The Myth of Director Consent: After Shaffer, Beyond Nicastro
66 Pages Posted: 22 Apr 2012 Last revised: 23 May 2013
Date Written: March 10, 2013
Delaware, the most influential state in corporate America, routinely invokes an unconstitutional statute, Section 3114, to assert personal jurisdiction over virtually every non-resident director and officer. The Supreme Court's June 2011 decision in J. McIntyre Machinery, Ltd. v. Nicastro underscores Section 3114's constitutional problems, which were plain in 1977 when Delaware adopted it in the wake of Shaffer v. Heitner.
This Article is the first in a generation to challenge Section 3114 and the first ever to consider it in light of Nicastro. I expose the Delaware Court of Chancery's rationalizations upholding the statute and bring to light that Court's failure to conduct the required minimum contacts analysis. In reality the Court of Chancery routinely claims personal jurisdiction over virtually everyone sued for breach of duty as a director or officer of a Delaware corporation.
The fiduciary duty litigation against Berkshire Hathaway head Warren Buffett and his former second-in-command turned antagonist, David Sokol, exemplifies the statute's continuing harm. Neither the defendants nor any of the named plaintiffs lives in Delaware. Berkshire Hathaway has no business office, no assets, and no employees in Delaware. No relevant events took place in Delaware, nor has any harm been suffered there. This lack of any connection to Delaware is nearly universal in Delaware corporate litigation. Simply put, no defendant has minimum contacts with Delaware.
Yet Delaware claims that Buffett, Sokol, and every other Berkshire officer and director "impliedly consents" to in personam jurisdiction, simply because Berkshire Hathaway is incorporated there. The Supreme Court has rejected jurisdiction by "implied consent" for over 50 years. Sokol vehemently contests Delaware's claim and is spending a significant amount of money to litigate jurisdiction.
Keywords: Delaware, directors, Nicastro, jurisdiction
JEL Classification: K22, K41
Suggested Citation: Suggested Citation