Tagged: Corporate Governance

Delaware Supreme Court Clarifies Reach of Personal Jurisdiction Over Nonresident Directors and Officers of Delaware Corporations Under 10 Del. C. § 3114

The Delaware Supreme Court, in Marc Hazout v. Tsang Mun Ting, No. 353, 2015 (Feb. 26, 2016) (Strine, C.J.), held that the reach of personal jurisdiction under 10 Del. C. § 3114 over nonresident officers and directors of Delaware corporations, contrary to Court of Chancery precedent, is not limited to claims by stockholders against such officers and directors for breach of fiduciary duty. Rather, under the plain language of the statute, a nonresident officer or director of a Delaware corporation, by virtue of accepting and holding office, has consented to personal jurisdiction in Delaware, subject to the requirements of due process, in two classes of cases: (i) “all civil actions or proceedings brought in this State, by or on behalf of, or against such corporation, in which such officer [or director] is a necessary or proper party”; or (ii) “any action or proceeding against such officer [or director] in violation of a duty in such capacity.”

Delaware Supreme Court Says that Minority Stockholder Which Manages Company’s Day-to-Day Affairs is not a “Controlling Stockholder” and Confirms that Mandatory Stockholder Approval of Merger Transaction Compels Application of Business Judgment Rule

The Delaware Supreme Court’s recent decision in Corwin v. KKR Financial Holdings LLC makes two important points about corporate governance litigation. First, the court rejected the novel argument that an owner of less than 1% of a company’s stock could be considered a “controlling stockholder” because it managed the company’s day-to-day affairs under a management agreement. Second, the court confirmed that when a transaction has been approved by a majority of the company’s disinterested stockholders, the highly deferential business judgment rule should govern any challenges to the transaction, even if the stockholder vote was statutorily required and not voluntary.

Board-Friendly Rales Test Determines Futility of Pre-Suit Demand When Challenged Decision Is Made by a Board Committee Comprised of a Minority of Board Members

Delaware courts have two tests for determining when it is futile for a plaintiff in a derivative action to make a pre-suit demand of the corporation’s board of directors under Court of Chancery Rule 23.1. The Aronson v. Lewis test applies when the board which would consider the demand made the business decision challenged in the derivative action. Under that test, demand is futile if (1) there is a reasonable doubt that the directors are disinterested and independent or (2) there is a reasonable doubt that the challenged transaction was otherwise the product of a valid exercise of business judgment.

Delaware Corporations May Enact Bylaws Requiring Litigation to be Venued in Delaware Courts

On June 25, 2013, the Delaware Court of Chancery paved the way for the boards of directors of Delaware corporations to amend their bylaws to include forum selection clauses requiring any litigation related to the corporation’s internal affairs to be conducted in Delaware courts. Adopting such provisions is intended to avoid the inefficiency and cost of Delaware corporations having to defend against the same litigation in multiple forums (e.g., both in Delaware and the state of the corporation’s principal place of business, as well as in state and federal court).

New Law Places Stricter Limits on Shareholder Derivative Suits

On April 2, 2013, Governor Christie signed A-3123, which revises New Jersey’s law concerning shareholder derivative proceedings under N.J.S.A. § 14A:3-6. According to the New Jersey Corporate and Business Law Study Commission, the purpose of this new law is to preclude derivative lawsuits that impose excessive and unnecessary costs on New Jersey corporations. The law applies to both derivative proceedings brought on behalf of a single shareholder and shareholder class actions against a corporation or its directors that arise out of a breach of duty imposed by New Jersey statutory or common law.