Judge Davis Considers Challenge to Personal Jurisdiction over Corporate Officers

January 24, 2018

Publication

In Turf Nation, Inc. v. UBU Sports, Inc., C.A. No. N17C-01-271-EMD [CCLD], Judge Davis granted an individual defendant’s motion to dismiss the plaintiff’s complaint for lack of personal jurisdiction. This case began when plaintiff Turf Nation, Inc. sued defendant UBU Sports, Inc. for breach of contract. Turf Nation also asserted claims against UBU Sports and Joseph Michael Vrankin, the president and CFO of UBU from January 2014 to January 2017, for violations of several state trust fund statutes.

Mr. Vrankin, a non-resident, moved to dismiss for lack personal jurisdiction. Judge Davis held that the Court did not have personal jurisdiction over the officer under 10 Del. C. § 3114 or 10 Del. C. § 3104. Relying on the recent decision of Hazout v. Tsang Mun Ting, 134 A.3d 274, 277 (Del. 2016), Judge Davis determined that the officer was a necessary and proper party to the action under Section 3114, but that jurisdiction over Mr. Vrankin would be inconsistent with his constitutional expectations of due process. In so holding, Judge Davis found that Mr. Vrankin was a necessary or proper property, because (1) the action was against a Delaware corporation, (2) Mr. Vrankin had a separate legal interest because he was personally liable for conduct purportedly committed in his capacity as an officer, and (3) the claims against Mr. Vrankin arose out of the same facts and circumstances as the claims against the corporation. However, Judge Davis concluded that there was “not a proper basis to subject [the officer] to the jurisdiction of [the C]ourt” pursuant to the Constitutional expectations of due process. He found “no rational connection to Delaware” because the plaintiff brought claims under the law of other states, the purported actions by Mr. Vrankin occurred in other states, the agreement called for application of Georgia law, and neither corporation’s principal place of business was located in Delaware.

Analysis: Under Delaware law, a court may have personal jurisdiction over non-resident corporate officers in actions against a Delaware corporation where the officer is a necessary or proper party, or in cases that allege violations of their fiduciary duties. 10 Del. C. § 3114(a); Hazout, 134 A.3d at 277. For an officer to be sued as a “necessary or proper party,” there must “be a close nexus between the claims against the corporation and those against the officer and director, and that the claims against the officer and director involve conduct taken in his official corporate capacity.” Hazout, 134 A.3d at 279. Being a “necessary and proper party” is not sufficient to satisfy Constitutional due process, however. The Court must examine whether the exercise of personal jurisdiction is consistent with the person’s constitutional expectations of due process. Here, Judge Davis found no basis why a corporate fiduciary, like Mr. Vrankin, would have expected to be haled into a Delaware court to answer claims regarding the violation of trust fund statutes in Pennsylvania, Texas, New York, Colorado, or Wisconsin. Parties considering whether to join officers of a corporation as defendants in an action should anticipate that Delaware courts will apply the same rigorous analysis as Judge Davis applied here to determine whether personal jurisdiction is appropriate.