In 1977, the United States Supreme Court dealt a mortal blow to Delaware’s sequestration scheme for establishing personal jurisdiction over non-resident directors. Shaffer v. Heitner, 433 U.S. 186 (1977). Within weeks, the Delaware legislature enacted an implied consent statute for directors. Del. Code tit. 10, § 3114(a). In 2003, the legislature amended Section 3114 to include officers as well.
Since Nevada lacks such a statute, there is doubt as to whether Nevada’s business court has personal jurisdiction over directors of companies that are incorporated in Nevada but are headquartered elsewhere.
The Myth of State Competition in Corporate Law, 55 Stan. L. Rev. 679, 714 (2002).
Last week, the Nevada Supreme Court addressed this doubt squarely and found that a state district court may exercise jurisdiction over nonresident officers and directors of a Nevada corporation with its principal place of business in Spain. Consipio Holding, BV v. Carlberg, 128 Nev. Adv. 43 (2012). Although Nevada has no implied consent statute, it does have a long-arm statute, NRS 14.065(1), which provides “A court of this state may exercise jurisdiction over a party to a civil action on any basis not inconsistent with the Constitution of this state or the Constitution of the United States.” The Nevada high court reasoned as follows:
- A Nevada corporation is a Nevada citizen;
- When directors or officers directly harm a Nevada corporation, they harming a Nevada citizen;
- Purposeful harm directed towards a Nevada citizen establish contacts with Nevada and affirmatively directs conduct toward Nevada; and
- When a cause of action arises out of an officer’s or director’s purposeful contact with Nevada, a district court can exercise personal jurisdiction.
The Supreme Court distinguished Shaffer on the basis that Shaffer involved allegations that the directors harmed the corporation by exposing it to liability in other jurisdictions while this case involved causing direct harm to a Nevada citizen in Nevada for personal gain. The Court also distinguished Shaffer on the basis of NRS 78.135(1) which authorizes suits against officers and directors in violation of their authority.
Just as Nevada finds jurisdiction without implied consent, Professor Eric A. Chiappinelli argues that Delaware’s Section 3114 is unconstitutional in a paper forthcoming in the November issue of the Delaware Journal of Corporate Law. Incidentally, Professor Chiappinelli is the author of the treatise that I used when teaching corporations law.
For more on Nevada corporate law, see Bishop and Zucker on Nevada Corporations and Limited Liability Companies.