Hazout v. Tsang Mun Ting
134 A.3d 274
Del.2016Background
- Plaintiff Tsang Mun Ting (Hong Kong) and affiliated investors negotiated a $3.4M change-of-control financing for Silver Dragon Resources, a Delaware corporation with principal place of business in Toronto. Four of five related agreements specified Delaware law; one designated Delaware courts for disputes.
- Defendant Marc Hazout (Toronto) was Silver Dragon’s President, CEO, CFO, and a director; he also controlled Travellers, an Ontario entity.
- Tsang wired the first tranche (~$1,014,140) based on Hazout’s assurances that the deal and board resignations would close; one director refused to sign and the transaction did not close.
- Hazout caused Silver Dragon to retain the tranche and to transfer approximately $750,000 to Travellers. Tsang sued in Delaware Superior Court for fraud, unjust enrichment, and fraudulent transfer (no fiduciary‑duty claim asserted).
- Hazout moved to dismiss for lack of personal jurisdiction. The Superior Court denied the motion under 10 Del. C. § 3114(b); the Delaware Supreme Court accepted certified interlocutory appeal and affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 3114(b)’s "necessary or proper party" clause authorizes Delaware jurisdiction over a nonresident officer sued in tort by a third‑party contracting counterparty | Tsang: § 3114(b) must be given its plain meaning; Hazout is a "proper party" because he has a separate legal interest and his alleged conduct arose from his corporate role | Hazout: Hana Ranch eliminated the Necessary/Proper Party clause; only internal‑affairs/fiduciary‑duty suits fall within § 3114(b) | Court: Affirmed § 3114(b) includes the Necessary/Proper Party clause and it applies here — Hazout is a "proper party" to the action against the corporation |
| Whether applying § 3114(b) here violates due process | Tsang: exercise of jurisdiction is consistent with minimum‑contacts because agreements used Delaware law, involved change of control of a Delaware corporation, and Hazout accepted office under Delaware law | Hazout: exercising jurisdiction here is constitutionally overbroad because plaintiff’s claims are commercial torts by a foreign investor, not internal‑affairs fiduciary claims | Court: Due process satisfied — Hazout purposefully availed himself of Delaware law and his challenged acts were taken in his official capacity in a Delaware‑focused transaction |
| Whether Hana Ranch’s judicial excision of statutory text is binding | Tsang: Hana Ranch misread § 3114 and courts should not excise clear statutory language; constitutionality is addressed case‑by‑case via minimum‑contacts | Hazout: Hana Ranch correctly limited § 3114 to avoid constitutional problems | Court: Declined to follow Hana Ranch; upheld plain statutory text and relied on minimum‑contacts to prevent unconstitutional applications |
| Whether alternative protections (minimum contacts, forum non conveniens) affect outcome | Tsang: these principles reinforce that § 3114’s consent is not limitless but testable | Hazout: procedural safeguards insufficient to save broad statutory reach | Court: Minimum‑contacts analysis and forum non conveniens remain available safeguards; here they support Delaware jurisdiction |
Key Cases Cited
- Shaffer v. Heitner, 433 U.S. 186 (U.S. 1977) (limits on in rem jurisdiction and background for statute addressing jurisdiction over nonresident fiduciaries)
- Int’l Shoe Co. v. Washington, 326 U.S. 310 (U.S. 1945) (minimum‑contacts due process test for personal jurisdiction)
- Burger King Corp. v. Rudzewicz, 471 U.S. 462 (U.S. 1985) (purposeful availment and foreseeability in jurisdiction analysis)
- World‑Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (U.S. 1980) (foreseeability and fair play limits on jurisdiction)
- Hana Ranch, Inc. v. Lent, 424 A.2d 28 (Del. Ch. 1980) (Chancery decision that read the Necessary/Proper Party clause narrowly; Court declined to follow)
- Armstrong v. Pomerance, 423 A.2d 174 (Del. 1980) (discussed § 3114 scope; treated internal‑affairs factors relevant to jurisdiction)
- In re USACafes, L.P. Litig., 600 A.2d 43 (Del. Ch. 1991) (Chancery recognition that minimum‑contacts could police § 3114 applications)