BAM International, LLC v. The MSBA Group Inc.

• Court: Court of Chancery of Delaware
• Decided: December 14, 2021
• Docket: CA No. 2021-0181-SG
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

BAM INTERNATIONAL, LLC, ) ) Plaintiff, ) ) v. ) C.A. No. 2021-0181-SG ) THE MSBA GROUP INC., ) MAMMOTH RX, INC., RYAN ) HILTON, AMIR ASVADI, and ) MILES STEPHEN BOWN, ) ) Defendants. )

MEMORANDUM OPINION

Date Submitted: September 15, 2021 Date Decided: December 14, 2021

Karen E. Keller, Jeffrey T. Castellano, and Nathan R. Hoeschen, of SHAW KELLER LLP, Wilmington, Delaware, Attorneys for Plaintiff BAM International, LLC.

Kevin S. Mann, of CROSS & SIMON LLC, Wilmington, Delaware; OF COUNSEL: John J.E. Markham, II, of MARKHAM READ ZERNER, LLC, Boston, Massachusetts, Attorneys for Defendants Amir Asvadi, Ryan Hilton and Mammoth RX, Inc.

GLASSCOCK, Vice Chancellor This matter involves a complex contractual scheme for delivery of a

straightforward product—latex gloves. The contract at issue was meant to safeguard

payment for the gloves: to simplify, the Plaintiff, BAM International, LLC, (“BAM”

or the “Plaintiff”) is the middleman obligated to deliver gloves to a third-party

purchaser; it contracted with non-parties Universal SNL Trading SDN BHD and

Universal SNT Marketing SDN BHD (together, “Universal”), Malaysian

manufacturers, to supply the gloves; it deposited the purchase price with an escrow

agent, Defendant The MSBA Group Inc. (“MSBA” or the “Escrow Agent”),

pursuant to an escrow agreement that obligated MSBA to return the money if the

delivery failed, and that made Defendant Mammoth RX, Inc. (“Mammoth”), a

Delaware corporation, guarantor of that obligation.

As it turned out, per the Plaintiff, delivery failed; 1 the money in escrow was

nonetheless dispersed to Universal; and the Plaintiff has not been reimbursed by

MSBA or Mammoth, as the contract allegedly requires. This action seeks to impose

liability upon Mammoth and MSBA for breach of contract. The Complaint also

alleges an equitable claim against MSBA as Escrow Agent. Additionally, and

pertinent here, the Plaintiff seeks to impose liability upon two Mammoth officers for

the tort of interference with the escrow agreement.

1 The Complaint also alleges that BAM’s right to a third-party inspection of the product was not consummated.

1 The instant issue before me is jurisdictional: can these individual Defendants,

Ryan Hilton and Amir Asvadi (allegedly Mammoth’s CEO and CFO, respectively)

be haled into a Delaware court to answer for a contract-related claim, despite having

no relationship with Delaware other than their status as officers of a Delaware entity?

Mammoth’s principal place of business is California, I note, and the escrow contract

at issue was performed in Utah, where MSBA is domiciled. Hilton and Asvadi have

moved to dismiss under Court of Chancery Rule 12(b)(2); this Memorandum

Opinion addresses that motion.

In contesting the motion, the Plaintiff relies in part on Delaware’s implied

fiduciary consent statute, 10 Del. Code Section 3114(b).2 Pursuant to that law,

officers (and directors under subsection 3114(a)) of Delaware corporations are

deemed to have consented to personal jurisdiction in this state in two situations: for

actions alleging breach of their duty to the corporation and its stockholders; or where

litigation is brought in Delaware involving the corporation, to which the officer is a

necessary or proper party. These two legs could make a misshapen beast, with one

small limb—consent to jurisdiction for redress of breaches of duty owed to the

company—and one limb vastly greater, encompassing any litigation where the

company is a party and the officer is at least a proper party defendant. The

incongruity of the potential fiddler-crab-like consent scheme created by the statute

2 10 Del. C. § 3114(b).

2 has not gone unnoticed by our courts.3 Our Supreme Court has found, however, that

any resulting unfairness is remedied by the necessity that application of Delaware

jurisdiction must comply not only with the statute, but with the minimum contacts

standard of constitutional due process.4

Here, the Complaint alleges that Mammoth breached a commercial contract

with no relationship to Delaware other than a choice of law and forum, and concedes

that the Moving Defendants are not parties to that contract; nonetheless, they are

proper parties to this action seeking redress for their alleged tortious interference

with the contract.5 Accordingly, Section 3114 is satisfied. However, I find that due

process is not satisfied, given the nature of the action and the paucity of the Moving

Defendants’ contacts with this state. I also find that they are not bound by the

contractual Delaware forum clause of the Escrow Agreement. As a result, the

Motion to Dismiss for failure of personal jurisdiction is granted.

My reasoning follows a fuller statement of the relevant background, below.

3 Cf. Armstrong v. Pomerance, 423 A.2d 174, 176 n.5 (Del. 1980) (explaining that Section 3114 authorizes jurisdiction only in actions which are inextricably bound up in Delaware law and where Delaware has a strong interest); see also Hazout v. Tsang Mun Ting, 134 A.3d 274, 287 (Del. 2016) (“[I]t is also understood that blanket judicial invalidation of a statute’s words should not ensue if the statute can be applied constitutionally in a wide class of cases, but might operate overbroadly in some more limited class of cases.”). 4 Hazout, 134 A.3d at 291. 5 Not before me is the question of whether a tortious interference action will lie against corporate fiduciaries under these facts. See generally Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872 (Del. Ch. 2009).

3 I. BACKGROUND

A. The Parties and Certain Non-Parties

BAM is a Delaware corporation6 that contracted with certain other parties to

this suit in 2020. 7 Those contracts and alleged breaches thereof give rise to the

claims before me.

The defendants include MSBA, a Utah corporation; Mammoth, a Delaware

corporation; Ryan Hilton (“Hilton”), the CEO of Mammoth; Amir Asvadi (“Asvadi”

and together with Hilton, the “Moving Defendants”), an individual employed by

Mammoth;8 and Miles Stephen Bown, an individual and the principal of MSBA

(collectively, the “Defendants”).9 Mammoth’s principal place of business is in

California.10

Crowley Government Services (“Crowley”) is an intervenor-plaintiff in this

matter.11

6 I note that although the party name is “BAM International, LLC”, the Complaint indicates that BAM is a Delaware corporation. See Verified Compl. for Breach of Contract, Breach Fiduciary Duties, Declaratory J., Tortious Interference, and Fraud, at 1, ¶ 13, Dkt. No. 1 [hereinafter “Compl.”]. I have followed the Complaint’s lead in this matter. 7 See generally Compl. ¶ 15. 8 Asvadi’s role at Mammoth is subject to some dispute. See Opening Br. Supp. Mot. to Dismiss of Ryan Hilton and Amir Asvadi, Ex. B, Dkt. No. 18 [hereinafter “OB”] (asserting that Asvadi is not currently and never has been an officer of Mammoth as of April 2021); but see Pl.’s Answering Br. Opp’n Defs.’ Mot. to Dismiss and its Submission on Equitable Jurisdiction, Ex. A, Dkt. No. 30 [hereinafter “AB”] (Statement of Information filed with California Secretary of State listing Asvadi as the chief financial officer of Mammoth as of March 5, 2021). 9 Compl. ¶¶ 14–18. 10 See id. ¶ 15. 11 Although Crowley has filed its own complaint in this matter, I do not consider any additional indicia of jurisdiction presented in the Crowley complaint, as the Motion to Dismiss was fully

4 The Universal entities are Malaysian suppliers and non-parties to this action.12

B. The California Lawsuit

The instant case is brought by BAM against the Defendants. Certain of the

Defendants, namely Mammoth, Hilton, and Asvadi, have filed a lawsuit (the

“California Lawsuit”) against BAM in the U.S. District Court for the Central District

of California, seeking a declaratory judgment with respect to potential liability

stemming from an escrow agreement between the parties (the “Escrow

Agreement”).13 BAM took the position that the filing in California was improper,14

as the Escrow Agreement included a forum selection clause identifying Delaware

state courts as the appropriate forum for any disputes. 15 Mammoth has since

dismissed its claims in the California Lawsuit, and the claims of Hilton and Asvadi

have been stayed in favor of the determination of this motion. 16 The Moving

Defendants represented to the California court that if personal jurisdiction exists

here, they will litigate in Delaware and dismiss their claims in California. 17

submitted at the time of the Crowley complaint’s filing. See Tr. Of 9-15-21 of Oral Arg. and Partial Ruling of the Ct. on Crowley Government Services, Inc.’s Mot. to Intervene and Defs.’ Mot. to Dismiss for Lack of Personal Jurisdiction, 49:1–4, Dkt. No. 59 [hereinafter “Oral Arg.”]. 12 Compl. ¶ 2. 13 See MammothRx, Inc. et al v. BAM Int’l, LLC., Civil Action No. 8:21-cv-00305-DOC-ADS (C.D. Cal. Feb. 17, 2021). 14 AB 10. 15 Compl., Ex. A, at 3. 16 AB 10. 17 Id.

5 C. Factual Overview18

1. The Sale and Purchase Agreement and the Escrow Agreement

BAM contracted with Crowley to sell nitrile gloves to Crowley in 2020.19 In

return, Crowley provided BAM with advance payments “totaling over” $20

million. 20 To fulfill the contract, BAM sought a supplier. 21 It originally considered

working directly with Mammoth, but ultimately was introduced to Universal by

Mammoth, who asserted that Universal could supply the desired glove product. 22

BAM and Universal then entered into a Sale and Purchase Agreement (the

“SPA”) under which BAM would pay $7.55 million in exchange for 100 million

nitrile gloves.23 Certain conditions were to be satisfied before the money would

become due under the SPA, including a right of inspection via a third party (the

“Inspection”). 24 To memorialize and achieve these conditions, BAM entered into

the Escrow Agreement with Mammoth, acting as guarantor for the Escrow

Agreement, and with MSBA, in its capacity as escrow agent.25 The Escrow

Agreement provided that MSBA would release the escrowed funds to Universal

18 Unless otherwise noted, I draw these facts from the Plaintiff’s Complaint or the briefing of the parties in connection with this motion to dismiss. Given the posture of the case at this time, the background section should not be considered formal findings of fact. 19 Mot. to Intervene by Crowley Government Services, Inc. 3, Dkt. No. 36 [hereinafter “Mot. to Intervene”]. 20 Id. 21 See, e.g., Compl. ¶ 2. 22 See id. 23 Id. ¶ 3. 24 Id. ¶ 4. 25 Id. ¶ 5. MSBA was introduced to BAM by Mammoth and Universal. See id.

6 upon notice from BAM that the Inspection had been successful.26 In the event that

Universal did not permit the Inspection, or if Universal could not deliver the gloves

per the requirements of the SPA, the Escrow Agent was to require the “Seller”

(Universal) to return the money to BAM’s bank account.27

The Escrow Agreement became effective on November 19, 2020. 28 Under its

express terms, the Plaintiff was to wire the total price of the contract to a Chase Bank

branch in Utah within twenty-four hours of execution.29

a. Negotiations

The Plaintiff’s answering brief relating to the Motion to Dismiss (the

“Answering Brief”) provides further color regarding the SPA and Escrow

Agreement negotiations, which is helpful to understand the claims against the

Moving Defendants.30 The Plaintiff alleges that Hilton and Asvadi were “active

participants” in the negotiation, structure and terms of the Escrow Agreement, which

took place over email, in WhatsApp chats, and over the phone.31 Hilton and Asvadi

participated in “hundreds” of communications with respect to the Escrow Agreement

and were ostensibly responsible for negotiating the general structure of the deal,

26 Id. ¶ 6. 27 Id. ¶ 47. 28 Id. ¶ 42. 29 See id., Ex. A, at 1. 30 See generally AB. 31 Id. at 5.

7 including the guarantor provision to which Mammoth ultimately agreed.32

Additionally, the Escrow Agreement names Hilton as the individual who receives

notices on behalf of Mammoth, and Hilton signed the Escrow Agreement for

Mammoth. 33

b. The Forum Selection Clause and Governing Law

The Escrow Agreement includes the following forum selection clause in

Section 11.2, curiously headed “Arbitration”: “If any controversy or claim, whether

based on contract, tort, statute, or other legal or equitable theory (including any claim

of fraud, misrepresentation, or fraudulent inducement), arising [sic] out of this

[Escrow] Agreement . . . the Parties will resolve the Dispute in State Courts in

Delaware.”34 “Parties” is defined in the agreement to include BAM, MSBA, and

Mammoth. 35 The Plaintiff asserts that, although the Moving Defendants are not by

the plain text of the Escrow Agreement bound by the forum selection clause, it

should be applied to them due to their extensive involvement in negotiating and

papering the transaction.36

The Escrow Agreement also identifies the laws of the State of Delaware as

the governing law for construction of the agreement.37

32 Id. at 6. 33 Id. at 13. 34 Compl., Ex. A, at 3. 35 Id. at 1. 36 See generally AB 11–18. 37 Compl., Ex. A, at 3.

8 2. The Disbursal from Escrow and the Delaware Lawsuit

BAM wired $7.55 million to the escrow account on November 24, 2020.38

The Complaint alleges that Universal blocked the Inspection from occurring, but that

on November 27, 2020, MSBA (through its principal, Bown) transferred the $7.55

million of escrowed funds to Universal regardless, without BAM’s knowledge or

consent. 39

BAM alleges in the Complaint that prior to releasing the funds, MSBA

through Bown “sought Mammoth’s input regarding the release of funds.”40 Per

Mammoth’s admissions in the California Lawsuit, MSBA represented to Mammoth,

prior to its release of the funds, that the Inspection had occurred and been favorable,

and that the Inspection report would be released once the funds were sent to

Universal by MSBA. 41 Neither MSBA nor Mammoth reached out to BAM to

confirm the release of the funds, and BAM alleges that Mammoth did not object to

the release “despite knowing” that BAM would not have approved of the release.42

The funds were purportedly released on November 27, 2020.43

38 Id. ¶ 44. 39 Id. ¶¶ 7–8. 40 Id. ¶ 54. 41 Id. 42 Id. ¶ 55. 43 Id. ¶ 53.

9 BAM provided an SPA termination notice to Universal, MSBA and

Mammoth on December 16, 2020.44 That termination notice included a request that

MSBA (as Escrow Agent) and Mammoth (as guarantor) refund the $7.55 million to

BAM within twenty-four hours.45 This total refund did not occur. 46

BAM now believes there were never any gloves, and that Universal will not

voluntarily return the funds.47 Further, it alleges that most of the purloined funds

were moved to a Swiss bank account maintained by the Universal CEO.48

BAM filed this action on March 1, 2021 against the Defendants. 49 The

Moving Defendants have filed this Motion to Dismiss on the basis that they do not

have sufficient contacts with Delaware to permit a finding of personal jurisdiction. 50

In support of this position, each of the Moving Defendants has submitted his own

affidavit swearing to a lack of personal contact with Delaware and the lack of

connection between the transaction documents (including the SPA and the Escrow

Agreement) and Delaware.51 The Moving Defendants’ opening brief in this motion

(the “Opening Brief”) similarly avers a lack of connection between each of Hilton

44 Id. ¶ 58. 45 Id. ¶ 59. 46 Id. Mammoth has agreed to provide two partial refund payments totaling $350,000, and has apparently corresponded with BAM regarding potential fake documentation and fraudulent misrepresentations by Universal following the events of November 2020. Id. ¶ 60. 47 Id. ¶ 56. 48 Id. ¶ 57. 49 See generally Compl. 50 See, e.g., OB. 51 See id., Ex. A (affidavit of Hilton), Ex. B (affidavit of Asvadi).

10 and Asvadi with the state of Delaware at length, though it admits that Mammoth is

in fact a Delaware corporation.52

D. Procedural History

The Complaint in this action was filed by the Plaintiff seeking declaratory

judgment in addition to bringing breach of contract, breach of fiduciary duty, tortious

interference, and fraud claims against the various Defendants.53 With respect to the

Moving Defendants in particular, the Plaintiff (i) pleads tortious interference with

the Escrow Agreement and (ii) seeks a declaratory judgment regarding the rights and

obligations of the parties under the Escrow Agreement. 54 The Moving Defendants

filed their Motion to Dismiss in April 2021, and Mammoth filed its answer on the

same day.55 After briefing on the Motion to Dismiss concluded, Crowley filed its

Motion to Intervene. 56 I heard oral argument on both motions on September 15,

2021, and granted the Motion to Intervene. 57 This Memorandum Opinion deals

solely with the pending Motion to Dismiss.

52 See generally OB; see also id. at 6. 53 See generally Compl. 54 See id. 55 See Mot. to Dismiss of Ryan Hilton and Amir Asvadi, Dkt. No. 17; see also Def. Mammoth Rx, Inc.’s Answer to Pl.’s Verified Compl., Dkt. No. 19. 56 See generally Mot. to Intervene. 57 See generally Oral Arg.

11 II. ANALYSIS

The Moving Defendants seek dismissal of the action on basis of lack of

personal jurisdiction. Their Opening Brief discusses the general theory of personal

jurisdiction in Delaware, ultimately asserting that there is no statutory predicate for

personal jurisdiction to be established here and therefore their motion should be

granted.

In response, the Plaintiff identifies the Non-Resident Director and Officer

Consent Statute as the statutory basis for personal jurisdiction against the Moving

Defendants. It also puts forth a theory of personal jurisdiction stemming from the

forum selection clause of the Escrow Agreement. 58 The Plaintiff further theorizes

that estoppel arising from the filing of the California Lawsuit prevents the Moving

Defendants from prevailing on their Motion to Dismiss here.59

I consider each of these theories, along with a discussion of the applicable

personal jurisdiction law, below.

A. Avenues for Establishing Personal Jurisdiction

The standard of review on a motion to dismiss pursuant to Rule 12(b)(2) is

well-established. A plaintiff has the burden to “make out a prima facie case

58 The Plaintiff would have me find that the Moving Defendants have waived any defense to this argument, as it was not included in their Opening Brief. See AB 3. However, the Moving Defendants responded to this theory in both their reply brief and at oral argument without further objection. As such, I do not consider the issue waived. 59 Id. at 15–16.

12 establishing jurisdiction over a non-resident.”60 Although “the court may consider

facts and evidence outside of the complaint such as affidavits and any discovery of

record[, w]hatever record the court considers is construed in the light most favorable

to the plaintiff.” 61

1. Personal Jurisdiction Generally

In general, to assess whether personal jurisdiction exists over non-resident

defendants, Delaware courts apply a two-step analysis, asking first whether there is

a statutory basis for jurisdiction and then inquiring into whether the exercise of

personal jurisdiction over the defendants would be consistent with due process. 62

Parties often seek to apply Delaware’s long-arm statute, but the Plaintiff has

not pled that the long-arm statute applies here. Instead, it looks to apply the Non-

Resident Director and Officer Consent Statute (the “Consent Statute”). 63 Any non-

resident who, after January 1, 2004, serves as an officer of a Delaware corporation

is subject to personal jurisdiction “in all civil actions or proceedings brought in this

State, by or on behalf of, or against such corporation, in which such officer is a

60 Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963, 974 (Del. Ch. 2000). 61 Microsoft Corp. v. Amphus, Inc., 2013 WL 5899003, at *8 (Del. Ch. Oct. 31, 2013); see also LVI Grp. Invs., LLC v. NCM Grp. Holdings, LLC, 2018 WL 1559936, at *10 (Del. Ch. Mar. 28, 2018). 62 Partners & Simons, Inc. v. Sandbox Acquisitions, LLC, 2021 WL 3161651, at *3 (Del. Ch. July 26, 2021). 63 10 Del. C. § 3114(b).

13 necessary or proper party, or in any action or proceeding against such officer for

violation of a duty in such capacity.” 64

Regardless of the statutory predicate for jurisdiction, so long as a statute exists

that confers jurisdiction, Delaware courts then proceed to an analysis of the

minimum contacts test to ensure due process.65

2. Personal Jurisdiction by Contract

Where applicable, Delaware courts can also find personal jurisdiction by dint

of a contractual arrangement. “If a party properly consents to personal jurisdiction

by contract, a minimum contacts analysis is not required. Of course, the party is

bound only by the terms of the consent, and such consent applies only to those causes

of action that are identified in the consent provision.” 66 The Escrow Agreement did

contain a forum selection clause.67 To determine whether the Moving Defendants,

as non-signatories (in their individual capacities) are bound to the forum selection

clause, Delaware courts use a three-part inquiry, assessing (1) whether the forum

selection clause is valid; (2) whether the defendant is a third-party beneficiary or is

“closely related to” the contract; and (3) whether the claim arises from the

defendant’s standing relating to the agreement.68

64 10 Del. C. § 3114(b). 65 See Hazout, 134 A.3d at 278. 66 Ruggiero v. FuturaGene, plc., 948 A.2d 1124, 1132 (Del. Ch. 2008) (citations omitted). 67 See supra note 34 and accompanying text. 68 Highway to Health v. Bohn, 2020 WL 1868013, at *6 (Del. Ch. Apr. 15, 2020).

14 Where a party is considered bound to a forum selection clause, the court treats

that party as having expressly consented to personal jurisdiction.69 “An express

consent to jurisdiction, in and of itself, satisfies the requirements of Due Process,”

meaning that a constitutional minimum contacts analysis is no longer required.70

B. The Non-Resident Director and Officer Consent Statute

In the Complaint, the Plaintiff sought to establish personal jurisdiction over

the Moving Defendants by use of the forum selection clause.71 The Opening Brief

discusses the establishment of personal jurisdiction more generally, concluding that

no statutory basis for finding personal jurisdiction exists. 72 The Plaintiff, in

answering, identifies the Consent Statute as an alternative basis of jurisdiction,

separate from and in addition to the forum selection clause theory. 73 Its theory would

have me find that Hilton, the CEO, and Asvadi, purportedly the CFO, have

consented to personal jurisdiction in Delaware because they are Delaware officers

as well as proper parties under the Consent Statute. 74

The parties agree that Hilton is the CEO of Mammoth, a Delaware

corporation, and is therefore an officer to whom the Consent Statute could apply.75

69 See Neurvana Med., LLC v. Balt USA, LLC, 2019 WL 4464268, at *3 (Del. Ch. Sept. 18, 2019). 70 Id. (quoting Sternberg v. O’Neil, 550 A.2d 1105, 1116 (Del. 1988), abrogated on other grounds by Genuine Parts Co. v. Cepec, 137 A.3d 123 (Del. 2016)). 71 Compl. ¶ 21. 72 See generally OB. 73 See AB 18, 19. 74 See id. 75 See OB, Ex. A, ¶ 5.

15 Asvadi’s status as the CFO of Mammoth is subject to question, but I assume without

deciding for the purposes of this Memorandum Opinion that he is an officer as

well.76

A summary of the development of our law with respect to the Consent Statute

and its application is informative to my analysis.

1. Historical Applications of the Consent Statute

The current Consent Statute was originally enacted with respect to directors

in 1977 (extended to officers as of 2004) 77 and has been characterized by courts as

responsive to Shaffer v. Heitner, a U.S. Supreme Court case which found

unconstitutional a practice previously used to secure personal jurisdiction over non-

resident fiduciaries of Delaware corporations.78

Applying the Consent Statute while remaining mindful of constitutional due

process has caused Delaware courts some amount of headache. 79 Under a plain text

reading, the Consent Statute provides two avenues to establish jurisdiction over a

76 During the oral argument on the motion to dismiss, I noted that I would allow jurisdictional discovery in the event the question of Asvadi’s status as an officer (disputed among the parties) was a dispositive fact with respect to his motion. See Oral Arg. at 26:7–17. This determination is not necessary to my ultimate finding here. 77 See 10 Del. C. § 3114(a). Section 3114(b), pertaining to officers, was approved in June 2003 and became effective January 2004. See Act of June 30, 2003, ch. 83, 2003 Del. Laws, sec. 3114, § 3 (codified as amended at 10 Del. C. § 3114(b)). 78 See Hazout, 134 A.3d at 286 (Del. 2016) (citing Shaffer v. Heitner, 433 U.S. 186 (1977)). 79 See, e.g., Hana Ranch, Inc. v. Lent, 424 A.2d 28 (Del. Ch. 1980); In re USACafes, L.P. Litig., 600 A.2d 43 (Del. Ch. 1991) (questioning Hana Ranch’s approach); Ryan v. Gifford, 935 A.2d 258 (Del. Ch. 2007) (same); Hazout, 134 A.3d 274 (rejecting the reasoning in Hana Ranch).

16 Delaware director or officer: (1) actions against such parties for violations of

fiduciary duties, sometimes called the “internal affairs” prong; 80 and (2) actions

wherein the director or officer is a “necessary or proper party” to an action also

proceeding against the corporation.

Construing the Consent Statute in 1980, the Court of Chancery in Hana Ranch

adopted an approach that essentially read the second “necessary or proper party”

prong out of application, finding that “it is the rights, duties, and obligations which

have to do with service as a director of a Delaware corporation which make a director

subject to personal service in Delaware . . . and not simply that he or she may be

both a proper party as well as a director.” 81 This narrow interpretation limited the

reach of the Consent Statute and avoided any concerns about its facial

constitutionality. 82

The Court of Chancery followed Hana Ranch for many years, though certain

opinions suggested that the “necessary or proper party” language could be reinstated

with a minimum contacts analysis under International Shoe 83 used as the

constitutional limiting factor.84

80 See Hazout, 134 A.3d at 278. 81 Hana Ranch, 424 A.2d at 30. 82 See Hazout, 134 A.3d at 286. 83 Int’l Shoe Co. v. Wash., Office of Unemployment Comp. & Placement, 326 U.S. 310 (1945). 84 See In re USACafes, L.P. Litig., 600 A.2d at 53 (citing Int’l Shoe, 326 U.S. 310); Ryan v. Gifford, 935 A.2d at 268 n.24 (citation omitted).

17 The Delaware Supreme Court did not have the opportunity to directly address

the Hana Ranch case and its progeny until Hazout v. Tsang Mun Ting in 2016.85 In

doing so, the Delaware Supreme Court noted the disjunctive presentation of the

Consent Statute in text, giving rise to the interpretation that “the General Assembly

intended there to be two categories of cases to which directors and officers had

consented to service.” 86 The Hazout Court considered the “necessary or proper

party” provision to “contain[] its own safeguards against overbreadth,” as the

requirement to be a necessary or proper party itself demanded a “close nexus

between the claims involving the corporation . . . and the conduct of the nonresident

fiduciary.”87 The Court also stated that the minimum contacts analysis could, as

prior Court of Chancery opinions had noted, act as constitutional protection to

provide due process to nonresident directors and officers.88 The Delaware Supreme

Court thus rejected the Hana Ranch line of caselaw and adopted a plain meaning

interpretation of the Consent Statute.89

2. The Current Consent Statute Analysis, Applied

By virtue of their status as officers of a Delaware corporation, Delaware has,

subject to the minimum contacts due process analysis, personal jurisdiction over the

85 See Hazout, 134 A.3d at 289. 86 Id. at 288. 87 See id. at 289. 88 See id. at 291. 89 Id. at 286; see also LVI Grp. Invs., 2018 WL 1559936, at *8.

18 Moving Defendants (1) where a civil action or proceeding is brought by or on behalf

of, or against Mammoth, and the Moving Defendants are necessary or proper parties;

or (2) in any action or proceeding against the Moving Defendants for violation of a

duty as officers. 90

The only substantive claim proceeding against the Moving Defendants in their

individual capacities is for tortious interference with the Escrow Agreement. 91 This

claim does not arise out of duties the Moving Defendants owed to Mammoth or its

stockholders, but instead from torts allegedly committed against BAM.92 Therefore,

any application of the Consent Statute must be conditioned on the Moving

Defendants’ status as necessary or proper parties to the suit against Mammoth.

It is helpful to examine the cause of action against the Moving Defendants.

Corporate officers are not liable for breach of contracts entered by the corporation

to which they have not bound themselves personally.93 Here, the Moving

Defendants are alleged to have tortiously interfered with the Escrow Agreement

among the Plaintiff, MSBA and Mammoth. 94 Such an action will not lie against a

90 See Hazout, 134 A.3d at 277 (citing 10 Del. C. § 3114(b)). 91 See generally Compl. The Complaint also names the Moving Defendants, cryptically, in a count seeking a declaration of the rights of the parties under the Escrow Agreement. See id. 92 Id. ¶ 122 (“Hilton’s, Asvadi’s . . . tortious conduct has caused, and will continue to cause, damages and harm to BAM . . . .”). 93 E.g., Wallace v. Wood, 752 A.2d 1175, 1180 (Del. Ch. 1999). 94 See generally Compl.

19 corporate officer who in such capacity causes the company to act in breach of

contract:

[E]mployees acting within the scope of their employment are identified with the [corporate] defendant [its]self so that they may ordinarily advise the defendant to breach [its] own contract without themselves incurring liability in tort . . . . This rationale is particularly compelling when applied to corporate officers as their freedom of action directed toward corporate purposes should not be curtailed by fear of personal liability. 95

In order, I assume, to plead around this problem, the Complaint avers that the

Moving Defendants “were acting in their own interests and outside the scope of their

duties to Mammoth” at all times pertinent.96 This statement is completely

conclusory; no facts are pled to bolster this assertion. In any event, in this

independent capacity, per the Complaint, the Moving Defendants caused MSBA to

breach the Escrow Agreement by “causing or permitting” it to release the funds in

escrow, to disregard BAM’s instructions, and to breach its fiduciary duties to the

Plaintiff. 97 These allegations also appear to be entirely conclusory; notably, the issue

of whether a cause of action has been pled is not before me. For this jurisdictional

95 Id. at 1182–83 (internal quotations omitted); see also Kuroda, 971 A.2d at 884; Bhole, Inc. v. Shore Invs., Inc., 67 A.3d 444, 453 (Del. 2013) (quoting Shearin v. E.F. Hutton Grp., Inc., 652 A.2d 578, 590 (Del. Ch. 1994)) (standing for proposition that a party cannot be liable for both breach of contract and for inducing that breach via tortious interference); Bandera Master Fund LP v. Boardwalk Pipeline Partners, LP, 2019 WL 4927053, at *28 (Del. Ch. Oct. 7, 2019) (same); WyPie Invs., LLC v. Homschek, 2018 WL 1581981, at *14 (Del. Super. Ct. Mar. 28, 2018) (same). 96 Compl. ¶ 120 (emphasis added). 97 Id. ¶ 117. Curiously, the Complaint also seeks damages from the Moving Defendants for allegedly causing Mammoth to breach its contractual obligation to reimburse the Plaintiff for MSBA’s misfeasance; the Complaint does not explain how the Moving Defendants did so outside the scope of their duties as officers of Mammoth, however. See id. ¶¶ 80–89.

20 issue, however, it is pertinent that the allegations to which the Moving Defendants

are being asked to respond were, as explicitly averred in the Complaint, not taken in

connection with their roles at Mammoth. That is, the Moving Defendants’

complained-of actions were not taken in connection with the roles for which they

consented to jurisdiction under Section 3114. I turn to that statutory analysis.

In order for Section 3114 to apply here, the Moving Defendants must be

necessary or proper parties to the cause of action against Mammoth. A party is a

“necessary” party if her rights must be ascertained and settled before the rights of

the parties to the lawsuit can be determined. 98 A party is “proper” if she has a

“tangible legal interest in the matter” separate from the corporation’s,99 and if the

claims against her arise out of the same facts and occurrences as the claims against

the corporation.100

The Moving Defendants are proper parties under this construction. The claim

against Hilton and Asvadi as individuals for tortious interference establishes tangible

legal interests in the lawsuit separate from those of Mammoth, although they arise

out of the same set of alleged facts. Thus, the Consent Statute is a proper statutory

basis for finding that Delaware courts have jurisdiction over the Moving Defendants.

98 See LVI Grp., 2018 WL 1559936, at *8 (citing Hazout, 124 A.3d at 289). 99 Id. (citing Hazout, 124 A.3d at 292). 100 Hazout, 124 A.3d at 292.

21 Before concluding that Delaware has personal jurisdiction over the Moving

Defendants, I must conduct the minimum contacts constitutional check on due

process. The Delaware Supreme Court in Hazout identified the minimum contacts

test as the appropriate method for ensuring that the Consent Statute did not confer

overbroad personal jurisdiction.101 Ultimately, in Hazout, the Delaware Superior

Court found (and the Delaware Supreme Court affirmed) that Hazout had accepted

duties under Delaware law by accepting a position as a fiduciary of the corporation,

which the state of Delaware had an interest in enforcing.102 The underlying

transaction giving rise to claims against Hazout involved a change in corporate

control, bolstering the finding that personal jurisdiction over Hazout was appropriate

under the minimum contacts analysis.103 However, the Supreme Court’s opinion

notes that “one can conceive of cases where applying the plain terms of the

Necessary or Proper Party Provision might compromise a nonresident fiduciary’s

due process rights,” and describes a potential example scenario in the attendant

footnote:

For example, if plaintiffs attempted to drag corporate officers and directors into Delaware by naming them as defendants in a products liability case where the products had been designed and distributed from a state other than Delaware to diverse consumers, most of whom were in states other than Delaware, the minimum contacts test would provide substantial protection. It would be constitutionally questionable, to say the least, for Delaware to exercise personal

101 Id. at 291. 102 Id. at 284. 103 Id. at 277, 293.

22 jurisdiction when Delaware’s status as the state of incorporation had no rational connection to the cause of action, where the conduct is governed by the laws of other states, and where there is no reason why a corporate fiduciary should expect to be named as a party at all, much less in a suit where the underlying conduct and claims have no rational connection to Delaware and provide no rational basis for Delaware to apply its own law . . . . 104

This footnote is illustrative here, where the contract giving rise to claims is a

garden-variety commercial contract, rather than one necessarily implicating

Delaware interests. The Delaware Superior Court analyzed the Hazout footnote in

Turf Nation v. UBU Sports, Inc., which presented a somewhat similar factual

scenario to the one at hand. 105 In Turf Nation, the plaintiff sought personal

jurisdiction over the defendant, a Delaware officer, under both the Consent Statute

and Delaware’s long-arm statute. 106 The Superior Court determined that the

defendant might have been a necessary or proper party to the action, but that the

minimum contacts were insufficient to confer jurisdiction, emphasizing that “the

Court must examine whether the exercise of personal jurisdiction is consistent with

the person’s constitutional expectations of due process.” 107

In assessing the Hazout footnote, the Turf Nation court noted that the

plaintiff’s claims were brought under the law of various states—none of which were

Delaware—and that the actions purportedly giving rise to said claims occurred in

104 Id. at 291, 291 n.60. 105 2017 WL 4535970 (Del. Super. Oct. 11, 2017). 106 See id. at *6–*10 (considering both theories). 107 Id. at *9.

23 multiple non-Delaware states.108 Further, while the plaintiff and defendant entities

were each incorporated in Delaware, both principal places of business were

elsewhere. 109 Finally, the agreement at issue, which was a Manufacture and Supply

Agreement, applied Georgia law, rather than Delaware law. 110

The Superior Court found that there was thus no “rational connection to

Delaware other than the place of incorporation of [the plaintiff and defendant

entities],” specifying that “[t]he wrongs alleged here are either tort claims or breach

of contract claims unconnected with the internal affairs or corporate governance of

a Delaware corporation.”111 It also rejected an efficiency argument made by the

plaintiff, which pointed out that a second lawsuit would need to be filed if personal

jurisdiction was not found. 112 The court referred to that equitable argument as

“weaken[ed]” given that the plaintiff was the one who initiated the civil action in

Delaware.113

The reasoning of the Turf Nation court stands in helpful parallel to my

thinking here. In the instant case, Hilton and Asvadi were officers of a Delaware

corporation (with a principal place of business in California),114 but the action does

108 Id. 109 Id. 110 Id. 111 Id. 112 Id. 113 See id. 114 See Compl. ¶ 15.

24 not involve the entity’s status as a corporate citizen of Delaware. As in the Hazout

hypothetical, the contract at issue is simply commercial, and does not involve the

vindication of the General Corporation Law of Delaware. 115 Similarly, the

negotiation of the Escrow Agreement, though carried out by officers of a Delaware

entity, does not implicate Delaware’s corporate law in the manner that negotiating a

change of control agreement would. 116 The Escrow Agreement was also not to be

performed in Delaware, but instead in Utah, where the escrow account was

located.117 The distribution of the escrow account by the Escrow Agent, a Utah

corporation, to the seller Universal, a Malaysian supplier, would not have implicated

Delaware interests in any way.118

Delaware has no real interest in this case other than the exercise of personal

jurisdiction over officers and directors, which is, in my view, insufficient in light of

the constitutional due process rights owed to the Moving Defendants. As in Turf

Nation, the only harms alleged to have been committed by the Moving Defendants

sound in tort 119—they are not fiduciary duties, nor do they implicate corporate

115 Compare Hazout, 134 A.3d at 291 n.60 (discussing a products liability contract) with LVI Grp. Invsts., 2018 WL 1559936 (discussing a change of control contract). 116 Defs. Ryan Hilton and Amir Asvadi’s Reply to Pl.’s Opp’n Defs.’ Mot. to Dismiss 8, Dkt. No. 32 [hereinafter “RB”]; see generally Hazout, 134 A.2d 275 (finding personal jurisdiction in the context of a change of control transaction); LVI Grp. Invsts., 2018 WL 1559936 (same). 117 See Compl., Ex. A, at 1 (identifying a Chase bank with address in Utah as the destination for the wire). 118 See id. (identifying the Escrow Agent as a Utah corporation and the Sellers as Malaysian entities). 119 Turf Nation, 2017 WL 5435970, at *9.

25 governance practices. And the actions allegedly giving rise to their liability were

not taken as officers of Mammoth.

Admittedly, the Delaware Supreme Court (and the Turf Nation court)

identified the governing law of the agreement as a factor for consideration, 120 and

the Escrow Agreement at hand identified Delaware law as the governing law and

selected Delaware as the forum for settling associated disputes. 121 I have considered

these facts, but they are not dispositive, and they do not persuade me that personal

jurisdiction should be extended over the Moving Defendants here. Many

commercial contracts adopt Delaware law and include Delaware forum selection

clauses, as Delaware has a well-known, settled, and (at times) easy to construe body

of law that can be applied by courts anywhere. No additional connection to

Delaware has been alleged that signifies this choice of law provision might have had

special import to the parties, or that provides a reason for the Moving Defendants to

anticipate personal jurisdiction over them in Delaware. I conclude that the selection

of Delaware as the forum for disputes and the governing body of law is not

dispositive here, where the individuals against whom the forum selection and

governing law clauses would be construed were not party to the contract (the

120 Hazout, 134 A.3d at 291 n.60. 121 See supra notes 34–37 and accompanying text.

26 Plaintiff’s contention that the Moving Defendants are nonetheless bound by the

contractual forum selection is addressed infra).

In its argument in favor of personal jurisdiction, the Plaintiff cites to this

Court’s decision in Deutsch v. ZST Digital Networks, Inc. 122 In that case, non-party

corporate fiduciaries who caused a defendant corporation to violate a court order

were subject to answer for contempt of court, and raised lack of personal jurisdiction

as a bar. 123 The Deutsch court applied the Consent Statute.124 It found that the

fiduciaries were proper parties to the litigation, such that the Consent Statute

provided a statutory predicate for personal jurisdiction, and then examined due

process.125 Citing Hazout, the court found that, as in that case, the fiduciaries were

being held accountable for taking action (or failure to take action) in their roles as

directors and officers of a Delaware corporation. 126 As such, they were on notice

that “they could be haled into the Delaware Courts to answer for alleged breaches of

the duties imposed on them by the very laws which empower[] them to act in their

corporate capacities.” 127 Accordingly, due process was satisfied.128 But Deutsch is,

for that very reason, not applicable here. The actions allegedly resulting in liability

122 2018 WL 3005822 (Del. Ch. June 14, 2018). 123 See id. at *1, *11. 124 Id. at *11. 125 Id. at *11–*12. 126 Id. at *12 (citing Hazout, 134 A.3d at 292). 127 Id. (citing Armstrong, 423 A.2d at 176). 128 See id.

27 for the Moving Defendants were, explicitly per the Complaint, taken in their

individual interests “outside the scope of their duties to Mammoth.” 129 Because the

complained-of actions were expressly outside the scope of the Moving Defendants’

corporate power as officers, and given the paucity of other contacts with Delaware,

it would not comport with due process to that find minimum contacts exist with

respect to the Moving Defendants here.

The Consent Statute provides a statutory jurisdictional predicate under

Hazout, but I am not satisfied that either of the Moving Defendants’ contacts with

Delaware is sufficient to subject him to personal jurisdiction in Delaware courts. As

such, specific personal jurisdiction cannot lie under the Consent Statute.

C. Personal Jurisdiction Under a Forum Selection Clause

Another avenue for finding personal jurisdiction over the Moving Defendants

is establishment of personal jurisdiction under the forum selection clause. Unlike

the analysis under Section 3114, above, where parties have consented contractually

to jurisdiction, due process is satisfied a priori. 130 Importantly, neither of the

Moving Defendants were parties to or signed, in an individual capacity, the Escrow

Agreement that contains the clause in this case.131 To find personal jurisdiction over

a non-signatory to a transaction document containing a forum selection clause, I

129 Compl. ¶ 120. 130 Ruggiero, 948 A.2d at 1132 (citations omitted). 131 See supra note 33 and accompanying text.

28 must assess the following three requirements: (1) whether the forum selection clause

is valid; (2) whether the defendant is a third-party beneficiary or is “closely related

to” the contract; and (3) whether the claim arises from the defendant’s standing

relating to the agreement.132

Elements (1) and (3) were not contested in the papers or at oral argument by

the Moving Defendants, and for purposes of this motion I assume that they are

satisfied.133 Further, the Plaintiff has not pled that the Moving Defendants are third-

party beneficiaries of the Escrow Agreement.134 Thus, to resolve the question of

personal jurisdiction, I must determine whether the Moving Defendants were

“closely related” to the Escrow Agreement such that its forum selection clause

should be binding upon them and such that this Court has personal jurisdiction over

them. I find that the Moving Defendants were not so closely related to the Escrow

Agreement as to confer personal jurisdiction. My reasoning follows.

132 See supra note 68 and accompanying text; but see Fla. Chem. Co., LLC v. Flotek Indus., Inc., 2021 WL 3630298, at *2 (Del. Ch. Aug. 17, 2021) (declining to apply the “same-agreement rule”, here referred to as element (3), for purposes of enforcing a forum selection provision against a non-signatory). Florida Chemical did not address the question of whether the forum selection provision was sufficient to confer personal jurisdiction over the non-signatory, and in any event, the parties have not disputed element (3) in the instant case. 133 See generally RB; see also Oral Arg. 134 The Plaintiff’s Complaint refers to the Defendants as “parties and beneficiaries” but does not identify them as third-party beneficiaries or identify supporting reasoning for this statement. See Compl. ¶ 23.

29 1. The Closely Related Test

Delaware caselaw provides two ways in which a non-signatory to an

agreement containing a forum selection clause can be “closely related” such that the

clause binds the non-signatory. 135 First, the non-signatory can receive a “direct

benefit” from the agreement.136 Alternatively, I can find that it was “foreseeable”

that the Moving Defendants would be haled into Court in Delaware.137 I consider

each option in turn.

a. Did the Moving Defendants Receive a Direct Benefit?

The Plaintiff’s papers do not explicitly argue that the Moving Defendants

received a direct benefit from the Escrow Agreement. 138 The Plaintiff alleged that

the small size of Mammoth, as a corporation, and Hilton’s role as CEO and founder,

led to a reasonable inference that Hilton, at least, had a “substantial” stake in

Mammoth and exercised “considerable control” over the corporation, but did not

expressly state that a benefit was received by Hilton as a result.139 At oral argument,

BAM’s counsel indicated that there was a “suspicion” that some of the money in

escrow “may have made its way into the hands of some of the defendants,” but was

not able to cite to allegations in the Complaint.140 In any event, the receipt of the

135 See Neurvana, 2019 WL 4464268, at *1. 136 See id. 137 See id. at *4. 138 See generally AB. 139 Notably, Asvadi is not mentioned in this sentence. See id. at 13, 13 n.7. 140 See Oral Arg., 34:13–24, 35:1–2.

30 allegedly purloined funds by the Moving Defendants would not be a benefit from

the contract, but from the breach of the contract. 141

Without more, I cannot find that either of the Moving Defendants received a

direct benefit from the Escrow Agreement.142 Personal jurisdiction arising from the

forum selection clause thus cannot be established under the direct benefit prong of

the closely related test.

b. Was It Foreseeable that the Moving Defendants Might Be Sued in Delaware?

Delaware caselaw applying solely the foreseeability prong of the “closely

related” analysis is limited.143 To the extent the foreseeability prong is a legitimate

means to bind non-parties to a forum selection provision, the prong operates as a

species of equitable estoppel, and “[w]here the facts at bar have not aligned with

previous discrete applications of the standalone foreseeability inquiry, [the Court of

Chancery] has declined to expand the test.” 144 Neurvana Medical, LLC v. Balt USA,

LLC provides a recent review of the foreseeability precedent, noting that the

foreseeability analysis most often follows the establishment of a direct benefit, but

141 See Neurvana, 2019 WL 4464268, at *4 (citing Weygandt v. Weco, LLC, 2009 WL 1351808, at *4 (Del. Ch. May 14, 2009)). 142 Cf. id. (“In any event, the mere ‘contemplation’ of a benefit does not directly confer one.”). 143 See id. at *5 (identifying two scenarios where the foreseeability inquiry was a singular basis for satisfying the “closely-related” test). 144 See Partners & Simons, 2021 WL 3161651, at *7.

31 identifying two factual scenarios where personal jurisdiction was established based

on the foreseeability inquiry alone. 145

The first factual scenario allows a non-signatory to enforce a forum selection

clause against a signatory where the non-signatory is “closely related to one of the

signatories such that the non-party’s enforcement of the clause is foreseeable by

virtue of the relationship between the signatory and the party sought to be bound.” 146

For example, Ashall Homes Ltd. v. ROK Entertainment Group Inc. determined that

officers and directors could constitute closely related non-signatories with standing

to invoke a forum selection clause against a signatory. 147

Here, the party seeking to enforce the forum selection clause was a party to

the Escrow Agreement—the Plaintiff, BAM; it is the Moving Defendants who are

the non-signatories. Therefore, this line of cases does not support personal

jurisdiction.

iModules Software, Inc. v. Essenza Software, Inc. encapsulates the second

factual scenario, with the Court finding that a non-signatory entity can be bound to

a forum selection clause where its controllers have signed the agreement at issue.148

The instant case does not resemble this factual scenario, either; the Moving

145 See generally Neurvana, 2019 WL 4464268. 146 See Lexington Servs. Ltd. v. U.S. Patent No. 8019807 Delegate, LLC, 2018 WL 5310261, at *5–6 (Del. Ch. Oct. 26, 2018) (quoting Ashall Homes Ltd. v. ROK Entm’t Grp., Inc., 992 A.2d 1239, 1249 (Del. Ch. 2010)). 147 See Ashall, 992 A.2d at 1249. 148 2017 WL 6596880 (Del. Ch. Dec. 22, 2017) (ORDER).

32 Defendants are alleged to have themselves caused the signatory to act, not the other

way around.

Therefore, to find personal jurisdiction by reason of foreseeability, the

Plaintiff seeks to have me expand the existing caselaw. In support of its proposition,

the Plaintiff cites to a Third Circuit case applying Delaware law, Carlyle Investment

Management LLC v. Moonmouth Company. 149 Carlyle indicates that in conducting

the foreseeability inquiry, courts should consider “the non-signatory’s ownership of

the signatory, its involvement in the negotiations, the relationship between the two

parties and whether the non-signatory received a direct benefit from the

agreement.”150

The Carlyle Court found personal jurisdiction over the defendant via the

forum selection clause, referencing the negotiations process, authority to give and

receive instructions on behalf of the pertinent entities, and contact information for

the entities.151 Carlyle is nevertheless distinguishable from the facts at bar. In that

case, the defendant and party at issue were both controlled by a common

controller.152 Thus, the determination that the forum selection clause conferred

personal jurisdiction was not predicated solely on facts regarding the negotiations,

149 779 F.3d 214 (3d Cir. 2015). 150 Id. at 219 (citing Weygandt, 2009 WL 1351808, at *4; then citing Capital Grp. Cos., Inc. v. Armour, 2004 WL 2521295, at *6–7 (Del. Ch. Oct. 29, 2004)). 151 Id. 152 See id.

33 contact information and authority in connection with entities. 153 In other words, to

the extent Carlyle is persuasive, it is not pertinent.

BAM seeks to establish personal jurisdiction over Asvadi on basis of his

participation in the negotiation of the Escrow Agreement, his status as a point of

contact for Mammoth following the release of the funds from escrow, and a shared

address with Mammoth.154 The facts are slightly stronger with respect to Hilton—

in addition to the above, he signed the Escrow Agreement for Mammoth in his

capacity as CEO and is listed as its agent for service of process in California.155

Viewed in the light most favorable to the Plaintiff, this theory mirrors the “active-

involvement” theory considered and rejected in Neurvana, which declined to find

“active involvement in negotiating and executing the transaction” a “standalone

basis” for establishing personal jurisdiction. 156

I too decline to extend the foreseeability test in this way. The Plaintiff has not

made a prima facie showing that the Moving Defendants are “closely related to” the

Escrow Agreement such that they should be bound by its forum selection clause. As

such, the forum selection clause does not confer personal jurisdiction over the

Moving Defendants.

153 See id. at 219; see also Partners & Simons, Inc., 2021 WL 3161651, at *8. 154 See AB 13. 155 See id. 156 Neurvana, 2019 WL 4464268, at *7 (citing Compucom Sys., Inc. v. Getronics Fin. Holdings B.V., 2012 WL 4963308, at *4 (D. Del. Oct. 16, 2012)); id. at *8; see also Partners & Simons, Inc., 2021 WL 3161651 (declining to apply the active-involvement theory).

34 D. Estoppel

Finally, the Plaintiff argues that the Moving Defendants are estopped from

denying the application of the forum selection clause.157 Its basis is that the

California Lawsuit filed by the Moving Defendants “embraced” the Escrow

Agreement (for purposes of suing BAM and seeking a declaratory judgment), and

that the Moving Defendants cannot now disclaim the Escrow Agreement’s

applicability. 158 The California Lawsuit seeks a declaratory judgment finding each

of Hilton and Asvadi not liable on the guaranty under the Escrow Agreement.159

The Moving Defendants’ theory in that action is that because they did not sign the

Escrow Agreement in their individual capacities, they are therefore not personally

bound by any of the obligations in the agreement, including the guaranty provision

and, although not expressly pled in the California Lawsuit, ostensibly the forum

selection clause, as well.160

The Plaintiff appears to argue that estoppel is its own separate basis for finding

personal jurisdiction against the Moving Defendants, but as noted above, the

“closely related” test is properly grounded on estoppel. As a consequence, the

Plaintiff’s argument here is largely duplicative of the arguments under the closely

157 AB 15. 158 Id. at 15–16. 159 Id., Ex. I, ¶¶ 35–40. 160 Id. at 38.

35 related test (and are treated as such in the caselaw to which the Plaintiff cites).161

For example, Capital Group Companies, Inc. v. Armour, cited in the Answering

Brief, states that “a non-signatory is estopped from refusing to comply with a forum

selection clause when she receives a ‘direct benefit’ from a contract containing a

forum selection clause.”162 The Complaint does not allege that the Moving

Defendants received any direct benefit from the Escrow Agreement, nor did they

seek a benefit under the Escrow Agreement in the California action. Quite the

contrary, they sought prophylactic judicial recognition that they were strangers to

the contract.163 Seeking a declaratory judgment in California courts regarding

liability under the Escrow Agreement is not equivalent to “embracing” a contract for

the purposes of estoppel, because the Moving Defendants do not there seek to obtain

a benefit, but rather seek to disclaim liability under the Escrow Agreement. This

affirmative defense is therefore unavailing.

***

I have considered each of the theories presented by the Moving Defendants

and the Plaintiff in connection with the Motion to Dismiss. I find that sufficient

161 See Neurvana, 2019 WL 4464268, at *3 (“Decisions of [the Court of Chancery] have described the closely-related test as an application of the doctrine of equitable estoppel.”). 162 Capital Grp., 2004 WL 2521295, at *6 (citations omitted); see also Neurvana, 2019 WL 4464268, at *3 (quoting Plaze, Inc. v. Callas, 2019 WL 1028110, at *8 (Del. Ch. Feb. 28, 2017)) (“Equitable estoppel exists ‘to prevent someone from accepting the benefits of a contract without accepting its obligations.’”). 163 See generally AB, Ex. I.

36 minimum contacts do not exist between the Moving Defendants and the State of

Delaware to satisfy due process. Further, I do not find that the Moving Defendants

were so closely related to the Escrow Agreement as to be contractually bound by

its forum selection clause. Finally, I do not find that estoppel prevents the Moving

Defendants from prevailing on the Motion to Dismiss. In total, none of the

theories advanced by the Plaintiff is sufficient to confer personal jurisdiction over

the Moving Defendants.

III. CONCLUSION

The Motion to Dismiss with respect to the Moving Defendants is GRANTED.

The parties should submit an appropriate form of order.