Will Mallory Doom Delaware's Officer Exculpation Statute And Its Corporate Hegemony?
Last summer, Delaware amended Section 102(b)(7) to permit the exculpation of certain officers for direct (but not derivative) stockholder suits for monetary damages for breach of fiduciary duty. See Officer Exculpation Is Old News And Automatic In This State, Is The Right To Sue Officers A Power, Preference Or Special Right?, and Delaware Now Authorizes Exculpation Of Officers, But On What Basis? Exculpation, however, is not available to anyone who happens to have an officer title. The statute limits the authority to exculpate only to a person who at the time of an act or omission as to which liability is asserted is deemed to have consented to service by the delivery of process to the registered agent of the corporation pursuant to § 3114(b) of Title 10. That statute deems a person “who accepts election or appointment as an officer” of a Delaware corporation to have consented irrevocably to the appointment of the corporation’s registered agent or the Delaware Secretary of State as his or her agent for service of process. This "deemed consent" provides the Delaware courts a hook for asserting personal jurisdiction over nonresident officers.
Nearly nine years ago, I noted that Professor Eric Chiappinelli's view that Delaware's assertion of personal jurisdiction based on "deemed consent" was unconstitutional. See Is Delaware's Hegemony Over Corporate Law About To End? The U.S. Supreme Court recently heard oral arguments regarding the constitutionality of Pennsylvania's deemed consent statute with respect to foreign corporations that register to transact intrastate business. Mallory v. Norfolk Southern Railway Co., U.S. S. Ct. Case No. No. 21-1168. See Does A State Have Personal Jurisdiction When The Plaintiff, Defendant And Incident Are Outside The State? If the Supreme Court finds Pennsylvania's statute to be unconstitutional, the implications for Delaware's assertion of jurisdiction over officers will be inauspicious indeed.