The recent decision of LVI Group Investments LLC v. NCM Group Holdings LLC, C.A. No. 12067-VCG (Del. Ch. Sept. 7, 2017) addresses the concept of conspiracy theory of jurisdiction, under which which a non-resident may be subject to Delaware court jurisdiction if a co-conspirator commits an act in Delaware in furtherance of the conspiracy.

Specifically, according to the Delaware Supreme Court,

a conspirator who is absent from the forum state is subject to the jurisdiction of the court, assuming he is properly served under state law, if the plaintiff can make a factual showing that: (1) a conspiracy to defraud existed; (2) the defendant was a member of that conspiracy; (3) a substantial act or substantial effect in furtherance of the conspiracy occurred in the forum state; (4) the defendant knew or had reason to know of the act in the forum state or that acts outside the forum state would have an effect in the forum state; and (5) the act in, or effect on, the forum state was a direct and foreseeable result of the conduct in furtherance of the conspiracy.

Istituto Bancario Italiano SpA v. Hunter Eng’g Co., 449 A.2d 210, 225 (Del. 1982).

In LVI Group, Vice Chancellor Glasscock examined whether a non-resident CFO of a Delaware corporation was subject to jurisdiction in Delaware under the conspiracy theory of jurisdiction.  The Court found that plaintiff’s attempt to establish personal jurisdiction via a conspiracy theory fails because “[a] corporation cannot conspire with itself.”  Slip op. at 6.  Plaintiff alleges a conspiracy between defendant corporation, its executives and board members.  As this Court has explained, however, “a corporation generally cannot be deemed to have conspired with its officers and agents for purposes of establishing jurisdiction under the conspiracy theory.”  Id.

Plaintiff argued an exception to this rule in the Third Circuit decision of Johnston v. Baker, 445 F.2d 424 (3d Cir. 1971), because it pled that defendant CFO acted for “his own personal benefit because he was an LVI owner and was to become CFO of the new company with substantial compensation,” that is, defendant would become CFO of a new company with a “substantial” salary.

However, Vice Chancellor Glasscock noted that “[c]ourts interpreting the personal reasons exception of Johnston . . . have read it to mean a personal animus and/or desire for financial benefit other than one’s corporate salary.”  Slip op. at 6. Moreover, “[n]owhere in . . . Johnston is there any suggestion that the desire to protect or enhance one’s salary makes an agent sufficiently independent of the corporation to be capable of conspiring with it.”  Id. at 6-7.

Accordingly, the Court found that personal jurisdiction over the non-resident CFO cannot be premised on plaintiff’s conspiracy theory.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.