
foreseeability that is critical to due process analysis is . . . that the defendant‘s conduct and
connection with the forum State are such that he should reasonably anticipate being haled into
court there.‖) (internal citations omitted); Canadian Commercial Workers Indus. Pension Plan v.
Alden, 2006 WL 456786, at *12 (Del. Ch. Feb. 22, 2006) (―‗The touchstone of this minimum
contacts analysis is foreseeability—whether the defendant‘s conduct and connection with the
forum State are such that he should reasonably anticipate being haled into court there.‘‖)
(internal citation omitted).
68
In this regard, Hazout assumes with confidence that the tort claims at issue in this case are
necessarily governed by either the law of Canada or the law of Hong Kong. We do not believe
that the Superior Court has ruled on that issue nor do we believe that Tsang has conceded that
argument. Under our law, the Superior Court will be bound to apply the most significant
relationship test of the Restatement (Second) of Conflict of Laws. Given the realities of the
subject matter of the parties‘ discussions over the Change of Control Agreements and their
choice of Delaware law as their common language of commerce, there is a non-trivial argument
that Delaware has a greater interest in the application of its law to this case than either Canada or
Hong Kong. See RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 6(2)(c) (1971) (providing
that ―the relevant policies of other interested states and the relative interests of those states in the
determination of the particular issue‖ are relevant to the choice-of-law analysis); id. § 145(1)
(providing that certain contacts such as ―(a) the place where the injury occurred, (b) the place
where the conduct causing the injury occurred, (c) the domicil, residence, nationality, place of
incorporation and place of business of the parties, and (d) the place where the relationship, if
any, between the parties is centered . . . are to be evaluated according to their relative importance
with respect to the particular issue.‖); id. § 6(2) cmt. f (―The forum should [] appraise the relative
33
reasons, Hazout cannot fairly say he did not foresee that he would be subject to
litigation in Delaware over his conduct in connection with negotiating the Change
of Control Agreements. Accordingly, requiring Hazout to defend Tsang‘s lawsuit
in this state does not ―offend traditional notions of fair play and substantial
justice.‖69
IV. CONCLUSION
Therefore, because § 3114 provides a statutory basis for personal jurisdiction
over Hazout in Delaware, and because exercising that jurisdiction is consistent
with Hazout‘s constitutional rights, we affirm the Superior Court‘s denial of
Hazout‘s motion to dismiss.
interests of the states involved in the determination of the particular issue.‖); § 145 cmt. f (noting
that ―the place of injury is less significant in the case of fraudulent misrepresentations‖); ABRY
Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1049–50 (Del. Ch. 2006) (noting the
diminished importance of a sophisticated buyer‘s physical location in determining choice of law
as to a claim of intentional misrepresentations made by the seller in a negotiated agreement
between the parties, ―particularly when those relationships involve interstate commerce and do
not center in any material manner on the geography of any particular party‘s operational
headquarters‖); see also id. at 1048 (―Parties operating in interstate and international commerce
seek, by a choice of law provision, certainty as to the rules that govern their relationship. To
hold that their choice is only effective as to the determination of contract claims, but not as to
tort claims seeking to rescind the contract on grounds of misrepresentation, would create
uncertainty of precisely the kind that the parties‘ choice of law provision sought to avoid. . . . To
layer the tort law of one state on the contract law of another state compounds that complexity
and makes the outcome of disputes less predictable, the type of eventuality that a sound
commercial law should not seek to promote.‖). But that matter is not before us, and is one to be
determined in the first instance by the Superior Court upon briefing by the parties.
69
Int’l Shoe, 325 U.S. at 316 (citing Milliken v. Meyer, 311 U.S. 457, 463 (1940)).
34