Taylor v. LSI Logic Corp., 58
| Decision Date | 21 July 1998 |
| Docket Number | 1998,No. 58,58 |
| Citation | 715 A.2d 837 |
| Parties | Ethel TAYLOR, Plaintiff Below, Appellant, v. LSI LOGIC CORPORATION, Defendant Below, Appellee. . Submitted: |
| Court | Supreme Court of Delaware |
Court Below: Court of Chancery of the State of Delaware, in and for New Castle County, C.A. No. 13915.
Upon appeal from Court of Chancery: AFFIRMED.
Joseph A. Rosenthal, and Kevin Gross, Rosenthal, Monhait, Gross & Goddess, P.A., Wilmington (H. Adam Prussin (argued), of Silverman, Harnes, Harnes, Prussin & Keller, New York City; and Berman Devalerio Pease & Tabacco, San Francisco, CA; of counsel), for Plaintiff.
R. Franklin Balotti and Robert J. Stearn, Jr., of Richards, Layton & Finger, Wilmington , for Defendant.
Before WALSH, HARTNETT, and BERGER, JJ.
In this appeal we consider whether the Court of Chancery has subject matter jurisdiction to adjudicate a claim predicated upon Section 241 of the Canada Business Corporations Act ("the Canadian Act"). We hold that the equitable relief sought in the complaint may be granted only in the courts of Canada as those courts are defined in Section 2 of the Canadian Act. We, therefore, affirm the Court of Chancery's dismissal of the suit, albeit on different grounds. We disagree with the Court of Chancery that the doctrine of comity dictates dismissal of this suit and we find that its holding that it had concurrent jurisdiction to hear this suit was incorrect.
The pertinent facts are outlined in detail in this Court's 1997 decision involving this suit. 1 In summary, Ethel Taylor, a citizen of Toronto, Canada, alleges that she formerly owned shares of common stock of LSI Logic of Canada ("LSI Canada"). LSI Canada, a Canadian Corporation chartered under the Canada Business Corporations Act, designed computer systems for its Canadian customers. LSI Logic Corporation ("Logic-Delaware"), a Delaware Corporation, designs and manufactures computer systems for corporate customers around the world and was LSI Canada's sole supplier. Logic-Delaware would manufacture and sell computers to LSI Canada's specification that LSI Canada resold to its customers.
In November 1994, Logic-Delaware, which owned 55% of LSI Canada's common stock, announced its intention to take LSI Canada private through an offer to purchase all of LSI Canada's issued and outstanding publicly traded common shares at $3.30 per share. 2 The remaining 45% of LSI Canada's common stock was publicly traded and was widely held by citizens of the United States and Canada. 3 In connection with the offer, LSI Canada's independent directors hired ScotiaMcLeod, an investment banking firm, which estimated the value of LSI Canada's issued and outstanding common shares to be $4.80 to $5.60 per share. 4 Logic-Delaware subsequently withdrew its offer rather than increase its price.
Approximately six months later, Logic-Delaware announced another offer to buy the outstanding common stock of LSI Canada for $4 per share. In its offering circular, Logic-Delaware revealed that it proposed to increase intercompany transfer prices with LSI Canada to reflect Logic-Delaware's high risk, capital intensive operations. Logic-Delaware recognized that these increases would have a materially adverse affect on LSI Canada's profitability, and, therefore, considered it appropriate to make an offer to purchase all the outstanding shares.
At the independent directors' request, ScotiaMcLeod, again, valued LSI Canada's common shares, estimating the value of the shares to be approximately $4.90 to $5.70 per share. The independent directors, nevertheless, recommended to the minority shareholders that they "seriously consider accepting" Logic-Delaware's $4 per share offer. In the independent directors' opinion, LSI Canada would have increasing difficulty in resisting Logic-Delaware's proposed changes to LSI Canada's business that would ultimately " ... materially reduce the profitability of LSI Canada ... ".
The minority shareholders, including Plaintiff Taylor, subsequently tendered approximately 10.1 million shares, leaving fewer than 1.7 million shares not tendered. On September 8, 1995, LSI Canada, at Logic-Delaware's behest, implemented a reverse stock split that cashed out the remaining public shares at the same $4 per share price. 5
Taylor, despite tendering all her shares in response to Logic-Delaware's tender offer, brought an action in the Delaware Court of Chancery seeking to enjoin Logic-Delaware from acquiring the minority shareholder's interest in LSI Canada and from implementing any changes in Logic-Delaware's transfer pricing policies or otherwise undermining LSI Canada's profitability. Logic-Delaware responded by moving to dismiss Taylor's complaint. The issue of lack of subject matter jurisdiction was not asserted in that motion, however, and the only issue argued was that the suit should be dismissed on the grounds of forum non conveniens. That argument was predicated on the allegation that Delaware courts should defer to the Canadian courts because LSI Canada was a Canadian corporation. The Court of Chancery granted the motion and dismissed the action. 6 On appeal, this Court reversed, holding that Logic-Delaware had "failed to demonstrate how plaintiff's choice of forum results in an overwhelming hardship to it." 7
On April 25, 1997, Logic-Delaware renewed its motion to dismiss by asserting that the Court of Chancery did not have subject matter jurisdiction and, alternatively, that the complaint failed to state a claim under Section 241 of the Canada Business Corporations Act. 8 The Court of Chancery found that it had concurrent jurisdiction to adjudicate Taylor's claim under the Canadian Act. 9 Nevertheless, it dismissed the action finding that principles of comity required it "to refrain from resolving public policy issues of first impression touching the internal governance of entities controlled by Canada law." 10
In this appeal, Taylor contends that the Court of Chancery misapplied the principles of comity and, therefore, improperly dismissed her complaint without finding that the complaint failed to state a cause of action. In addition, she maintains that her complaint states a cause of action.
In response, Logic-Delaware contends that the Delaware Court of Chancery lacks subject matter jurisdiction to hear Taylor's claim that is based solely on the Canadian Act. Alternatively, Logic-Delaware contends that the complaint was properly dismissed under the doctrine of comity or the "internal affairs doctrine," or because the complaint fails to state a cause of action under the Canadian Act.
The dispositive issue presented in this appeal is whether the Court of Chancery has subject matter jurisdiction to adjudicate a cause of action predicated on Section 241 of the Canada Business Corporations Act. This requires us to determine whether the trial court correctly formulated and applied legal precepts in construing the statutory laws of Canada. 11 Accordingly, our review is de novo. 12
LSI Canada contends that the Delaware Court of Chancery lacks subject matter jurisdiction because Section 2 of the Canada Business Corporations Act requires that suits based on the Canadian Act be brought only in the courts of Canada. In contrast, Taylor contends that Section 2 relates only to procedural venue and is not a jurisdictional provision.
Taylor concedes that the sole basis for her claim is Section 241 of the Canadian Act, commonly referred to as the "oppression remedy." The "oppression remedy" has been described as being the:
Charter of Rights and Freedoms of corporate law. It is a relatively new creature of statute, so it is little developed. It is broad and flexible, allowing any type of corporate activity to be the subject of judicial scrutiny. The potential protection it offers corporate stakeholders is awesome. Nevertheless, the legislative intent of the oppression remedy is to balance the interests of those claiming rights from the corporation against the ability of management to conduct business in an efficient manner. 13
Section 241 of the Canada Business Corporations Act provides in relevant part:
(1) A complainant may apply to a court for an order under this section.
(b) the business or affairs of the corporation or any of its affiliates are or have been carried on in a manner, or
(c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner that is oppressive or unduly prejudicial or that unfairly disregards the interest of any security holder, ... the court may make an order to rectify the matters complained of. 14 (emphasis added)
Section 2 of the Canadian Act provides:
(1) In this Act, ... "court " means:
(d) in the Province of Quebec, the Superior Court of the Province, and
(e) in the Yukon Territory and the Northwest Territories, the Supreme Court thereof; 15
In construing a statute, this Court must ascertain the Legislative intent. 16 In ascertaining the...
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