Sample v. Morgan, 935 A.2d 1046 (Del.Ch. 2007)
Brief Summary
The Delaware Court of Chancery held that it had personal jurisdiction over an out of state law firm alleged to have been involved in a client’s tortious schemes because, inter alia, the law firm filed a corporate certificate amendment in Delaware.
Complete Summary
Plaintiff Sample brought suit against the top managers of Randall Bearings, Inc., alleging breach of fiduciary duty through an entrenchment and enrichment scheme. Randall Bearings was incorporated in Delaware and headquartered in Ohio. Law firm Baker & Hostetler represented Randall Bearings in matters related to the alleged breach and in the present litigation. Part way through this litigation, Sample added Baker & Hostetler as a defendant. Baker & Hostetler moved to dismiss on the ground that the court lacked personal jurisdiction over Baker & Hostetler.
The court upheld personal jurisdiction under the Delaware long arm statute and under the Due Process clause of the 14th Amendment of the U.S. Constitution. The Delaware long arm statute grants jurisdiction over any nonresident who “[t]ransacts any business . . . in the state,” or who “[c]auses tortious injury in the State.” Id. at 1056, quoting 10 Del. C. § 3104. Baker & Hostetler transacted business by preparing and sending a corporate certificate amendment to the Secretary of State in Delaware. Further, assuming plaintiff’s allegations were true, the filing of the amendment — which was integral to the alleged entrenchment and enrichment scheme — caused tortious injury to Randall Bearings in Delaware because the company was incorporated in Delaware.
Baker & Hostetler argued in defense that Randall Bearings was technically the entity that filed the certificate even though individuals at Baker & Hostetler, acting as the company’s agents, performed the act. Similarly, Baker & Hostetler argued that a lawyer who acts as an agent for her client should be immune from suit so long as the only benefit that she receives from her act is a fee. The court summarily dismissed both arguments. Significant to the court’s reasoning was the likelihood that Baker & Hostetler did not act solely for its client Randall Bearings, but instead was accused of participation in the alleged scheme to further the directors’ interests.
Personal jurisdiction under the Due Process Clause of the 14th Amendment was held permissible because, inter alia, Baker & Hostetler advertised itself as a national law firm with a coast to coast platform that regularly advises public corporations. Also significant to this foreseeability test was Baker & Hostetler’s sophistication, and the fact that the firm, despite never appearing in Delaware court, had “quarterback[ed] the defense of this action.” Id. at 1065.
Significance of Opinion
The court’s holding was fact-specific and presumably does not stand for the proposition that all firms who advise Delaware Corporations or file documents in Delaware will be dragged into court in that state. On the other hand, the court’s holding does support the view that a firm which holds itself out as national in scope may have to take the adverse consequences along with the good.
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