Hazout v. Ting

• Decision Date: 26 February 2016
• Docket Number: No. 353, 2015,353, 2015
• Parties: Marc Hazout, Defendant Below–Appellant, v. Tsang Mun Ting, Plaintiff Below–Appellee.
• Court: United States State Supreme Court of Delaware

134 A.3d 274

Marc Hazout, Defendant Below–Appellant,

v.Tsang Mun Ting, Plaintiff Below–Appellee.

No. 353, 2015

Supreme Court of Delaware.

Submitted: January 20, 2016

Decided: February 26, 2016

David L. Finger, Esquire (Argued ), Finger & Slanina, LLC, Wilmington, Delaware, for Appellant.

M. Duncan Grant, Esquire (Argued ), Christopher B. Chuff, Esquire, Pepper Hamilton LLP, Wilmington, Delaware; Alan Howard, Esquire, Jared Levine, Esquire, Crowell & Moring LLP, New York, New York, for Appellee.

Before STRINE, Chief Justice; HOLLANDand SEITZ, Justices.

STRINE, Chief Justice:

I. INTRODUCTION

The plain language of § 3114(b) of Title 10 states that a nonresident officer of a Delaware corporation, by virtue of accepting and holding office, has consented to the exercise of personal jurisdiction over him in the Delaware courts 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 is a necessary or proper party"; or (ii) "any action or proceeding against such officer for violation of a duty in such capacity."¹ This case involves a straightforward application of that language.

Here, Marc Hazout—a Canadian resident who is the President, CEO, Principal Financial and Accounting Officer, and a director of a Delaware corporation, Silver Dragon Resources, Inc.—has been sued for acts taken in his official capacity on behalf of a Delaware corporation based in Canada. As alleged in the complaint, Hazout was the lead negotiator for Silver Dragon in negotiating a capital infusion from a group of affiliated investors including Tsang Mun Ting and other residents of Hong Kong (the "Investor Group"). That capital infusion when consummated would have required a change of control of Silver Dragon from Hazout and certain others to Tsang and his fellow investors, who would have achieved the right to control Silver Dragon's board. The capital infusion was to be consummated by way of a series of agreements, four of which specified that Delaware law was to govern their terms, with one of those four agreements further providing that any dispute over it was to be litigated in Delaware. We shall refer to the interrelated set of agreements as the "Change of Control Agreements." The primary agreement provided that the Investor Group would lend Silver Dragon $3.4 million, subject to certain conditions, including a security interest in all of Silver Dragon's assets and the resignation of four directors. We will call that agreement the "Loan and Board Replacement Agreement." When all terms were negotiated and the Change of Control Agreements were ready to be inked, Tsang pushed send on the first $1 million of the $3.4 million in capital to be infused, based on his assurance that Hazout and the other directors of Silver Dragon would soon execute the Loan and Board Replacement Agreement. Hazout and two other Silver Dragon directors did sign the Loan and Board Replacement Agreement, but a fourth refused. Rather than return the $1 million to Tsang, however, Hazout not only caused Silver Dragon to keep it, but also had Silver Dragon send $750,000 of it to Travellers International, Inc., a corporation that Hazout controlled.

Tsang therefore brought this suit in the Superior Court of Delaware against Silver Dragon, Hazout, and Travellers for unjust enrichment, fraud, and fraudulent transfer in violation of the Delaware Uniform Fraudulent Transfer Act. Hazout moved to dismiss on the ground that there was no basis for the exercise of personal jurisdiction over him in Delaware because Tsang was not suing Hazout as a stockholder of Silver Dragon for breach of any fiduciary or other duty owed to Silver Dragon as an entity or Tsang as a stockholder. The Superior Court disagreed and found that § 3114(b)provided a proper basis for personal jurisdiction.² We accepted a certified interlocutory appeal on the personal jurisdiction question from the Superior Court.

In this decision, we affirm. Under the clear language of § 3114(b), this is a "civil action[ ]" against the Delaware corporation of which Hazout was an officer and director, and Hazout is a "proper party" to that action because he has a legal interest in the dispute that is separate from Silver Dragon's interest, and because Tsang's claims against him arise out of the same facts and occurrences as the claims against Silver Dragon and it serves judicial economy to consider those claims together.³ Here, as the Superior Court found, all of the claims against Hazout arise out of actions taken in his official capacity, and they include using his authority as a Silver Dragon fiduciary to cause funds paid to Silver Dragon by Tsang to be not only retained by it, but also to be transferred to Hazout's own affiliated company. Thus, there is no rational argument that the terms of § 3114(b)are not satisfied.

Hazout, however, argues that the provision of § 3114that applies to civil actions brought in this state against a corporation in which such director and officer is a necessary or proper party (the "Necessary or Proper Party Provision") was read out of the statute by the Court of Chancery in Hana Ranch, Inc. v. Lent,⁴ and that the only operative provision of § 3114is the one dealing with actions against a director and officer "for violation of a duty in such capacity"⁵ (the "Internal Affairs Claim Provision"). Because Hazout is not being sued by Tsang for breach of a fiduciary or statutory duty owed to Sliver Dragon or Tsang as a stockholder, Hazout says that there is no basis for this state to exercise personal jurisdiction over him.

We disagree with that argument. Contrary to Hazout, we do not believe that it is a proper role for the Judiciary to excise a clear category set forth in § 3114(b), simply because there might be cases where it is susceptible to an overly broad reach. We understand that a decision of the Court of Chancery issued many years ago took that approach, but this Court has never ruled on that approach and we do not embrace it. Rather, under settled principles of statutory interpretation, it is our obligation to give effect to the plain language of statutes to the extent we can do so without offending any supervening constitutional limits. As both Chancellor Allen⁶ and Chancellor Chandler⁷ pointed out, that can be done in the case of § 3114by ensuring that any exercise of personal jurisdiction under the statute is also consistent with due process, by applying the established minimum contacts test from International Shoe and its progeny.⁸

Here, that test is easily satisfied because the issues at the heart of this case involve Hazout's conduct in retaining and then diverting $1 million that Silver Dragon obtained control over in the course of negotiating and coming to near-closure on the Change of Control Agreements, which included four agreements that provided for the application of Delaware law, one of which also stated that "[a]ny dispute or cause of action arising hereunder shall be litigated in the State or Federal courts situated in the State of Delaware"⁹ and that involved a contract that would have transferred control of a Delaware corporation from its current controllers to the Investor Group. The geography of where Hazout, as the lead operative for Silver Dragon, and Tsang, as the lead investor, were located when they negotiated the transaction, was not the focus of their shared interaction. Rather, the key expectancies for all concerned were focused on Delaware, both as reflected in the precise terms of the Agreements they were negotiating, and the main focus of the Loan and Board Replacement Agreement, under which control over the governance of a Delaware corporation would pass in return for a major capital infusion. Because of these facts and the reality that all of Hazout's actions relevant to the suit could not have been accomplished without the power of his offices in a Delaware corporation, there is no due process problem in exercising personal jurisdiction over Hazout.

Furthermore, we also recognize that in crafting § 3114, the General Assembly included a safeguard against overreaching, because a nonresident officer and director can only be served in a case in which the corporation itself is a party, and in which the officer and director is a necessary or proper party to that suit. By that means, the statute requires that there 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. In other words, this safeguard ensures that the implied consent mechanism of § 3114only applies when a director or officer faces claims that arise out of his exercise of his corporate powers.

Finally, we note that the ability of a defendant to move for dismissal on forum non conveniens grounds provides an additional tool to ensure that officers and directors are not subjected to suit in Delaware in a way that is unduly burdensome. Our precedent makes clear that even Delaware corporations can avoid facing suit in Delaware, where the connection between the claims at issue and Delaware are attenuated and the defendant corporation faces an undue burden.¹⁰ That avenue for relief is also open to nonresident officers and directors.

Accordingly, we affirm the Superior Court's judgment denying Hazout's motion to dismiss claims against him for lack of personal jurisdiction.

II. THE BUSINESS DEALINGS THAT FRAME THE PERSONAL JURISDICTION QUESTION¹¹

As the introduction makes clear, this appeal turns on the interpretation of a statute, and whether personal jurisdiction can be exercised over Hazout, either because he: (i) is a "necessary or proper party" to an action against the corporation; or (ii) violated a statutory or fiduciary duty in his capacity as a director and officer.¹² And as we shall further see, the reason this appeal has been certified from our Superior...