466 P.3d 660
Or. Ct. App.2020Background
- Deep Photonics Corporation (DPC), a Delaware corporation, faced shareholder derivative claims by Joseph LaChapelle and James Field against three DPC directors (Dong Kwan Kim, Roy Knoth, Bruce Juhola).
- A jury found two breaches of the directors’ duty of care; one breach caused a $10 million loss to DPC and its common stock; damages were apportioned and the trial court entered judgment making the directors jointly and severally liable.
- DPC is governed by Delaware internal-affairs law; plaintiffs sought monetary damages (derivative claims) and the trial was tried to a jury in Oregon.
- Kim appealed, raising (inter alia) that (1) derivative claims are equitable and not triable by jury under Oregon/Delaware law; (2) the trial court erred by refusing midtrial leave to invoke DPC’s Delaware-based exculpatory charter provision (8 Del. Code §102(b)(7)); and (3) the court erred by imposing joint-and-several liability.
- At trial defendants attempted to raise the Delaware exculpation provision late (after plaintiffs’ case); the trial court treated it as an affirmative defense that had to be pleaded earlier and denied the midtrial amendment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Right to jury trial on shareholder derivative claims | Derivative claim seeks monetary damages (legal relief) so LaChapelle/Field were entitled to a jury under Oregon law | Kim: derivative suits are equitable; Delaware (the corporation’s internal law) gives no jury right; if substantive, Delaware should control | Oregon law governs mode of trial; under Oregon Supreme Court’s issue-by-issue approach (Miramontes) the damages/corporate-claim issue is legal and triable by jury; trial court did not err |
| Choice-of-law for jury-trial question | Plaintiffs: jury-trial right is procedural and governed by forum (Oregon) | Kim: jury right is substantive and should follow Delaware law (no jury) | Right to jury trial is a forum judicial-administration/procedural matter; Oregon law applies; jury trial was proper |
| Use of DPC’s Delaware exculpation (§102(b)(7)) raised midtrial | Plaintiffs: defendants untimely and waived affirmative defense; evidence presentation and trial strategy would have differed | Kim: exculpation may be raised late; may be raised when discovered or on appeal | Exculpation is an affirmative defense that must be pleaded; defendants waited too long (discovery, summary judgment, trial) and the court did not abuse discretion in denying midtrial amendment |
| Joint and several liability for board decision causing single harm | Plaintiffs supported joint/several recovery because directors’ negligent votes produced one indivisible corporate injury | Kim: under Delaware law directors are jointly/severally liable only if concerted action/aid-and-abet or conspiracy is proven | Delaware tort/joint-tortfeasor principles apply to concurrent negligent acts producing a single indivisible harm; trial court did not err in imposing joint-and-several liability |
Key Cases Cited
- Fisher v. Miramontes, 352 Or. 401 (Or. 2012) (Oregon Supreme Court adopts issue-by-issue approach to jury-right analysis post-merger of law and equity)
- Ross v. Bernhard, 396 U.S. 531 (U.S. 1970) (derivative action’s corporate claim aspect may entitle parties to a jury on legal issues)
- Dairy Queen, Inc. v. Wood, 369 U.S. 469 (U.S. 1962) (jury-right analysis focuses on nature of relief sought)
- Equitable Life Assur. Soc. v. McKay, 306 Or. 493 (Or. 1988) (forum governs judicial procedures; procedural matters follow local law)
- Emerald Partners v. Berlin, 787 A.2d 85 (Del. 2001) (§102(b)(7) charter exculpation bars monetary recovery for duty-of-care–only claims and functions as an affirmative defense that directors must invoke)
- Malpiede v. Townson, 780 A.2d 1075 (Del. 2001) (procedural postures in which §102(b)(7) may be invoked—Rule 12(b)(6), judgment on pleadings, or summary judgment)
- Krasner v. Moffett, 826 A.2d 277 (Del. 2003) (majority-interested-board facts rebut business-judgment presumption and require scrutiny for loyalty/entire-fairness)
- Benihana of Tokyo, Inc. v. Benihana, Inc., 906 A.2d 114 (Del. 2006) (discussion of effect of disinterested-board authorization and standards of review under Delaware law)