BAM International, LLC v. MSBA Group Inc., C.A. No. 2021-0181-SG (Del. Ch. Dec. 14, 2021) (Glasscock, V.C.)
In this memorandum opinion, which resolves a contractual dispute between commercial parties, the Court of Chancery held that it could not exercise personal jurisdiction over two individual defendants who had no relationship with the State of Delaware other than being officers of a Delaware corporation. The Court therefore granted the individual defendants’ motion to dismiss.
This litigation arose out of a contract governing payment for latex gloves. Plaintiff was obligated to deliver latex gloves to a third party and contracted with Malaysian manufacturers to supply the gloves. Plaintiff deposited the purchase price with an escrow agent, defendant MSBA Group Inc., who was responsible for returning the money if the manufacturers failed to supply the gloves. Defendant Mammoth RX, Inc. (“Mammoth”), a Delaware corporation, was a guarantor of that obligation. When delivery failed and the payment was not returned or reimbursed, plaintiff sued Mammoth for breach of contract under the escrow agreement and its CEO and CFO for tortious interference.
The Court first addressed plaintiff’s argument that Mammoth’s CEO and CFO were subject to personal jurisdiction under Delaware’s implied consent statute, pursuant to which officers of Delaware corporations are deemed to have consented to personal jurisdiction in Delaware in two situations: (1) for actions alleging breach of their duty to the corporation and its stockholders; or (2) where litigation is brought in Delaware involving the corporation, to which the officer is a necessary or proper party. Because the action did not arise out of the officers’ fiduciary duties to Mammoth or its stockholders, the Court examined whether the defendants were necessary or proper parties to the action. The Court held that the officers were proper parties because the claims against them were for tortious interference with the relevant contract and established legal interests separate from those of Mammoth.
Having held that the officers were proper parties to the action, the Court turned next to a review of the minimum-contacts requirement of the Due Process Clause. The Court held that personal jurisdiction would not comport with the minimum-contacts requirement because (1) the contract did not involve the General Corporation Law of the State of Delaware or otherwise implicate Delaware’s corporate law, (2) the contract would be performed in Utah, not Delaware, and (3) any distribution from the escrow account would be from a Utah escrow agent to a Malaysian supplier. Examining these factors, the Court held that Delaware interests were not implicated, and the individual defendants’ status as officers of a Delaware corporation was insufficient, without more, to satisfy the constitutional requirements of due process. Thus, the Court rejected plaintiff’s argument that specific jurisdiction could be found under the Consent Statute, even though defendants were proper parties.
Second, the Court addressed plaintiff’s argument that personal jurisdiction could be established under the contract’s forum-selection clause. The Court rejected this argument as a basis for personal jurisdiction because defendants were non-signatories and were not closely related to the contract. Specifically, the Court held that the officers did not receive a direct benefit from the contract and that being haled into Delaware court was not foreseeable.
Finally, the Court addressed and rejected plaintiff’s argument that defendants were estopped from denying the application of the forum-selection clause. The Court reasoned that, because the “closely-related” test discussed above is properly grounded in estoppel, this affirmative defense failed for the same reasons.
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