Carla Lacey v. German Larrea Mota-Velasco

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CARLA LACEY, derivatively on behalf
)
of SOUTHERN COPPER )
CORPORATION, )
)
Plaintiff, )
)
v. )
) C.A. No. 2019-0312-SG
GERMÁN LARREA MOTA- )
VELASCO, ALFREDO CASAR )
PÉREZ, XAVIER GARCÍA DE )
QUEVADO TOPETE, LUIS IGUEL )
PALOMINO BONILLA, GILBERTO )
PÉREZALONSO CIFUENTES, )
CORLOS RUIZ SACRISTÁN, )
ENRIQUE CASTILLO SÁNCHEZ )
MEHORADA, EMILIO CARRILLO )
GAMBOA, ALBERTO DE LA PARRA )
ZAVALA, LUIS CASTELAZO )
MORALES, ARMANDO ORTEGA )
GÓMEZ, DANIEL MUÑIZ )
QUINTANILLA, JUAN REBOLLEDO )
GOUT, LUIS TÉLLEZ KUENZLER, )
AMERICAS MINING CORPORATION, )
AND GRUPO MÉXICO S.A.B. DE )
C.V., )
)
Defendants, )
)
and )
)
SOUTHERN COPPER )
CORPORATION, )
)
Nominal Defendant. )
MEMORANDUM OPINION
Date Submitted: July 16, 2020
Date Decided: October 6, 2020
Peter B. Andrews, Craig J. Springer, and David Sborz, of ANDREWS &
SPRINGER LLC, Wilmington, Delaware; OF COUNSEL: Jeremy S. Friedman,
Spencer Oster, and David F.E. Tejtel, of FRIEDMAN OSTER & TEJTEL PLLC,
Bedford Hills, New York, Attorneys for Plaintiff Carla Lacey.
William M. Lafferty, John P. Ditomo, and Elizabeth A. Mullin, of MORRIS,
NICHOLS, ARSHT, & TUNNEL LLP, Wilmington, Delaware; OF COUNSEL:
Bradley J. Benoit and Bryan Dumesnil, of BRACEWELL LLP, Houston, Texas,
and Ralph D. McBride, Houston, Texas, Attorneys for Defendants Germán Larrea
Mota-Velasco, Oscar González Rocha, Alfredo Casar Pérez, Xavier García de
Quevedo Topete, Alberto de la Parra Zavala, Luis Castelazo Morales, Armando
Ortega Gómez, Daniel Muñiz Quintanilla, Juan Rebolledo Gout, and Southern
Copper Corporation.
Srinivas M. Raju, Andrew J. Peach, Matthew W. Murphy, of RICHARDS,
LAYTON & FINGER, P.A., Wilmington, Delaware; OF COUNSEL: Steven R.
Selsberg, of S. SELSBERG LAW, P.L.L.C, Houston, Texas, and Sylvia A. Mayer,
of S. MAYER LAW PLLC, Houston, Texas, Attorneys for Defendants Emilio
Carrillo Gamboa, Luis Miguel Palomino Bonilla, Gilberto Pérezalonso Cifuentes,
Carlos Ruiz Sacristán, Luis Téllez Kuenzler, and Enrique Castillo Sánchez
Mejorada.
Peter J. Walsh, Jr., Matthew F. Davis, and Elizabeth M. Taylor, of POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware]; OF COUNSEL: Robert
J. Giuffra, Jr., David M.J. Rein, Matthew A. Peller, and Y. Carson Zhou, of
SULLIVAN & CROMWELL LLP, New York, New York, Attorneys for
Defendants Americas Mining Corporation and Grupo México S.A.B. de C.V.
GLASSCOCK, Vice Chancellor
This derivative matter is before me on a motion to dismiss under Chancery
Court Rules 23.1, 12(b)(2), and 12(b)(6). The Plaintiff is a stockholder of Southern
Copper Corporation (“Southern Copper”), a Delaware entity. Per the complaint, the
defendant directors of the corporation caused it to enter several conflicted
transactions with its controllers. According to Article Nine of Southern Copper’s
corporate charter, these contracts required approval by a committee of independent
directors. While the defendant directors represented to stockholders and the public
that the corporation was in ongoing compliance with Article Nine, in fact no
committee of independent directors had approved the transactions, which, per the
Plaintiff, were unfair to the company.
Following argument on the Motion to Dismiss, I denied the motion with
respect to allegations of breach of fiduciary duty relating to the defendant directors
from the bench, finding that demand was excused based on the substantial likelihood
of liability I found they bore.1 I reserved decision on the motion of the company’s
controllers, Grupo México S.A.B, de C.V (“Grupo México”), a Mexican citizen, and
Americas Mining Corporation, another Delaware entity. Grupo México moved to
dismiss on grounds of lack of personal jurisdiction. The only basis the Plaintiff
asserts for jurisdiction over Grupo México is that that entity was part of a conspiracy
to transfer wealth from Southern Copper to it. Jurisdiction secured by participation
1
See Tr. of July 16, 2020 Bench Ruling, Dkt. No. 93.
1
in a conspiracy is limited by constitutional and statutory constraints. An alleged
conspiracy between Grupo México and a Delaware entity is not a basis for personal
jurisdiction absent a substantial act in Delaware in facilitation of the conspiracy by
a fellow conspirator, of which Grupo México was (or should have been) aware.
Here, the only act alleged is amending Southern Copper’s charter in 2005 to add the
protections for stockholders found in Article Nine. Per the Plaintiff, Grupo México
participated in this charter restatement, due to its having appointed Grupo México
allies to the Southern Copper board. But this act did not—could not—advance the
alleged conspiracy to wrongfully transfer wealth from Southern Copper to its
controllers; in fact, Article Nine was designed to protect stockholders from precisely
this risk. It thus impeded, not furthered, Grupo México’s ability to loot Southern
Copper. Because this is the sole act alleged to support a conspiracy theory of
jurisdiction, and because no other basis for personal jurisdiction over Grupo México
is alleged, Grupo México’s motion to dismiss under Rule 12(b)(2) must be granted.
My rationale is below.
I. Background2
This action is brought by plaintiff Carla Lacey derivatively on behalf of
nominal defendant Southern Copper. The Plaintiff alleges both breach of contract
2
Except where otherwise noted, facts referenced here are drawn from Pl.’s Verified Am.
Derivative Compl., Dkt. No. 49 (“Am. Compl.” or the “Complaint”).
2
and breach of fiduciary duty by certain current and former directors of Southern
Copper (the “Director Defendants”) and its controlling stockholders (the
“Controllers”), including Grupo México; Germán Larrea Mota-Velasco (“Germán
Larrea”), Grupo México’s Chairman, President, and CEO; and Americas Mining
Corporation (“AMC”), Grupo México’s wholly-owned subsidiary.
On June 18, 2020, the Court heard oral argument on all defendants’ motions
to dismiss. 3 I later denied the Director Defendants’ Motion to Dismiss with respect
to the Plaintiff’s claims for breach of fiduciary duty. 4 In this Opinion, I address
Grupo Mexico’s Motion to Dismiss under Rule 12(b)(2).
A. The Parties
The following facts, drawn from the Complaint, are deemed true for purposes
of this Motion to Dismiss.
The Plaintiff is, and has been, at all relevant times, a holder of Southern
Copper common stock. 5
3
See Tr. of Oral Arg. on Defs.’ Mot. to Dismiss, Dkt. No. 92.
4
See Tr. of July 16, 2020 Bench Ruling 7–8, Dkt. No. 93.
5
Am. Compl. ¶ 7.
3
Nominal defendant Southern Copper is a Delaware corporation with its
headquarters in Phoenix, Arizona. 6 It operates mining, smelting, and refining
facilities in Mexico and Peru that produce copper and other minerals. 7
Defendant Germán Larrea has served on the boards of both Grupo México
and nominal defendant Southern Copper. 8 He has been a member of Grupo
México’s board of directors since 1981 and has been Chairman, President, and CEO
since 1994. 9 He has also served as Chairman of Southern Copper’s board of
directors (the “Board”) since 1999 and was Southern Copper’s CEO from December
1999 to October 2004.10
Defendant Oscar Gonzáles Rocha (“Gonzáles Rocha”) has served as a
member of Southern Copper’s Board since November 1999, as President of Southern
Copper since December 1999, as General Director and Chief Operating Officer from
December 1999 to October 2004, and as CEO since October 2004.11 Gonzáles
Rocha is also CEO and a director of Asarco, LLC (“Asarco”), President and CEO of
AMC, and a director of Grupo México.12
6
Id. at ¶ 8.
7
Id.
8
See id. at ¶ 9.
9
See id. at ¶¶ 9–10.
10
Id. at ¶ 9.
11
Id. at ¶ 11.
12
Id.
4
Defendant Alfredo Casar Pérez (“Casar Pérez”) has served as a member of
Southern Copper’s Board since October 2006, and is also a director of Grupo
México. 13
Defendant Xavier García de Quevado Topete (“García de Quevado”) has
served as a member of Southern Copper’s Board since November 1999,14 and served
as Chief Operating Officer from April 2005 to April 2015. 15 García de Quevado has
also worked as an executive for Grupo México and its subsidiaries for over 40
years. 16
Defendant Luis Miguel Palomino Bonilla (“Palomino”) has served as a
member of Southern Copper’s Board since March 2004.17 He was nominated to the
Board by Grupo México.18 Palomino has also served as a member of the audit
committee of Southern Copper (the “Audit Committee”) since March 2004, which
was tasked with undertaking prior independent review of material related-party
transactions as required by Article Nine of Southern Copper’s Charter.19
13
Id. at ¶ 12.
14
Id. at ¶ 13.
15
Id.
16
Id.
17
Id. at ¶ 15.
18
Id.
19
Id.
5
Defendant Gilberto Pérezalonso Cifuentes (“Pérezalonso”) has served as a
member of Southern Copper’s Board since June 2002. 20 He was nominated to the
Board by Grupo México.21 Since June 2002, Pérezalonso has also served as a
member of the Audit Committee. 22
Defendant Carlos Ruiz Sacristán (“Ruiz Sacristán”) has served as a member
of Southern Copper’s Board since February 2004.23 He was nominated to the Board
by Grupo México.24 He served as Chairman of the board of Grupo México and
Asarco from 2005–2010.25
Defendant Enrique Castillo Sánchez Mejorada (Castillo Sánchez Mejorada)
has served as a member of Southern Copper’s Board since 2010.26 Since 2013,
Castillo Sánchez Mejorada has also served as a member of the Audit Committee. 27
Defendant Emilio Carrillo Gamboa (“Carillo Gamboa”) served as a member
of Southern Copper’s Board from May 2003 until April 2018.28 During that same
time frame, he also served as a member of the Audit Committee. 29
20
Id. at ¶ 16.
21
Id.
22
Id.
23
Id. at ¶ 18.
24
Id.
25
Id.
26
Id. at ¶ 20.
27
Id.
28
Id. at ¶ 22.
29
Id.
6
Director Alberto de la Parra Zavala (“de la Parra”) served as a member of
Southern Copper’s Board from July 2007 to April 2013. 30 He also served as General
Counsel to Grupo México and as Corporate Secretary to the board of directors of
Grupo México from 2007–2012.31
Defendant Luis Castelazo Morales (“Castelazo Morales”) served as a member
of Southern Copper’s Board from September 2010 to June 2016.32 He has also
served as a non-independent director of Grupo México since 2016.33
Defendant Armando Ortega Gómez (“Ortega Gómez”) served as a member of
Southern Copper’s Board from February 2005 to October 2010.34 He also served as
Southern Copper’s General Counsel, Vice President of Legal, and Secretary from
April 2002 to October 2010, and as General Counsel for Grupo México from May
2001 to February 2007. 35
Defendant Daniel Muñiz Quintanilla (“Muñiz”) served as a member of
Southern Copper’s Board from May 2008 to July 2018, and as Executive Vice
30
Id. at ¶ 24.
31
Id.
32
Id. at ¶ 25.
33
Id.
34
Id. at ¶ 26.
35
Id.
7
President from April 2016 to July 2018. 36 He also served as General Counsel for
Grupo México from May 2001 to February 2007.37
Defendant Juan Rebolledo Gout (“Rebolledo”) served as a member of
Southern Copper’s Board from May 2003 to September 30, 2015 and has also served
as International Vice President of Grupo México since 2001. 38
Defendant Luiz Téllez Kuenzler (“Téllez”) served as a member of Southern
Copper’s Board from March 2010 to April 2011. 39
Defendant AMC is a wholly-owned subsidiary of Grupo México incorporated
in Delaware.40 AMC has owned a majority of Southern Copper’s common stock at
all times relevant to this action.41 AMC also owns 100% of Asarco. 42 Asarco is not
a party to this action but is party to several of the transactions challenged in the
Complaint.
Defendant Grupo México is a Mexico-based holding company focusing on
the mining, construction, and transportation sectors.43 It is headquartered in Mexico
36
Id. at ¶ 27.
37
Id.
38
Id. at ¶ 28.
39
Id. at ¶ 29.
40
Id. at ¶ 30.
41
Id.
42
Id.
43
Id. at ¶ 35.
8
City. 44 Grupo México owns 100% of AMC stock45 and has been an indirect majority
stockholder of Southern Copper since 1999. 46
B. Relevant Facts
1. Southern Copper’s Charter
Southern Copper’s charter (the “Charter”) was enacted in 1995 and restated
in 2005. 47 Article Nine of the Charter (“Article Nine”), included when the Charter
was restated in 2005, prohibits Southern Copper from entering into transactions
involving consideration in excess of $10,000,000 with Grupo México or any of its
affiliates without prior review by a committee of independent Southern Copper
directors. 48 The Director Defendants were aware of these requirements and
approved public filings which detailed the Board’s obligations under Article Nine
each year from 2005 through 2016. 49
44
Id. at ¶ 31.
45
Id.
46
See id. at 42.
47
Id. at ¶ 45.
48
Id. Article Nine of Southern Copper’s Charter states the following:
[Southern Copper] shall not engage in any Material Affiliate Transaction unless it has been
the subject of prior review by a committee of the Board of Directors with at least three
members, each of whom is an Independent Director. . . . [A] ‘Material Affiliate
Transaction’ shall mean any transaction, business dealing or material financial interest in
any transaction, or any series of related transactions, between Grupo México or one of its
affiliates (other than [Southern Copper] or any of [Southern Copper’s] subsidiaries), on the
one hand, and [Southern Copper] or one of [Southern Copper’s] subsidiaries, on the other
hand, that involves consideration of more than $10,000,000 in the aggregate. Id.
49
Id. at ¶ 46. For example, Southern Copper’s Schedule 14As filed each year from 2007 to 2016
state that “[t]he Company is prohibited from entering or continuing a material related party
transaction that has not been reviewed and approved by the Audit Committee.” Id.
9
2. The Challenged Transactions
The Plaintiff presents several material related-party transactions that were not
subject to prior review by a committee of independent Southern Copper directors as
required by Article Nine. These violations came to light during a prior litigation
filed in this Court on December 7, 2015 (the “Power Plant Litigation”). 50 During
the course of discovery in that case, Southern Copper identified dozens of related
party transactions since January 2004, all but one of which were not subjected to the
prior review required by Article Nine. 51 A subset of those transactions make up
those discussed here (the “Challenged Transactions”). Each of the Challenged
Transactions allegedly had a value greater than $10 million, were not independently
reviewed as required by Article Nine, and were unfair to Southern Copper or one of
its subsidiaries. 52
The details of the transactions are of tangential relevance to Grupo Mexico’s
Motion to Dismiss for lack of personal jurisdiction. For the sake of completeness, I
adumbrate each below.
50
See id. at ¶¶ 4, 49.
51
See id. at ¶ 53. The one transaction that did received prior independent review was the subject
of In re S. Peru Copper Corp. S'holder Derivative Litig., 52 A.3d 761 (Del. Ch. 2011), in which
then-Chancellor Strine found that AMC and directors designated by Grupo México had breached
their fiduciary duties to Southern Copper. Id.52
Id. at ¶ 55.
10
a) The Buenavista del Cobre Tailings Dam
The first of the Challenged Transactions concerns a contract awarded to
Grupo México subsidiary México Compañía Constructora, S.A. de C.V. (“MCC”)
by Southern Copper subsidiary Buenavista del Cobre S.A. de C.V. (“BDC”) for the
construction of a new dam to contain mineral processing runoff at the Buenavista
copper mine. Construction of this dam would consist of three phases: (1) the
construction of the curtain, a barrier sufficient to store the first three years of tailings
produced by the Buenavista Mine’s second processing plan; (2) increasing the
capacity of the dam; and (3) incremental maintenance and capacity increases to be
performed over the lifetime of the mine, approximately 40 years. 53
BDC’s direct parent, Southern Copper subsidiary Minera México, S.A. de
C.V. (“Minera”), conducted a private bidding process for the first phase of
construction at the end of 2013.54 Minera selected two other companies to
participate, each with less experience building tailings dams than MCC.55 MCC’s
bid of $44.1 million was the lowest and BDC selected MCC as the contractor for the
project.56
53
Id. at ¶ 57.
54
Id. at ¶ 58.
55
Id. at ¶ 62.
56
Id. at ¶ 58. The next lowest bid was $69.5 million. Id.
11
On the same day that BDC and MCC entered a contract for the first phase,
BDC also awarded MCC the contract for the second phase of construction, worth
$156.5 million, without another bidding process.57 Both contracts imposed upon
Minera what, per the Plaintiff, was a disproportionate amount of risk and cost.58
b) Phase 2 La Caridad Tailings Dam
MCC was also awarded a contract to reinforce the curtain of Tailings Dam 7
at Southern Copper’s mine in Sonora, Mexico (the “La Caridad Dam”) by Southern
Copper subsidiary Mexicana del Cobre, S.A. de C.V. in 2010.59 This contract also
contained terms that were more favorable to MCC than they were to Southern
Copper’s subsidiary. 60
c) Former IMMSA Metallurgical Complex
On January, 29, 2010, Southern Copper subsidiary Industrial Minera México,
S.A. de C.V. (“IMMSA”) awarded MCC a contract to dismantle and remove a
former metallurgical complex in San Luis Potosí, Mexico so that the area could be
remediated for a non-industrial use.61 Later, on September 9, 2013 IMMSA awarded
MCC a contract to remediate the soil at that site as well. 62 Both contracts were
57
Id. at ¶ 59.
58
Id. at ¶¶ 63–64, 66–71.
59
Id. at ¶ 73.
60
See id. at ¶¶ 76–78.
61
Id. at ¶ 80.
62
Id.
12
directly awarded without a competitive bidding process, despite MCC’s lack of
expertise in these areas. 63 Like the other Challenged Transactions, the IMMSA
contracts lacked several standard contractual protections for Minera. 64
d) The Minerals Contracts
Between 2010 and 2017, various Southern Copper subsidiaries entered into
several contracts with Asarco, a wholly-owned subsidiary of AMC, for the purchase
and sale of raw materials used in copper production.65 In the aggregate, these
contracts were worth over $300 million. 66
e) The Transportation Contracts
Certain Southern Copper subsidiaries contract with Grupo México subsidiary
Grupo Ferroviario Mexicano, S.A. de C.V. (“Ferromex”) 67 to transport copper and
other materials on its rail lines to as well as for improvement and maintenance of
those rail lines. 68 Pursuant to these contracts, Southern Copper paid Ferromex over
63
The IMMSA remediation contract was MCC’s first soil remediation project. Id.
64
See id. at ¶¶ 83–90.
65
Id. at ¶ 92. The Southern Copper subsidiaries involved include Mexicana del Cobre, S.A. de
C.V., Operadora de Minas e Instalaciones Mineras, S.A. de C.V., and Metalúrgica del Cobre, S.A.
de C.V. See id. at ¶¶ 92, 92 n.53, 98.
66
See id. at ¶¶ 95, 98.
67
I note that Grupo México and AMC refer to this entity in their Opening Brief as “Ferrocarril
Mexicano, S.A. de C.V.” Opening Br. of Grupo México and AMC 11, Dkt. No. 66.
68
Am. Compl. ¶ 101.
13
$150 million for use of its rail lines and other services from 2010 through the first
quarter of 2017. 69
f) The Support Services Agreements
Lastly, the Plaintiff alleges that Grupo México and Southern Copper are
parties to an administrative support services contract whereby Southern Copper
directly pays Grupo México $13.8 million per year in fees.70
3. Southern Copper’s Audit Committee Review
While the Power Plant Litigation was ongoing, Southern Copper’s Audit
Committee formed a subcommittee of outside directors to review certain past
transactions that may have failed to comply with Article Nine.71 The subcommittee
retained KPMG Cardenas Dosal, S.C. (“KPMG”) and EY México (“EY”) to
evaluate the reasonableness of pricing in related-party transactions identified by
Southern Copper and its directors in the Power Plant Litigation.72 These consultants
issued final reports in 2018 that found little fault with the pricing of the past
69
Id.
70
Id. at ¶ 108. Southern Copper’s filings with the SEC from 2005 to 2017 contain substantively
the same disclosure, as demonstrated by its Schedule 14A, filed March 24, 2016: “Grupo México,
our ultimate parent and our majority indirect stockholder and its affiliates, provide various services
to us. In 2015, these activities were primarily related to accounting, legal, tax, financial, treasury,
human resources, price risk and hedging, purchasing, procurement and logistics, sales and
administrative and other support services. We pay Grupo México for these services. The total
amount paid by us to Grupo México for such services in 2015 was $13.8 million. We expect to
continue to pay for these support services in the future.” See id. at ¶ 108 n.60.
71
Id. at ¶ 112.
72
Id. at ¶ 113.
14
transactions, but recommended a variety of corporate governance improvements for
Southern Copper to implement in the future. 73 Their recommendations included,
among other suggestions, implementing transfer pricing and benchmarking
assessments, requiring competitive bidding processes for construction contracts,
better documentation of related-party transactions, and ensuring that an independent
committee review future related party contracts—as already required by Article Nine
of the Charter.74
C. Procedural History
The Plaintiff filed the Amended Complaint on October 25, 2019, alleging
breach of contract and breach of fiduciary duty on the part of the Director
Defendants, and breach of fiduciary duty on the part of the Controllers. I heard oral
argument on all defendants’ motions to dismiss on June 18, 2020. On July 16, 2020,
I delivered a telephonic bench ruling 75 denying the Director Defendants motion to
dismiss with respect to breach of fiduciary duty, and took the remaining motions
under consideration as of that date. This opinion addresses only defendant Grupo
México’s motion to dismiss for lack of jurisdiction under Chancery Court Rule
12(b)(2).
73
Id. at ¶¶ 114–15.
74
See id. at ¶¶ 115–18.
75
See Tr. of July 16, 2020 Bench Ruling, Dkt. No. 93.
15
II. Applicable Legal Standard
Grupo México has moved to dismiss for lack of personal jurisdiction under
Chancery Court Rule 12(b)(2). Unlike a 12(b)(6) motion, on a 12(b)(2) motion “the
Court is not constrained simply to accept the well pleaded allegation[s] of the
complaint as true.”76 Instead, the issue “may be resolved on the basis of the
complaint or evidence extrinsic to the complaint.” 77 Ordinarily, when a defendant
moves to dismiss pursuant to 12(b)(2), “the plaintiff bears the burden of showing a
basis for the court’s exercise of jurisdiction” 78 However, where, as here, “no
evidentiary hearing has been held, a plaintiff need only make a prima facie showing
of personal jurisdiction, and the record is construed in the light most favorable to the
plaintiff.”79
III. Analysis
Grupo México is a Mexican company that is not alleged to have done business
in or otherwise have a connection with this forum. The Plaintiff asserts that
jurisdiction over Grupo México is proper nonetheless, under the conspiracy theory
of jurisdiction.80
76
Gibralt Capital Corp. v. Smith, 2001 WL 647837, at *4 (Del. Ch. May 9, 2001).
77
Id.78
Konstantino v. AngioScore, Inc., 2015 WL 5770582, at *6 (Del. Ch. Oct. 2, 2015) (quoting Ryan
v. Gifford, 935 A.2d 258, 265 (Del. Ch. 2007)).
79
Id.80
See Pl.’s Answering Br. 54–60, Dkt. No. 73.
16
This theory does not attempt to create a separate basis for jurisdiction, 81 which
must be based on the Long-Arm statute as delimited by due process. Instead, it is a
rubric for including actors who knowingly participate in behaviors, by a fellow
conspirator, that subject that conspirator to jurisdiction. In other words, the
conspiracy theory of jurisdiction asserts that those who seek to avoid our courts by
acting at a distance may nevertheless create sufficient minimum contacts with
Delaware to satisfy the long-arm statute and due process.82
The conspiracy theory of jurisdiction is based on the legal principle that the
actions of one conspirator can be attributed to fellow conspirators.83 Thus, “if the
purposeful act or acts of one conspirator are of a nature and quality that would
subject the actor to the jurisdiction of the court, all of the conspirators are subject to
the jurisdiction of the court.”84
Under the conspiracy theory, the plaintiff must make a factual showing that:
(1) a conspiracy to defraud existed; (2) the defendant was a member of that
conspiracy; (3) a substantial act or substantial effect in furtherance of the conspiracy
81
Skye Mineral Investors, LLC v. DXS Capital (U.S.) Ltd., 2020 WL 881544, at *9 (Del. Ch. Feb.
24, 2020).
82
See id. (“The conspiracy theory is not an independent basis to demonstrate personal jurisdiction;
it is, rather, a means by which a plaintiff may advance his case for personal jurisdiction under the
long-arm statute.”).
83
See Matthew v. Fläkt Woods Gp. S.A., 56 A.3d 1023 (Del. 2012); Istituto Bancario Italiano, SpA
v. Hunter Engineering Co., Inc., 449 A.2d 210 (Del. 1982); Skye Mineral Investors, LLC v. DXS
Capital (U.S.) Ltd., 2020 WL 881544 (Del. Ch. Feb. 24, 2020).
84
Istituto Bancario, 449 A.2d at 222.
17
occurred in the forum state; (4) the defendant knew or had reason to know of the act
in the forum state or that acts outside the forum state would have an effect in the
forum state; and (5) the act in, or effect on, the forum was a direct and foreseeable
result of the conduct in furtherance of the conspiracy. 85 Because the test runs the
risk of expanding jurisdiction to encompass defendants who would otherwise be
beyond the reach of the forum, the test is construed narrowly, requiring factual proof
of each of the five elements.86 Accordingly, a sufficient pleading of jurisdiction
must assert facts sufficient to that end, viewed in the light, and aided by those
reasonable inferences, most helpful to the plaintiff.
85
Id. at 225. Because this five-part test “functionally encompass[es]” both prongs of the Delaware
long-arm statute—a statutorily defined nexus to the state as well as compliance with constitutional
notions of due process—a plaintiff that can meet all five elements of the conspiracy theory will
have also satisfied both prongs of the jurisdictional test. Konstantino v. AngioScore, Inc., 2015
WL 5770582, at *7 (Del. Ch. Oct. 2, 2015) (quoting Virtus Capital L.P. v. Eastman Chem. Co.,
2015 WL 580553, at *12 (Del. Ch. Feb. 11, 2015)); see also Skye Mineral Investors, 2020 WL
881544, at *9.
86
LVI Grp. Investments, LLC v. NCM Grp. Holdings, LLC, 2017 WL 3912632, at *2 (Del. Ch.
Sept. 7, 2017); see also Hercules Inc. v. Leu Trust and Banking, 611 A.2d 476, 482 n.6 (Del. 1992)
(“[T]he ‘conspiracy theory’ merely provides a framework with which to analyze a foreign
defendant's contacts with Delaware. We do not view the conspiracy as an independent
jurisdictional basis”); Istituto Bancario, 449 A.2d at 225 (noting that conspiracy jurisdiction is “a
strict test” that applies if the plaintiff makes a “factual showing” of required elements); Hartsel v.
Vanguard Grp., Inc., 2011 WL 2421003, at *10 (Del. Ch. June 15, 2011) (“Delaware courts
construe this test narrowly and require a plaintiff to assert specific facts, not conclusory allegations,
as to each element”); Newspan, Inc. v. Hearthstone Funding Corp., 1994 WL 198721, at *7 (Del.
Ch. May 10, 1994) (“all of [the five elements] must be satisfied before a Delaware court may
exercise personal jurisdiction.”).
18
The Plaintiff here maintains she has met the Istituto Bancario test with well-
pled allegations in her Amended Complaint.87 Grupo México disagrees, arguing that
the Complaint fails adequately to allege (1) that a conspiracy was formed, (2) that
Grupo México knew of or participated in the supposed-conspiracy, and (3) that any
substantial acts in furtherance of the conspiracy were committed in Delaware.88
Because I find that the Complaint does not allege any acts taken in Delaware that
could be in furtherance of a conspiracy, I conclude that this Court lacks personal
jurisdiction over Grupo México.
A. The Southern Copper Conspiracy
Under the Istituto Bancario test, I first ask whether the Plaintiff has carried
their prima facie burden to demonstrate that a conspiracy existed and that Grupo
México was a member of that conspiracy. 89 The Plaintiff’s Complaint nowhere
mentions a conspiracy. The Complaint does, however, allege a series of transactions
that, per my previous oral ruling,90 adequately state a claim for breach of fiduciary
87
Pl.’s Answering Br. 57, Dkt. No. 73.
88
Reply Br. of Grupo México and AMC 3, Dkt. No. 78 (“[T]he Opposition merely incants the
unsupported conclusion that Grupo México caused Southern Copper to engage in the Challenged
Transactions.”).
89
“The existence of a conspiracy is tested by reference to an additional five elements: ‘(1) two or
more persons; (2) some object to be accomplished; (3) a meeting of the minds between or among
such persons relating to the object or a course of action; (4) one or more unlawful acts; and (5)
resulting proximate damages.’” Skye Mineral Investors, 2020 WL 881544, at *10 (quoting Hartsel
v. Vanguard Group., 2011 WL 2421003, at *10).
90
See generally Tr. of July 16, 2020 Bench Ruling, Dkt. No. 93.
19
duty by the Director Defendants. The Plaintiff’s Answering Brief argues that Grupo
México, conspiring with the Director Defendants, “caused [Southern Copper] to
engage repeatedly in transactions for [Grupo México]’s benefit that violated Article
Nine (and fiduciary duties regulated by Delaware law).”91 In short, the Plaintiff asks
me to infer, from the fact that the Challenged Transactions occurred, that Grupo
México caused them to occur pursuant to a conspiracy between the Defendants. The
Amended Complaint, I note, does not allege an aiding and abetting claim. 92 Grupo
Mexico argues that this pleading, standing alone, is insufficient to support an
inference that it conspired with the other Defendants. In any event, because (as I
find below) the Amended Complaint fails adequately to allege an act in furtherance
of the conspiracy in Delaware, I need not decide whether I may infer a conspiracy
from the facts alleged.
B. The Acts in Delaware
Even assuming that Grupo México was a part of a conspiracy, in order to
establish jurisdiction the Plaintiff would have to allege that a substantial act in
furtherance of that conspiracy was taken in Delaware. Because each of the
91
Pl.’s Answering Br. 54–55.
92
It would be helpful to the Plaintiff’s theory if, in addition to pleading breach of fiduciary duty,
the Complaint sufficiently pled a related claim for aiding and abetting breach of that duty against
Grupo México. See Virtus Capital, Virtus Capital L.P. v. Eastman Chem. Co., 2015 WL 580553,
at *13 (Del. Ch. Feb. 11, 2015) (“Sufficiently pleading a claim for breach of fiduciary duty and a
related claim for aiding and abetting a breach of fiduciary duty satisfies the first and second
elements of the Istituto Bancario test.”).
20
Challenged Transactions occurred in Mexico between Mexico-domiciled
subsidiaries of Grupo México and Southern Copper,93 those transactions cannot be
the source of jurisdiction over Grupo México. Instead, the Plaintiff argues that a
single act took place in furtherance of the Conspiracy in this state: that Grupo
México “used its control over [Southern Copper], a Delaware entity, to cause
[Southern Copper] to enact a Charter that is governed by Delaware law and includes
Article Nine, which places specific restrictions on [Grupo México].” 94 Article Nine
was added to the Charter when it was restated in 2005.95 I assume here that the
pleadings of the Amended Complaint are sufficient for an inference that Grupo
Mexico had, or should have had, knowledge of this act. Filing a corporate instrument
in Delaware is an act occurring in the State. 96 If done in material furtherance of a
conspiracy, a charter amendment could confer personal jurisdiction under the Istituto
Bancario test. In this case, however, per the Plaintiff, Article Nine “was included
for the protection of Southern Copper and its minority stockholders from an abuse
of power by its Controllers.”97 Therefore, as set out in the Amended Complaint,
93
None of the contracts are alleged to have been performed in Delaware.
94
Pl.’s Answering Br. 54–55.
95
See Taylor Aff., Ex. 5 (the Amended and Restated Certificate of Incorporation of Southern Peru
Copper Corporation). Southern Copper was formerly known as Southern Peru Copper
Corporation. See Am. Compl. ¶ 37.
96
See Matthew v. Fläkt Woods Grp. SA, 56 A.3d 1023, 1027–28 (Del. 2012); Reid v. Siniscalchi,
2014 WL 6589342, at *10 (Del. Ch. Nov. 20, 2014) (“When done as an integral part of a wrongful
scheme, the formation of a Delaware entity confers personal jurisdiction under the long-arm
statute.”).
97
Am. Compl. ¶ 150 (emphasis added).
21
Article Nine was meant to prevent the precise bad acts that the Defendants
supposedly conspired to bring about. Article Nine is the axle around which the
wheel of liability here must turn. Its adoption is manifestly not an act in furtherance
of the alleged conspiracy. The Amended Complaint itself describes Article Nine as
the Charter device that “protect[s] [Southern Copper] from abuse by Grupo
México,” 98 and its creation cannot be both that and a conspiratorial act intended to
facilitate its own violation.
In asserting jurisdiction, the Plaintiff relies heavily on Virtus Capital. 99 An
examination of that well-reasoned case is instructive here. The case involved a
controller causing a chemical company, Sterling, to sell itself at a fire-sale price.100
The controller and his conspirators took acts in Delaware to further the conspiracy
in two instances, both of which, the Court found, were sufficient to support
conspiracy-theory jurisdiction.101 First, the certificate of merger, necessary to the
consummation of the wrongful transaction, was filed in Delaware with the Secretary
of State.102 The second instance is more apt here. The controller and his conspirators
pursed the merger by creating two additional Delaware entities to facilitate the sale.
“[The controller] did not have to create the liquidating vehicles; Fund I, Fund II, and
98
Id. at ¶ 2.
99
Virtus Capital L.P. v. Eastman Chem. Co., 2015 WL 580553 (Del. Ch. Feb. 11, 2015).
100
Id.101
Id. at *14.
102
Id.
22
the International Fund could have distributed their Sterling holdings to their
investors. But if [the controller] had chosen that route, then he would have given up
his control over a majority of Sterling's outstanding voting power and could not have
caused the various Resurgence entities to approve the Sterling Transaction through
action by written consent. The Complaint sufficiently alleges that forming the
liquidating vehicles was an integral part of the process that led to the Sterling
Transaction.” 103 This stands in contrast to the action here, where adding Article
Nine to the corporate charter did not facilitate, let alone form an “integral part,” of
any conspiracy.
To the extent that the Plaintiff argues that perhaps the Southern Copper
Defendants and Grupo Mexico conspired to add protections to the corporate Charter
to throw sleuthing stockholders like the Plaintiff off the scent of self-dealing, and,
in that way, the amendment of the Charter furthered the conspiracy, I must draw
inferences in favor of the Plaintiff, true, but only reasonable inferences.104
Therefore, I need not consider this theory further.
IV. Conclusion
The Plaintiff’s sole argument for subjecting Grupo México to the jurisdiction
of this Court is that, in facilitating the amendment of Article Nine, it has participated
103
Id.
104
E.g. Clinton v. Enterprise Rent-a-Car Co., 977 A.2d 892, 895 (Del. 2009).
23
in an act in Delaware in furtherance of a conspiracy against Southern Copper. But
the Plaintiff cannot successfully posit both that Article Nine was put in place to
protect Southern Copper from being looted by its parent Grupo México, and that
amending Southern Copper’s Charter to include those protections itself enabled
exactly that wrong. Because the Plaintiff fails to adequately allege that Grupo
México is subject to personal jurisdiction under the conspiracy theory, the Plaintiff’s
claims against Grupo México are dismissed.
The other Defendants’ Motions to Dismiss remain outstanding. The parties
should consult, provide a form of order consistent with the decision above, and
inform me in light of this decision and my Bench Ruling of July 16, 2020 what
matters remain to be addressed in connection with the Motion to Dismiss.
24