BAM International, LLC v. The MSBA Group Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
BAM INTERNATIONAL, LLC, )
)
Plaintiff, )
)
v. ) C.A. No. 2021-0181-SG
)
THE MSBA GROUP INC., )
MAMMOTH RX, INC., RYAN )
HILTON, AMIR ASVADI, and )
MILES STEPHEN BOWN, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: September 15, 2021
Date Decided: December 14, 2021
Karen E. Keller, Jeffrey T. Castellano, and Nathan R. Hoeschen, of SHAW KELLER
LLP, Wilmington, Delaware, Attorneys for Plaintiff BAM International, LLC.
Kevin S. Mann, of CROSS & SIMON LLC, Wilmington, Delaware; OF COUNSEL:
John J.E. Markham, II, of MARKHAM READ ZERNER, LLC, Boston,
Massachusetts, Attorneys for Defendants Amir Asvadi, Ryan Hilton and Mammoth
RX, Inc.
GLASSCOCK, Vice Chancellor
This matter involves a complex contractual scheme for delivery of a
straightforward product—latex gloves. The contract at issue was meant to safeguard
payment for the gloves: to simplify, the Plaintiff, BAM International, LLC, (“BAM”
or the “Plaintiff”) is the middleman obligated to deliver gloves to a third-party
purchaser; it contracted with non-parties Universal SNL Trading SDN BHD and
Universal SNT Marketing SDN BHD (together, “Universal”), Malaysian
manufacturers, to supply the gloves; it deposited the purchase price with an escrow
agent, Defendant The MSBA Group Inc. (“MSBA” or the “Escrow Agent”),
pursuant to an escrow agreement that obligated MSBA to return the money if the
delivery failed, and that made Defendant Mammoth RX, Inc. (“Mammoth”), a
Delaware corporation, guarantor of that obligation.
As it turned out, per the Plaintiff, delivery failed; 1 the money in escrow was
nonetheless dispersed to Universal; and the Plaintiff has not been reimbursed by
MSBA or Mammoth, as the contract allegedly requires. This action seeks to impose
liability upon Mammoth and MSBA for breach of contract. The Complaint also
alleges an equitable claim against MSBA as Escrow Agent. Additionally, and
pertinent here, the Plaintiff seeks to impose liability upon two Mammoth officers for
the tort of interference with the escrow agreement.
1
The Complaint also alleges that BAM’s right to a third-party inspection of the product was not
consummated.
1
The instant issue before me is jurisdictional: can these individual Defendants,
Ryan Hilton and Amir Asvadi (allegedly Mammoth’s CEO and CFO, respectively)
be haled into a Delaware court to answer for a contract-related claim, despite having
no relationship with Delaware other than their status as officers of a Delaware entity?
Mammoth’s principal place of business is California, I note, and the escrow contract
at issue was performed in Utah, where MSBA is domiciled. Hilton and Asvadi have
moved to dismiss under Court of Chancery Rule 12(b)(2); this Memorandum
Opinion addresses that motion.
In contesting the motion, the Plaintiff relies in part on Delaware’s implied
fiduciary consent statute, 10 Del. Code Section 3114(b).2 Pursuant to that law,
officers (and directors under subsection 3114(a)) of Delaware corporations are
deemed to have consented to personal jurisdiction in this state in two situations: for
actions alleging breach of their duty to the corporation and its stockholders; or where
litigation is brought in Delaware involving the corporation, to which the officer is a
necessary or proper party. These two legs could make a misshapen beast, with one
small limb—consent to jurisdiction for redress of breaches of duty owed to the
company—and one limb vastly greater, encompassing any litigation where the
company is a party and the officer is at least a proper party defendant. The
incongruity of the potential fiddler-crab-like consent scheme created by the statute
2
10 Del. C. § 3114(b).
2
has not gone unnoticed by our courts.3 Our Supreme Court has found, however, that
any resulting unfairness is remedied by the necessity that application of Delaware
jurisdiction must comply not only with the statute, but with the minimum contacts
standard of constitutional due process.4
Here, the Complaint alleges that Mammoth breached a commercial contract
with no relationship to Delaware other than a choice of law and forum, and concedes
that the Moving Defendants are not parties to that contract; nonetheless, they are
proper parties to this action seeking redress for their alleged tortious interference
with the contract.5 Accordingly, Section 3114 is satisfied. However, I find that due
process is not satisfied, given the nature of the action and the paucity of the Moving
Defendants’ contacts with this state. I also find that they are not bound by the
contractual Delaware forum clause of the Escrow Agreement. As a result, the
Motion to Dismiss for failure of personal jurisdiction is granted.
My reasoning follows a fuller statement of the relevant background, below.
3
Cf. Armstrong v. Pomerance, 423 A.2d 174, 176 n.5 (Del. 1980) (explaining that Section 3114
authorizes jurisdiction only in actions which are inextricably bound up in Delaware law and where
Delaware has a strong interest); see also Hazout v. Tsang Mun Ting, 134 A.3d 274, 287 (Del. 2016)
(“[I]t 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.”).
4
Hazout, 134 A.3d at 291.
5
Not before me is the question of whether a tortious interference action will lie against corporate
fiduciaries under these facts. See generally Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872 (Del.
Ch. 2009).
3
I. BACKGROUND
A. The Parties and Certain Non-Parties
BAM is a Delaware corporation6 that contracted with certain other parties to
this suit in 2020. 7 Those contracts and alleged breaches thereof give rise to the
claims before me.
The defendants include MSBA, a Utah corporation; Mammoth, a Delaware
corporation; Ryan Hilton (“Hilton”), the CEO of Mammoth; Amir Asvadi (“Asvadi”
and together with Hilton, the “Moving Defendants”), an individual employed by
Mammoth;8 and Miles Stephen Bown, an individual and the principal of MSBA
(collectively, the “Defendants”).9 Mammoth’s principal place of business is in
California.10
Crowley Government Services (“Crowley”) is an intervenor-plaintiff in this
matter.11
6
I note that although the party name is “BAM International, LLC”, the Complaint indicates that
BAM is a Delaware corporation. See Verified Compl. for Breach of Contract, Breach Fiduciary
Duties, Declaratory J., Tortious Interference, and Fraud, at 1, ¶ 13, Dkt. No. 1 [hereinafter
“Compl.”]. I have followed the Complaint’s lead in this matter.
7
See generally Compl. ¶ 15.
8
Asvadi’s role at Mammoth is subject to some dispute. See Opening Br. Supp. Mot. to Dismiss
of Ryan Hilton and Amir Asvadi, Ex. B, Dkt. No. 18 [hereinafter “OB”] (asserting that Asvadi is
not currently and never has been an officer of Mammoth as of April 2021); but see Pl.’s Answering
Br. Opp’n Defs.’ Mot. to Dismiss and its Submission on Equitable Jurisdiction, Ex. A, Dkt. No.
30 [hereinafter “AB”] (Statement of Information filed with California Secretary of State listing
Asvadi as the chief financial officer of Mammoth as of March 5, 2021).
9
Compl. ¶¶ 14–18.
10
See id. ¶ 15.
11
Although Crowley has filed its own complaint in this matter, I do not consider any additional
indicia of jurisdiction presented in the Crowley complaint, as the Motion to Dismiss was fully
4
The Universal entities are Malaysian suppliers and non-parties to this action.12
B. The California Lawsuit
The instant case is brought by BAM against the Defendants. Certain of the
Defendants, namely Mammoth, Hilton, and Asvadi, have filed a lawsuit (the
“California Lawsuit”) against BAM in the U.S. District Court for the Central District
of California, seeking a declaratory judgment with respect to potential liability
stemming from an escrow agreement between the parties (the “Escrow
Agreement”).13 BAM took the position that the filing in California was improper,14
as the Escrow Agreement included a forum selection clause identifying Delaware
state courts as the appropriate forum for any disputes. 15 Mammoth has since
dismissed its claims in the California Lawsuit, and the claims of Hilton and Asvadi
have been stayed in favor of the determination of this motion. 16 The Moving
Defendants represented to the California court that if personal jurisdiction exists
here, they will litigate in Delaware and dismiss their claims in California. 17
submitted at the time of the Crowley complaint’s filing. See Tr. Of 9-15-21 of Oral Arg. and
Partial Ruling of the Ct. on Crowley Government Services, Inc.’s Mot. to Intervene and Defs.’
Mot. to Dismiss for Lack of Personal Jurisdiction, 49:1–4, Dkt. No. 59 [hereinafter “Oral Arg.”].
12
Compl. ¶ 2.
13
See MammothRx, Inc. et al v. BAM Int’l, LLC., Civil Action No. 8:21-cv-00305-DOC-ADS
(C.D. Cal. Feb. 17, 2021).
14
AB 10.
15
Compl., Ex. A, at 3.
16
AB 10.
17
Id.
5
C. Factual Overview18
1. The Sale and Purchase Agreement and the Escrow Agreement
BAM contracted with Crowley to sell nitrile gloves to Crowley in 2020.19 In
return, Crowley provided BAM with advance payments “totaling over” $20
million. 20 To fulfill the contract, BAM sought a supplier. 21 It originally considered
working directly with Mammoth, but ultimately was introduced to Universal by
Mammoth, who asserted that Universal could supply the desired glove product. 22
BAM and Universal then entered into a Sale and Purchase Agreement (the
“SPA”) under which BAM would pay $7.55 million in exchange for 100 million
nitrile gloves.23 Certain conditions were to be satisfied before the money would
become due under the SPA, including a right of inspection via a third party (the
“Inspection”). 24 To memorialize and achieve these conditions, BAM entered into
the Escrow Agreement with Mammoth, acting as guarantor for the Escrow
Agreement, and with MSBA, in its capacity as escrow agent.25 The Escrow
Agreement provided that MSBA would release the escrowed funds to Universal
18
Unless otherwise noted, I draw these facts from the Plaintiff’s Complaint or the briefing of the
parties in connection with this motion to dismiss. Given the posture of the case at this time, the
background section should not be considered formal findings of fact.
19
Mot. to Intervene by Crowley Government Services, Inc. 3, Dkt. No. 36 [hereinafter “Mot. to
Intervene”].
20
Id.
21
See, e.g., Compl. ¶ 2.
22
See id.
23
Id. ¶ 3.
24
Id. ¶ 4.
25
Id. ¶ 5. MSBA was introduced to BAM by Mammoth and Universal. See id.
6
upon notice from BAM that the Inspection had been successful.26 In the event that
Universal did not permit the Inspection, or if Universal could not deliver the gloves
per the requirements of the SPA, the Escrow Agent was to require the “Seller”
(Universal) to return the money to BAM’s bank account.27
The Escrow Agreement became effective on November 19, 2020. 28 Under its
express terms, the Plaintiff was to wire the total price of the contract to a Chase Bank
branch in Utah within twenty-four hours of execution.29
a. Negotiations
The Plaintiff’s answering brief relating to the Motion to Dismiss (the
“Answering Brief”) provides further color regarding the SPA and Escrow
Agreement negotiations, which is helpful to understand the claims against the
Moving Defendants.30 The Plaintiff alleges that Hilton and Asvadi were “active
participants” in the negotiation, structure and terms of the Escrow Agreement, which
took place over email, in WhatsApp chats, and over the phone.31 Hilton and Asvadi
participated in “hundreds” of communications with respect to the Escrow Agreement
and were ostensibly responsible for negotiating the general structure of the deal,
26
Id. ¶ 6.
27
Id. ¶ 47.
28
Id. ¶ 42.
29
See id., Ex. A, at 1.
30
See generally AB.
31
Id. at 5.
7
including the guarantor provision to which Mammoth ultimately agreed.32
Additionally, the Escrow Agreement names Hilton as the individual who receives
notices on behalf of Mammoth, and Hilton signed the Escrow Agreement for
Mammoth. 33
b. The Forum Selection Clause and Governing Law
The Escrow Agreement includes the following forum selection clause in
Section 11.2, curiously headed “Arbitration”: “If any controversy or claim, whether
based on contract, tort, statute, or other legal or equitable theory (including any claim
of fraud, misrepresentation, or fraudulent inducement), arising [sic] out of this
[Escrow] Agreement . . . the Parties will resolve the Dispute in State Courts in
Delaware.”34 “Parties” is defined in the agreement to include BAM, MSBA, and
Mammoth. 35 The Plaintiff asserts that, although the Moving Defendants are not by
the plain text of the Escrow Agreement bound by the forum selection clause, it
should be applied to them due to their extensive involvement in negotiating and
papering the transaction.36
The Escrow Agreement also identifies the laws of the State of Delaware as
the governing law for construction of the agreement.37
32
Id. at 6.
33
Id. at 13.
34
Compl., Ex. A, at 3.
35
Id. at 1.
36
See generally AB 11–18.
37
Compl., Ex. A, at 3.
8
2. The Disbursal from Escrow and the Delaware Lawsuit
BAM wired $7.55 million to the escrow account on November 24, 2020.38
The Complaint alleges that Universal blocked the Inspection from occurring, but that
on November 27, 2020, MSBA (through its principal, Bown) transferred the $7.55
million of escrowed funds to Universal regardless, without BAM’s knowledge or
consent. 39
BAM alleges in the Complaint that prior to releasing the funds, MSBA
through Bown “sought Mammoth’s input regarding the release of funds.”40 Per
Mammoth’s admissions in the California Lawsuit, MSBA represented to Mammoth,
prior to its release of the funds, that the Inspection had occurred and been favorable,
and that the Inspection report would be released once the funds were sent to
Universal by MSBA. 41 Neither MSBA nor Mammoth reached out to BAM to
confirm the release of the funds, and BAM alleges that Mammoth did not object to
the release “despite knowing” that BAM would not have approved of the release.42
The funds were purportedly released on November 27, 2020.43
38
Id. ¶ 44.
39
Id. ¶¶ 7–8.
40
Id. ¶ 54.
41
Id.
42
Id. ¶ 55.
43
Id. ¶ 53.
9
BAM provided an SPA termination notice to Universal, MSBA and
Mammoth on December 16, 2020.44 That termination notice included a request that
MSBA (as Escrow Agent) and Mammoth (as guarantor) refund the $7.55 million to
BAM within twenty-four hours.45 This total refund did not occur. 46
BAM now believes there were never any gloves, and that Universal will not
voluntarily return the funds.47 Further, it alleges that most of the purloined funds
were moved to a Swiss bank account maintained by the Universal CEO.48
BAM filed this action on March 1, 2021 against the Defendants. 49 The
Moving Defendants have filed this Motion to Dismiss on the basis that they do not
have sufficient contacts with Delaware to permit a finding of personal jurisdiction. 50
In support of this position, each of the Moving Defendants has submitted his own
affidavit swearing to a lack of personal contact with Delaware and the lack of
connection between the transaction documents (including the SPA and the Escrow
Agreement) and Delaware.51 The Moving Defendants’ opening brief in this motion
(the “Opening Brief”) similarly avers a lack of connection between each of Hilton
44
Id. ¶ 58.
45
Id. ¶ 59.
46
Id. Mammoth has agreed to provide two partial refund payments totaling $350,000, and has
apparently corresponded with BAM regarding potential fake documentation and fraudulent
misrepresentations by Universal following the events of November 2020. Id. ¶ 60.
47
Id. ¶ 56.
48
Id. ¶ 57.
49
See generally Compl.
50
See, e.g., OB.
51
See id., Ex. A (affidavit of Hilton), Ex. B (affidavit of Asvadi).
10
and Asvadi with the state of Delaware at length, though it admits that Mammoth is
in fact a Delaware corporation.52
D. Procedural History
The Complaint in this action was filed by the Plaintiff seeking declaratory
judgment in addition to bringing breach of contract, breach of fiduciary duty, tortious
interference, and fraud claims against the various Defendants.53 With respect to the
Moving Defendants in particular, the Plaintiff (i) pleads tortious interference with
the Escrow Agreement and (ii) seeks a declaratory judgment regarding the rights and
obligations of the parties under the Escrow Agreement. 54 The Moving Defendants
filed their Motion to Dismiss in April 2021, and Mammoth filed its answer on the
same day.55 After briefing on the Motion to Dismiss concluded, Crowley filed its
Motion to Intervene. 56 I heard oral argument on both motions on September 15,
2021, and granted the Motion to Intervene. 57 This Memorandum Opinion deals
solely with the pending Motion to Dismiss.
52
See generally OB; see also id. at 6.
53
See generally Compl.
54
See id.
55
See Mot. to Dismiss of Ryan Hilton and Amir Asvadi, Dkt. No. 17; see also Def. Mammoth Rx,
Inc.’s Answer to Pl.’s Verified Compl., Dkt. No. 19.
56
See generally Mot. to Intervene.
57
See generally Oral Arg.
11
II. ANALYSIS
The Moving Defendants seek dismissal of the action on basis of lack of
personal jurisdiction. Their Opening Brief discusses the general theory of personal
jurisdiction in Delaware, ultimately asserting that there is no statutory predicate for
personal jurisdiction to be established here and therefore their motion should be
granted.
In response, the Plaintiff identifies the Non-Resident Director and Officer
Consent Statute as the statutory basis for personal jurisdiction against the Moving
Defendants. It also puts forth a theory of personal jurisdiction stemming from the
forum selection clause of the Escrow Agreement. 58 The Plaintiff further theorizes
that estoppel arising from the filing of the California Lawsuit prevents the Moving
Defendants from prevailing on their Motion to Dismiss here.59
I consider each of these theories, along with a discussion of the applicable
personal jurisdiction law, below.
A. Avenues for Establishing Personal Jurisdiction
The standard of review on a motion to dismiss pursuant to Rule 12(b)(2) is
well-established. A plaintiff has the burden to “make out a prima facie case
58
The Plaintiff would have me find that the Moving Defendants have waived any defense to this
argument, as it was not included in their Opening Brief. See AB 3. However, the Moving
Defendants responded to this theory in both their reply brief and at oral argument without further
objection. As such, I do not consider the issue waived.
59
Id. at 15–16.
12
establishing jurisdiction over a non-resident.”60 Although “the court may consider
facts and evidence outside of the complaint such as affidavits and any discovery of
record[, w]hatever record the court considers is construed in the light most favorable
to the plaintiff.” 61
1. Personal Jurisdiction Generally
In general, to assess whether personal jurisdiction exists over non-resident
defendants, Delaware courts apply a two-step analysis, asking first whether there is
a statutory basis for jurisdiction and then inquiring into whether the exercise of
personal jurisdiction over the defendants would be consistent with due process. 62
Parties often seek to apply Delaware’s long-arm statute, but the Plaintiff has
not pled that the long-arm statute applies here. Instead, it looks to apply the Non-
Resident Director and Officer Consent Statute (the “Consent Statute”). 63 Any non-
resident who, after January 1, 2004, serves as an officer of a Delaware corporation
is subject to personal jurisdiction “in all civil actions or proceedings brought in this
State, by or on behalf of, or against such corporation, in which such officer is a
60
Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963, 974 (Del. Ch. 2000).
61
Microsoft Corp. v. Amphus, Inc., 2013 WL 5899003, at *8 (Del. Ch. Oct. 31, 2013); see also
LVI Grp. Invs., LLC v. NCM Grp. Holdings, LLC, 2018 WL 1559936, at *10 (Del. Ch. Mar. 28,
2018).
62
Partners & Simons, Inc. v. Sandbox Acquisitions, LLC, 2021 WL 3161651, at *3 (Del. Ch. July
26, 2021).
63
10 Del. C. § 3114(b).
13
necessary or proper party, or in any action or proceeding against such officer for
violation of a duty in such capacity.” 64
Regardless of the statutory predicate for jurisdiction, so long as a statute exists
that confers jurisdiction, Delaware courts then proceed to an analysis of the
minimum contacts test to ensure due process.65
2. Personal Jurisdiction by Contract
Where applicable, Delaware courts can also find personal jurisdiction by dint
of a contractual arrangement. “If a party properly consents to personal jurisdiction
by contract, a minimum contacts analysis is not required. Of course, the party is
bound only by the terms of the consent, and such consent applies only to those causes
of action that are identified in the consent provision.” 66 The Escrow Agreement did
contain a forum selection clause.67 To determine whether the Moving Defendants,
as non-signatories (in their individual capacities) are bound to the forum selection
clause, Delaware courts use a three-part inquiry, assessing (1) whether the forum
selection clause is valid; (2) whether the defendant is a third-party beneficiary or is
“closely related to” the contract; and (3) whether the claim arises from the
defendant’s standing relating to the agreement.68
64
10 Del. C. § 3114(b).
65
See Hazout, 134 A.3d at 278.
66
Ruggiero v. FuturaGene, plc., 948 A.2d 1124, 1132 (Del. Ch. 2008) (citations omitted).
67
See supra note 34 and accompanying text.
68
Highway to Health v. Bohn, 2020 WL 1868013, at *6 (Del. Ch. Apr. 15, 2020).
14
Where a party is considered bound to a forum selection clause, the court treats
that party as having expressly consented to personal jurisdiction.69 “An express
consent to jurisdiction, in and of itself, satisfies the requirements of Due Process,”
meaning that a constitutional minimum contacts analysis is no longer required.70
B. The Non-Resident Director and Officer Consent Statute
In the Complaint, the Plaintiff sought to establish personal jurisdiction over
the Moving Defendants by use of the forum selection clause.71 The Opening Brief
discusses the establishment of personal jurisdiction more generally, concluding that
no statutory basis for finding personal jurisdiction exists. 72 The Plaintiff, in
answering, identifies the Consent Statute as an alternative basis of jurisdiction,
separate from and in addition to the forum selection clause theory. 73 Its theory would
have me find that Hilton, the CEO, and Asvadi, purportedly the CFO, have
consented to personal jurisdiction in Delaware because they are Delaware officers
as well as proper parties under the Consent Statute. 74
The parties agree that Hilton is the CEO of Mammoth, a Delaware
corporation, and is therefore an officer to whom the Consent Statute could apply.75
69
See Neurvana Med., LLC v. Balt USA, LLC, 2019 WL 4464268, at *3 (Del. Ch. Sept. 18, 2019).
70
Id. (quoting Sternberg v. O’Neil, 550 A.2d 1105, 1116 (Del. 1988), abrogated on other grounds
by Genuine Parts Co. v. Cepec, 137 A.3d 123 (Del. 2016)).
71
Compl. ¶ 21.
72
See generally OB.
73
See AB 18, 19.
74
See id.75
See OB, Ex. A, ¶ 5.
15
Asvadi’s status as the CFO of Mammoth is subject to question, but I assume without
deciding for the purposes of this Memorandum Opinion that he is an officer as
well.76
A summary of the development of our law with respect to the Consent Statute
and its application is informative to my analysis.
1. Historical Applications of the Consent Statute
The current Consent Statute was originally enacted with respect to directors
in 1977 (extended to officers as of 2004) 77 and has been characterized by courts as
responsive to Shaffer v. Heitner, a U.S. Supreme Court case which found
unconstitutional a practice previously used to secure personal jurisdiction over non-
resident fiduciaries of Delaware corporations.78
Applying the Consent Statute while remaining mindful of constitutional due
process has caused Delaware courts some amount of headache. 79 Under a plain text
reading, the Consent Statute provides two avenues to establish jurisdiction over a
76
During the oral argument on the motion to dismiss, I noted that I would allow jurisdictional
discovery in the event the question of Asvadi’s status as an officer (disputed among the parties)
was a dispositive fact with respect to his motion. See Oral Arg. at 26:7–17. This determination is
not necessary to my ultimate finding here.
77
See 10 Del. C. § 3114(a). Section 3114(b), pertaining to officers, was approved in June 2003
and became effective January 2004. See Act of June 30, 2003, ch. 83, 2003 Del. Laws, sec. 3114,
§ 3 (codified as amended at 10 Del. C. § 3114(b)).
78
See Hazout, 134 A.3d at 286 (Del. 2016) (citing Shaffer v. Heitner, 433 U.S. 186 (1977)).
79
See, e.g., Hana Ranch, Inc. v. Lent, 424 A.2d 28 (Del. Ch. 1980); In re USACafes, L.P. Litig.,
600 A.2d 43 (Del. Ch. 1991) (questioning Hana Ranch’s approach); Ryan v. Gifford, 935 A.2d
258 (Del. Ch. 2007) (same); Hazout, 134 A.3d 274 (rejecting the reasoning in Hana Ranch).
16
Delaware director or officer: (1) actions against such parties for violations of
fiduciary duties, sometimes called the “internal affairs” prong; 80 and (2) actions
wherein the director or officer is a “necessary or proper party” to an action also
proceeding against the corporation.
Construing the Consent Statute in 1980, the Court of Chancery in Hana Ranch
adopted an approach that essentially read the second “necessary or proper party”
prong out of application, finding that “it is the rights, duties, and obligations which
have to do with service as a director of a Delaware corporation which make a director
subject to personal service in Delaware . . . and not simply that he or she may be
both a proper party as well as a director.” 81 This narrow interpretation limited the
reach of the Consent Statute and avoided any concerns about its facial
constitutionality. 82
The Court of Chancery followed Hana Ranch for many years, though certain
opinions suggested that the “necessary or proper party” language could be reinstated
with a minimum contacts analysis under International Shoe 83 used as the
constitutional limiting factor.84
80
See Hazout, 134 A.3d at 278.
81
Hana Ranch, 424 A.2d at 30.
82
See Hazout, 134 A.3d at 286.
83
Int’l Shoe Co. v. Wash., Office of Unemployment Comp. & Placement, 326 U.S. 310 (1945).
84
See In re USACafes, L.P. Litig., 600 A.2d at 53 (citing Int’l Shoe, 326 U.S. 310); Ryan v. Gifford,
935 A.2d at 268 n.24 (citation omitted).
17
The Delaware Supreme Court did not have the opportunity to directly address
the Hana Ranch case and its progeny until Hazout v. Tsang Mun Ting in 2016.85 In
doing so, the Delaware Supreme Court noted the disjunctive presentation of the
Consent Statute in text, giving rise to the interpretation that “the General Assembly
intended there to be two categories of cases to which directors and officers had
consented to service.” 86 The Hazout Court considered the “necessary or proper
party” provision to “contain[] its own safeguards against overbreadth,” as the
requirement to be a necessary or proper party itself demanded a “close nexus
between the claims involving the corporation . . . and the conduct of the nonresident
fiduciary.”87 The Court also stated that the minimum contacts analysis could, as
prior Court of Chancery opinions had noted, act as constitutional protection to
provide due process to nonresident directors and officers.88 The Delaware Supreme
Court thus rejected the Hana Ranch line of caselaw and adopted a plain meaning
interpretation of the Consent Statute.89
2. The Current Consent Statute Analysis, Applied
By virtue of their status as officers of a Delaware corporation, Delaware has,
subject to the minimum contacts due process analysis, personal jurisdiction over the
85
See Hazout, 134 A.3d at 289.
86
Id. at 288.
87
See id. at 289.
88
See id. at 291.
89
Id. at 286; see also LVI Grp. Invs., 2018 WL 1559936, at *8.
18
Moving Defendants (1) where a civil action or proceeding is brought by or on behalf
of, or against Mammoth, and the Moving Defendants are necessary or proper parties;
or (2) in any action or proceeding against the Moving Defendants for violation of a
duty as officers. 90
The only substantive claim proceeding against the Moving Defendants in their
individual capacities is for tortious interference with the Escrow Agreement. 91 This
claim does not arise out of duties the Moving Defendants owed to Mammoth or its
stockholders, but instead from torts allegedly committed against BAM.92 Therefore,
any application of the Consent Statute must be conditioned on the Moving
Defendants’ status as necessary or proper parties to the suit against Mammoth.
It is helpful to examine the cause of action against the Moving Defendants.
Corporate officers are not liable for breach of contracts entered by the corporation
to which they have not bound themselves personally.93 Here, the Moving
Defendants are alleged to have tortiously interfered with the Escrow Agreement
among the Plaintiff, MSBA and Mammoth. 94 Such an action will not lie against a
90
See Hazout, 134 A.3d at 277 (citing 10 Del. C. § 3114(b)).
91
See generally Compl. The Complaint also names the Moving Defendants, cryptically, in a count
seeking a declaration of the rights of the parties under the Escrow Agreement. See id.
92
Id. ¶ 122 (“Hilton’s, Asvadi’s . . . tortious conduct has caused, and will continue to cause,
damages and harm to BAM . . . .”).
93
E.g., Wallace v. Wood, 752 A.2d 1175, 1180 (Del. Ch. 1999).
94
See generally Compl.
19
corporate officer who in such capacity causes the company to act in breach of
contract:
[E]mployees acting within the scope of their employment are
identified with the [corporate] defendant [its]self so that they may
ordinarily advise the defendant to breach [its] own contract without
themselves incurring liability in tort . . . . This rationale is
particularly compelling when applied to corporate officers as their
freedom of action directed toward corporate purposes should not be
curtailed by fear of personal liability. 95
In order, I assume, to plead around this problem, the Complaint avers that the
Moving Defendants “were acting in their own interests and outside the scope of their
duties to Mammoth” at all times pertinent.96 This statement is completely
conclusory; no facts are pled to bolster this assertion. In any event, in this
independent capacity, per the Complaint, the Moving Defendants caused MSBA to
breach the Escrow Agreement by “causing or permitting” it to release the funds in
escrow, to disregard BAM’s instructions, and to breach its fiduciary duties to the
Plaintiff. 97 These allegations also appear to be entirely conclusory; notably, the issue
of whether a cause of action has been pled is not before me. For this jurisdictional
95
Id. at 1182–83 (internal quotations omitted); see also Kuroda, 971 A.2d at 884; Bhole, Inc. v.
Shore Invs., Inc., 67 A.3d 444, 453 (Del. 2013) (quoting Shearin v. E.F. Hutton Grp., Inc., 652
A.2d 578, 590 (Del. Ch. 1994)) (standing for proposition that a party cannot be liable for both
breach of contract and for inducing that breach via tortious interference); Bandera Master Fund
LP v. Boardwalk Pipeline Partners, LP, 2019 WL 4927053, at *28 (Del. Ch. Oct. 7, 2019) (same);
WyPie Invs., LLC v. Homschek, 2018 WL 1581981, at *14 (Del. Super. Ct. Mar. 28, 2018) (same).
96
Compl. ¶ 120 (emphasis added).
97
Id. ¶ 117. Curiously, the Complaint also seeks damages from the Moving Defendants for
allegedly causing Mammoth to breach its contractual obligation to reimburse the Plaintiff for
MSBA’s misfeasance; the Complaint does not explain how the Moving Defendants did so outside
the scope of their duties as officers of Mammoth, however. See id. ¶¶ 80–89.
20
issue, however, it is pertinent that the allegations to which the Moving Defendants
are being asked to respond were, as explicitly averred in the Complaint, not taken in
connection with their roles at Mammoth. That is, the Moving Defendants’
complained-of actions were not taken in connection with the roles for which they
consented to jurisdiction under Section 3114. I turn to that statutory analysis.
In order for Section 3114 to apply here, the Moving Defendants must be
necessary or proper parties to the cause of action against Mammoth. A party is a
“necessary” party if her rights must be ascertained and settled before the rights of
the parties to the lawsuit can be determined. 98 A party is “proper” if she has a
“tangible legal interest in the matter” separate from the corporation’s,99 and if the
claims against her arise out of the same facts and occurrences as the claims against
the corporation.100
The Moving Defendants are proper parties under this construction. The claim
against Hilton and Asvadi as individuals for tortious interference establishes tangible
legal interests in the lawsuit separate from those of Mammoth, although they arise
out of the same set of alleged facts. Thus, the Consent Statute is a proper statutory
basis for finding that Delaware courts have jurisdiction over the Moving Defendants.
98
See LVI Grp., 2018 WL 1559936, at *8 (citing Hazout, 124 A.3d at 289).
99
Id. (citing Hazout, 124 A.3d at 292).
100
Hazout, 124 A.3d at 292.
21
Before concluding that Delaware has personal jurisdiction over the Moving
Defendants, I must conduct the minimum contacts constitutional check on due
process. The Delaware Supreme Court in Hazout identified the minimum contacts
test as the appropriate method for ensuring that the Consent Statute did not confer
overbroad personal jurisdiction.101 Ultimately, in Hazout, the Delaware Superior
Court found (and the Delaware Supreme Court affirmed) that Hazout had accepted
duties under Delaware law by accepting a position as a fiduciary of the corporation,
which the state of Delaware had an interest in enforcing.102 The underlying
transaction giving rise to claims against Hazout involved a change in corporate
control, bolstering the finding that personal jurisdiction over Hazout was appropriate
under the minimum contacts analysis.103 However, the Supreme Court’s opinion
notes that “one can conceive of cases where applying the plain terms of the
Necessary or Proper Party Provision might compromise a nonresident fiduciary’s
due process rights,” and describes a potential example scenario in the attendant
footnote:
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
101
Id. at 291.
102
Id. at 284.
103
Id. at 277, 293.
22
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 . . . . 104
This footnote is illustrative here, where the contract giving rise to claims is a
garden-variety commercial contract, rather than one necessarily implicating
Delaware interests. The Delaware Superior Court analyzed the Hazout footnote in
Turf Nation v. UBU Sports, Inc., which presented a somewhat similar factual
scenario to the one at hand. 105 In Turf Nation, the plaintiff sought personal
jurisdiction over the defendant, a Delaware officer, under both the Consent Statute
and Delaware’s long-arm statute. 106 The Superior Court determined that the
defendant might have been a necessary or proper party to the action, but that the
minimum contacts were insufficient to confer jurisdiction, emphasizing that “the
Court must examine whether the exercise of personal jurisdiction is consistent with
the person’s constitutional expectations of due process.” 107
In assessing the Hazout footnote, the Turf Nation court noted that the
plaintiff’s claims were brought under the law of various states—none of which were
Delaware—and that the actions purportedly giving rise to said claims occurred in
104
Id. at 291, 291 n.60.
105
2017 WL 4535970 (Del. Super. Oct. 11, 2017).
106
See id. at *6–*10 (considering both theories).
107
Id. at *9.
23
multiple non-Delaware states.108 Further, while the plaintiff and defendant entities
were each incorporated in Delaware, both principal places of business were
elsewhere. 109 Finally, the agreement at issue, which was a Manufacture and Supply
Agreement, applied Georgia law, rather than Delaware law. 110
The Superior Court found that there was thus no “rational connection to
Delaware other than the place of incorporation of [the plaintiff and defendant
entities],” specifying that “[t]he wrongs alleged here are either tort claims or breach
of contract claims unconnected with the internal affairs or corporate governance of
a Delaware corporation.”111 It also rejected an efficiency argument made by the
plaintiff, which pointed out that a second lawsuit would need to be filed if personal
jurisdiction was not found. 112 The court referred to that equitable argument as
“weaken[ed]” given that the plaintiff was the one who initiated the civil action in
Delaware.113
The reasoning of the Turf Nation court stands in helpful parallel to my
thinking here. In the instant case, Hilton and Asvadi were officers of a Delaware
corporation (with a principal place of business in California),114 but the action does
108
Id.
109
Id.
110
Id.
111
Id.
112
Id.
113
See id.
114
See Compl. ¶ 15.
24
not involve the entity’s status as a corporate citizen of Delaware. As in the Hazout
hypothetical, the contract at issue is simply commercial, and does not involve the
vindication of the General Corporation Law of Delaware. 115 Similarly, the
negotiation of the Escrow Agreement, though carried out by officers of a Delaware
entity, does not implicate Delaware’s corporate law in the manner that negotiating a
change of control agreement would. 116 The Escrow Agreement was also not to be
performed in Delaware, but instead in Utah, where the escrow account was
located.117 The distribution of the escrow account by the Escrow Agent, a Utah
corporation, to the seller Universal, a Malaysian supplier, would not have implicated
Delaware interests in any way.118
Delaware has no real interest in this case other than the exercise of personal
jurisdiction over officers and directors, which is, in my view, insufficient in light of
the constitutional due process rights owed to the Moving Defendants. As in Turf
Nation, the only harms alleged to have been committed by the Moving Defendants
sound in tort 119—they are not fiduciary duties, nor do they implicate corporate
115
Compare Hazout, 134 A.3d at 291 n.60 (discussing a products liability contract) with LVI Grp.
Invsts., 2018 WL 1559936 (discussing a change of control contract).
116
Defs. Ryan Hilton and Amir Asvadi’s Reply to Pl.’s Opp’n Defs.’ Mot. to Dismiss 8, Dkt. No.
32 [hereinafter “RB”]; see generally Hazout, 134 A.2d 275 (finding personal jurisdiction in the
context of a change of control transaction); LVI Grp. Invsts., 2018 WL 1559936 (same).
117
See Compl., Ex. A, at 1 (identifying a Chase bank with address in Utah as the destination for
the wire).
118
See id. (identifying the Escrow Agent as a Utah corporation and the Sellers as Malaysian
entities).
119
Turf Nation, 2017 WL 5435970, at *9.
25
governance practices. And the actions allegedly giving rise to their liability were
not taken as officers of Mammoth.
Admittedly, the Delaware Supreme Court (and the Turf Nation court)
identified the governing law of the agreement as a factor for consideration, 120 and
the Escrow Agreement at hand identified Delaware law as the governing law and
selected Delaware as the forum for settling associated disputes. 121 I have considered
these facts, but they are not dispositive, and they do not persuade me that personal
jurisdiction should be extended over the Moving Defendants here. Many
commercial contracts adopt Delaware law and include Delaware forum selection
clauses, as Delaware has a well-known, settled, and (at times) easy to construe body
of law that can be applied by courts anywhere. No additional connection to
Delaware has been alleged that signifies this choice of law provision might have had
special import to the parties, or that provides a reason for the Moving Defendants to
anticipate personal jurisdiction over them in Delaware. I conclude that the selection
of Delaware as the forum for disputes and the governing body of law is not
dispositive here, where the individuals against whom the forum selection and
governing law clauses would be construed were not party to the contract (the
120
Hazout, 134 A.3d at 291 n.60.
121
See supra notes 34–37 and accompanying text.
26
Plaintiff’s contention that the Moving Defendants are nonetheless bound by the
contractual forum selection is addressed infra).
In its argument in favor of personal jurisdiction, the Plaintiff cites to this
Court’s decision in Deutsch v. ZST Digital Networks, Inc. 122 In that case, non-party
corporate fiduciaries who caused a defendant corporation to violate a court order
were subject to answer for contempt of court, and raised lack of personal jurisdiction
as a bar. 123 The Deutsch court applied the Consent Statute.124 It found that the
fiduciaries were proper parties to the litigation, such that the Consent Statute
provided a statutory predicate for personal jurisdiction, and then examined due
process.125 Citing Hazout, the court found that, as in that case, the fiduciaries were
being held accountable for taking action (or failure to take action) in their roles as
directors and officers of a Delaware corporation. 126 As such, they were on notice
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 empower[] them to act in their
corporate capacities.” 127 Accordingly, due process was satisfied.128 But Deutsch is,
for that very reason, not applicable here. The actions allegedly resulting in liability
122
2018 WL 3005822 (Del. Ch. June 14, 2018).
123
See id. at *1, *11.
124
Id. at *11.
125
Id. at *11–*12.
126
Id. at *12 (citing Hazout, 134 A.3d at 292).
127
Id. (citing Armstrong, 423 A.2d at 176).
128
See id.27
for the Moving Defendants were, explicitly per the Complaint, taken in their
individual interests “outside the scope of their duties to Mammoth.” 129 Because the
complained-of actions were expressly outside the scope of the Moving Defendants’
corporate power as officers, and given the paucity of other contacts with Delaware,
it would not comport with due process to that find minimum contacts exist with
respect to the Moving Defendants here.
The Consent Statute provides a statutory jurisdictional predicate under
Hazout, but I am not satisfied that either of the Moving Defendants’ contacts with
Delaware is sufficient to subject him to personal jurisdiction in Delaware courts. As
such, specific personal jurisdiction cannot lie under the Consent Statute.
C. Personal Jurisdiction Under a Forum Selection Clause
Another avenue for finding personal jurisdiction over the Moving Defendants
is establishment of personal jurisdiction under the forum selection clause. Unlike
the analysis under Section 3114, above, where parties have consented contractually
to jurisdiction, due process is satisfied a priori. 130 Importantly, neither of the
Moving Defendants were parties to or signed, in an individual capacity, the Escrow
Agreement that contains the clause in this case.131 To find personal jurisdiction over
a non-signatory to a transaction document containing a forum selection clause, I
129
Compl. ¶ 120.
130
Ruggiero, 948 A.2d at 1132 (citations omitted).
131
See supra note 33 and accompanying text.
28
must assess the following three requirements: (1) whether the forum selection clause
is valid; (2) whether the defendant is a third-party beneficiary or is “closely related
to” the contract; and (3) whether the claim arises from the defendant’s standing
relating to the agreement.132
Elements (1) and (3) were not contested in the papers or at oral argument by
the Moving Defendants, and for purposes of this motion I assume that they are
satisfied.133 Further, the Plaintiff has not pled that the Moving Defendants are third-
party beneficiaries of the Escrow Agreement.134 Thus, to resolve the question of
personal jurisdiction, I must determine whether the Moving Defendants were
“closely related” to the Escrow Agreement such that its forum selection clause
should be binding upon them and such that this Court has personal jurisdiction over
them. I find that the Moving Defendants were not so closely related to the Escrow
Agreement as to confer personal jurisdiction. My reasoning follows.
132
See supra note 68 and accompanying text; but see Fla. Chem. Co., LLC v. Flotek Indus., Inc.,
2021 WL 3630298, at *2 (Del. Ch. Aug. 17, 2021) (declining to apply the “same-agreement rule”,
here referred to as element (3), for purposes of enforcing a forum selection provision against a
non-signatory). Florida Chemical did not address the question of whether the forum selection
provision was sufficient to confer personal jurisdiction over the non-signatory, and in any event,
the parties have not disputed element (3) in the instant case.
133
See generally RB; see also Oral Arg.
134
The Plaintiff’s Complaint refers to the Defendants as “parties and beneficiaries” but does not
identify them as third-party beneficiaries or identify supporting reasoning for this statement. See
Compl. ¶ 23.
29
1. The Closely Related Test
Delaware caselaw provides two ways in which a non-signatory to an
agreement containing a forum selection clause can be “closely related” such that the
clause binds the non-signatory. 135 First, the non-signatory can receive a “direct
benefit” from the agreement.136 Alternatively, I can find that it was “foreseeable”
that the Moving Defendants would be haled into Court in Delaware.137 I consider
each option in turn.
a. Did the Moving Defendants Receive a Direct Benefit?
The Plaintiff’s papers do not explicitly argue that the Moving Defendants
received a direct benefit from the Escrow Agreement. 138 The Plaintiff alleged that
the small size of Mammoth, as a corporation, and Hilton’s role as CEO and founder,
led to a reasonable inference that Hilton, at least, had a “substantial” stake in
Mammoth and exercised “considerable control” over the corporation, but did not
expressly state that a benefit was received by Hilton as a result.139 At oral argument,
BAM’s counsel indicated that there was a “suspicion” that some of the money in
escrow “may have made its way into the hands of some of the defendants,” but was
not able to cite to allegations in the Complaint.140 In any event, the receipt of the
135
See Neurvana, 2019 WL 4464268, at *1.
136
See id.137
See id. at *4.
138
See generally AB.
139
Notably, Asvadi is not mentioned in this sentence. See id. at 13, 13 n.7.
140
See Oral Arg., 34:13–24, 35:1–2.
30
allegedly purloined funds by the Moving Defendants would not be a benefit from
the contract, but from the breach of the contract. 141
Without more, I cannot find that either of the Moving Defendants received a
direct benefit from the Escrow Agreement.142 Personal jurisdiction arising from the
forum selection clause thus cannot be established under the direct benefit prong of
the closely related test.
b. Was It Foreseeable that the Moving Defendants Might Be
Sued in Delaware?
Delaware caselaw applying solely the foreseeability prong of the “closely
related” analysis is limited.143 To the extent the foreseeability prong is a legitimate
means to bind non-parties to a forum selection provision, the prong operates as a
species of equitable estoppel, and “[w]here the facts at bar have not aligned with
previous discrete applications of the standalone foreseeability inquiry, [the Court of
Chancery] has declined to expand the test.” 144 Neurvana Medical, LLC v. Balt USA,
LLC provides a recent review of the foreseeability precedent, noting that the
foreseeability analysis most often follows the establishment of a direct benefit, but
141
See Neurvana, 2019 WL 4464268, at *4 (citing Weygandt v. Weco, LLC, 2009 WL 1351808,
at *4 (Del. Ch. May 14, 2009)).
142
Cf. id. (“In any event, the mere ‘contemplation’ of a benefit does not directly confer one.”).
143
See id. at *5 (identifying two scenarios where the foreseeability inquiry was a singular basis for
satisfying the “closely-related” test).
144
See Partners & Simons, 2021 WL 3161651, at *7.
31
identifying two factual scenarios where personal jurisdiction was established based
on the foreseeability inquiry alone. 145
The first factual scenario allows a non-signatory to enforce a forum selection
clause against a signatory where the non-signatory is “closely related to one of the
signatories such that the non-party’s enforcement of the clause is foreseeable by
virtue of the relationship between the signatory and the party sought to be bound.” 146
For example, Ashall Homes Ltd. v. ROK Entertainment Group Inc. determined that
officers and directors could constitute closely related non-signatories with standing
to invoke a forum selection clause against a signatory. 147
Here, the party seeking to enforce the forum selection clause was a party to
the Escrow Agreement—the Plaintiff, BAM; it is the Moving Defendants who are
the non-signatories. Therefore, this line of cases does not support personal
jurisdiction.
iModules Software, Inc. v. Essenza Software, Inc. encapsulates the second
factual scenario, with the Court finding that a non-signatory entity can be bound to
a forum selection clause where its controllers have signed the agreement at issue.148
The instant case does not resemble this factual scenario, either; the Moving
145
See generally Neurvana, 2019 WL 4464268.
146
See Lexington Servs. Ltd. v. U.S. Patent No. 8019807 Delegate, LLC, 2018 WL 5310261, at
*5–6 (Del. Ch. Oct. 26, 2018) (quoting Ashall Homes Ltd. v. ROK Entm’t Grp., Inc., 992 A.2d
1239, 1249 (Del. Ch. 2010)).
147
See Ashall, 992 A.2d at 1249.
148
2017 WL 6596880 (Del. Ch. Dec. 22, 2017) (ORDER).
32
Defendants are alleged to have themselves caused the signatory to act, not the other
way around.
Therefore, to find personal jurisdiction by reason of foreseeability, the
Plaintiff seeks to have me expand the existing caselaw. In support of its proposition,
the Plaintiff cites to a Third Circuit case applying Delaware law, Carlyle Investment
Management LLC v. Moonmouth Company. 149 Carlyle indicates that in conducting
the foreseeability inquiry, courts should consider “the non-signatory’s ownership of
the signatory, its involvement in the negotiations, the relationship between the two
parties and whether the non-signatory received a direct benefit from the
agreement.”150
The Carlyle Court found personal jurisdiction over the defendant via the
forum selection clause, referencing the negotiations process, authority to give and
receive instructions on behalf of the pertinent entities, and contact information for
the entities.151 Carlyle is nevertheless distinguishable from the facts at bar. In that
case, the defendant and party at issue were both controlled by a common
controller.152 Thus, the determination that the forum selection clause conferred
personal jurisdiction was not predicated solely on facts regarding the negotiations,
149
779 F.3d 214 (3d Cir. 2015).
150
Id. at 219 (citing Weygandt, 2009 WL 1351808, at *4; then citing Capital Grp. Cos., Inc. v.
Armour, 2004 WL 2521295, at *6–7 (Del. Ch. Oct. 29, 2004)).
151
Id.152
See id.33
contact information and authority in connection with entities. 153 In other words, to
the extent Carlyle is persuasive, it is not pertinent.
BAM seeks to establish personal jurisdiction over Asvadi on basis of his
participation in the negotiation of the Escrow Agreement, his status as a point of
contact for Mammoth following the release of the funds from escrow, and a shared
address with Mammoth.154 The facts are slightly stronger with respect to Hilton—
in addition to the above, he signed the Escrow Agreement for Mammoth in his
capacity as CEO and is listed as its agent for service of process in California.155
Viewed in the light most favorable to the Plaintiff, this theory mirrors the “active-
involvement” theory considered and rejected in Neurvana, which declined to find
“active involvement in negotiating and executing the transaction” a “standalone
basis” for establishing personal jurisdiction. 156
I too decline to extend the foreseeability test in this way. The Plaintiff has not
made a prima facie showing that the Moving Defendants are “closely related to” the
Escrow Agreement such that they should be bound by its forum selection clause. As
such, the forum selection clause does not confer personal jurisdiction over the
Moving Defendants.
153
See id. at 219; see also Partners & Simons, Inc., 2021 WL 3161651, at *8.
154
See AB 13.
155
See id.156
Neurvana, 2019 WL 4464268, at *7 (citing Compucom Sys., Inc. v. Getronics Fin. Holdings
B.V., 2012 WL 4963308, at *4 (D. Del. Oct. 16, 2012)); id. at *8; see also Partners & Simons,
Inc., 2021 WL 3161651 (declining to apply the active-involvement theory).
34
D. Estoppel
Finally, the Plaintiff argues that the Moving Defendants are estopped from
denying the application of the forum selection clause.157 Its basis is that the
California Lawsuit filed by the Moving Defendants “embraced” the Escrow
Agreement (for purposes of suing BAM and seeking a declaratory judgment), and
that the Moving Defendants cannot now disclaim the Escrow Agreement’s
applicability. 158 The California Lawsuit seeks a declaratory judgment finding each
of Hilton and Asvadi not liable on the guaranty under the Escrow Agreement.159
The Moving Defendants’ theory in that action is that because they did not sign the
Escrow Agreement in their individual capacities, they are therefore not personally
bound by any of the obligations in the agreement, including the guaranty provision
and, although not expressly pled in the California Lawsuit, ostensibly the forum
selection clause, as well.160
The Plaintiff appears to argue that estoppel is its own separate basis for finding
personal jurisdiction against the Moving Defendants, but as noted above, the
“closely related” test is properly grounded on estoppel. As a consequence, the
Plaintiff’s argument here is largely duplicative of the arguments under the closely
157
AB 15.
158
Id. at 15–16.
159
Id., Ex. I, ¶¶ 35–40.
160
Id. at 38.
35
related test (and are treated as such in the caselaw to which the Plaintiff cites).161
For example, Capital Group Companies, Inc. v. Armour, cited in the Answering
Brief, states that “a non-signatory is estopped from refusing to comply with a forum
selection clause when she receives a ‘direct benefit’ from a contract containing a
forum selection clause.”162 The Complaint does not allege that the Moving
Defendants received any direct benefit from the Escrow Agreement, nor did they
seek a benefit under the Escrow Agreement in the California action. Quite the
contrary, they sought prophylactic judicial recognition that they were strangers to
the contract.163 Seeking a declaratory judgment in California courts regarding
liability under the Escrow Agreement is not equivalent to “embracing” a contract for
the purposes of estoppel, because the Moving Defendants do not there seek to obtain
a benefit, but rather seek to disclaim liability under the Escrow Agreement. This
affirmative defense is therefore unavailing.
***
I have considered each of the theories presented by the Moving Defendants
and the Plaintiff in connection with the Motion to Dismiss. I find that sufficient
161
See Neurvana, 2019 WL 4464268, at *3 (“Decisions of [the Court of Chancery] have described
the closely-related test as an application of the doctrine of equitable estoppel.”).
162
Capital Grp., 2004 WL 2521295, at *6 (citations omitted); see also Neurvana, 2019 WL
4464268, at *3 (quoting Plaze, Inc. v. Callas, 2019 WL 1028110, at *8 (Del. Ch. Feb. 28, 2017))
(“Equitable estoppel exists ‘to prevent someone from accepting the benefits of a contract without
accepting its obligations.’”).
163
See generally AB, Ex. I.
36
minimum contacts do not exist between the Moving Defendants and the State of
Delaware to satisfy due process. Further, I do not find that the Moving Defendants
were so closely related to the Escrow Agreement as to be contractually bound by
its forum selection clause. Finally, I do not find that estoppel prevents the Moving
Defendants from prevailing on the Motion to Dismiss. In total, none of the
theories advanced by the Plaintiff is sufficient to confer personal jurisdiction over
the Moving Defendants.
III. CONCLUSION
The Motion to Dismiss with respect to the Moving Defendants is GRANTED.
The parties should submit an appropriate form of order.
37