Delaware Law Updates
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Hazout v. Tsang Mun Ting, No. 353, 2015 (Del. Feb. 26, 2016) (Strine, C.J.)

February 26, 2016

In this decision, the Delaware Supreme Court rejected a long line of judicial decisions that had significantly limited the circumstances in which Delaware courts could exercise personal jurisdiction over nonresident directors and officers of Delaware corporations under 10 Del. C. § 3114, Delaware’s director and officer consent-to-service statute.  The Court held that Section 3114 permits jurisdiction over a nonresident officer or director of a Delaware corporation in any civil action in which the corporation is a party and the officer or director is a “necessary or proper party.”  This decision overturned long-standing precedent from the Court of Chancery limiting jurisdiction under Section 3114 to actions involving alleged breaches of a fiduciary or statutory duty owed to the corporation or its stockholders by the nonresident officer or director.

Marc Hazout was a Canadian resident who was an officer and director of Silver Dragon Resources, Inc. (the “Company”), a Delaware corporation.  Tsang Mun Ting, representing a group from Hong Kong interested in purchasing control of the Company, sued Hazout and the Company in the Delaware Superior Court, alleging that Hazout, acting in his official capacity as an officer of the Company, fraudulently transferred funds provided by the group to the Company as part of a capital infusion transaction.  Hazout moved to dismiss the complaint against him, arguing that Section 3114 did not permit jurisdiction over him because the complaint did not allege a breach of fiduciary duty.  The Delaware Superior Court disagreed and held that the statute permitted the Court to exercise jurisdiction.  Hazout requested an interlocutory appeal.

The Delaware Supreme Court accepted an interlocutory appeal and affirmed, holding that the lawsuit against Hazout satisfied the requirements for the exercise of personal jurisdiction over nonresident officers pursuant to Section 3114:  a civil action in which the Company was a party and Hazout was a necessary or proper party.  The Court rejected a line of decisions from the Court of Chancery originating with Hana Ranch, Inc. v. Lent, 424 A.2d 28 (Del. Ch. 1980), which, to avoid the possibility that Section 3114 might be used to exercise personal jurisdiction over nonresidents beyond constitutional boundaries, judicially limited the scope of permissible jurisdiction under Section 3114 to civil actions involving alleged breaches of the fiduciary or statutory duties of nonresident officers and directors.  Criticizing these decisions for “excis[ing]” a portion of the statute, the Delaware Supreme Court held that the proper approach is to apply the plain language of Section 3114, then evaluate whether exercising jurisdiction would comport with due process under the minimum contacts analysis described in International Shoe Co. v. Washington, Office of Unemployment Compensation and Placement, 326 U.S. 310 (1945) and its progeny.  The Court also suggested that the doctrine of forum non conveniens may relieve directors and officers from unduly burdensome lawsuits in Delaware and reminded that the “traditional protections of the corporate shield are unaffected by this decision.”

The full opinion is available here