Hamilton Partners, L.P. v. Englard
11 A.3d 1180
| Del. Ch. | 2010Background
- Hamilton Partners holds ~4% of NYHC's common stock, a delisted NY corporation; Bio Balance is a Delaware subsidiary of NYHC.
- Grossman formed Bio Balance and later Transaction LLC as part of a 2008 Second Settlement with NYHC, benefiting Grossman and his associates.
- Second Settlement provided Grossman upfront cash, a 2/3 interest in Transaction LLC's value, and related payments, transferring Bio Balance assets to Transaction LLC.
- Glatzer v. Grossman (New York derivative suit) challenged the First Settlement; NYHC subsequently rescinded that settlement.
- The Enterologics Action was filed in 2010 challenging a later related transaction; Delaware court considered forum non conveniens risks.
- Hamilton asserts a standard derivative claim on behalf of NYHC and a double derivative claim on Bio Balance, plus a conspiracy claim against Grossman.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the court has personal jurisdiction over Grossman. | Grossman knowingly conspired to drive NYHC’s stock value via Delaware actions. | Grossman lacked sufficient forum ties; no Delaware contacts beyond being part of NYHC's board. | Yes as to Grossman for the Second Settlement challenge; forming Transaction LLC suffices under Istituto Bancario. |
| Whether the Bio Balance double derivative action can proceed in Delaware. | Bio Balance's claim seeks relief through its own directors; jurisdiction exists over Bio Balance and its directors. | Need personal jurisdiction over NYHC directors; subsidiary/consent issues complicate jurisdiction. | Yes; Delaware has jurisdiction over Bio Balance and its directors; NYHC indirect issues resolved by the subsidiary framework. |
| Whether the NYHC derivative action is barred for lack of director-level demand futility in NY law. | New York law shows demand futility due to director interest and failed independence. | No independent directors; NY law requires particularized showing of director interest or independence failures. | Demand futility shown at the NYHC parent level; NY law controls for parent-level futility in double derivative context. |
| Whether the complaint states a cognizable breach of fiduciary duty claim against the Director Defendants. | Director Defendants were beholden to Grossman and prioritized his interests over NYHC/Bio Balance. | Directors acted in accordance with parent business plan; exculpation provisions apply. | Yes; pleading shows loyalty breaches and related supporting facts; exculpation does not shield loyalty claims. |
| Whether forum non conveniens justifies dismissing the case. | Delaware has a strong interest in policing fiduciaries and entity-law interpretation. | New York forum would be more appropriate for NYHC-related disputes. | Notwithstanding NYHC's New York status, Delaware's interest in internal affairs and fiduciary-duty enforcement warrants venue in Delaware. |
Key Cases Cited
- Istituto Bancario Italiano SpA v. Hunter Eng'g Co., 449 A.2d 210 (Del. 1982) (framework for personal jurisdiction in forum-state conspiracies)
- Crescent/Mach I P'rs, L.P. v. Turner, 846 A.2d 963 (Del.Ch. 2000) (single transaction suffices for jurisdiction under 10 Del. C. § 3104)
- Benihana of Tokyo, Inc. v. Benihana, Inc., 2005 WL 583828 (Del.Ch. 2005) (aiding and abetting framework in corporate context)
- Lambrecht v. O'Neal, 3 A.3d 277 (Del. 2010) (rethinks double-derivative standing for wholly owned subsidiaries)
- Lewis v. Anderson, 477 A.2d 1040 (Del. 1984) (standing of post-merger subsidiary's claims; Section 259 effect)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (demand futility framework for derivative actions)
- Sternberg v. O'Neil, 550 A.2d 1105 (Del. 1988) (consent-to-jurisdiction and double-derivative posture)
- Glatzer v. Grossman, 47 A.D.3d 676 (N.Y. App. Div. 2008) (New York derivative action against Grossman; settlement rescission)