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When the only tie to Delaware is that a parent company is incorporated there, would-be plaintiffs might not be able to sue in the First State. That is the lesson learned in an opinion by Vice Chancellor Leo Strine in the Court of Chancery case IM2 Merchandising and Manufacturing Inc., et. al. v. Tirex Corp., et. al. “The procession of this litigation in Delaware rather than Quebec, Canada, will result in the imposition of significant and undue costs on the defendants that are unjustified by any countervailing public or legitimate private interest served by conducting the case here,” Strine wrote in a 33-page opinion. IM2 Merchandising and its chief executive officer, David Sinclair, entered into a contract with Tirex and its subsidiary, Tirex Corporation Canada Inc. for the production of rubber mats. Shortly after the contract was finalized, it became clear that the Tirex companies weren’t going to meet the time deadlines for production. Even though they were relaxed several times, the Tirex companies still couldn’t meet the deadlines. Because of this, IM2 couldn’t meet its obligations to another company that wanted the mats, Akro Corp. IM2 and Sinclair sued the Tirex companies and several of their directors in the Court of Chancery. Among the many allegations in the complaint was a count for breach of fiduciary duty. This was based on plaintiffs’ allegations that the directors of the Tirex companies knew they weren’t going to be able to make production deadlines, but continued to make representations to the contrary. Vice Chancellor Strine decided that the complaint had to be dismissed on several grounds, including forum non conveniens. According to Tirex’s attorney, Barry Klayman, “the most interesting part” of the opinion dismissing the complaint against his clients was the court’s “application of the forum non conveniens doctrine.” The court “gave meat to the bones of the test,” which has already been established in Delaware, by applying it to the facts of this case. Klayman was referring to the fact that his clients overcame the high burden of showing that the traditional forum non conveniens factors were met because it would cause “overwhelming hardship” to allow the suit to go on in Delaware. Strine noted the following facts in support of his conclusion. First, the plaintiffs were citizens of Canada and the business took place in Canada. Second, Tirex’s corporate status in Delaware is not even in good standing. Tirex and Tirex Canada are “not in the pink of financial health,” and the expense of a trial in Delaware would not help any. All witnesses and most documents were located in Canada, and that would then be the easiest place to hold a trial. If the trial were in Canada, it would be easier to view all of the business premises. Third, the tort and contract laws of Canada, not Delaware, would apply to most of the plaintiffs’ claims. Fourth, even though no action was pending elsewhere, the Delaware case was in its early stages and no discovery had been taken. So, there would be no “undue burden” to the plaintiffs by filing in Canada. But these weren’t the only reasons why the plaintiffs’ complaint was dismissed. The court said that Delaware had no personal jurisdiction over Tirex Canada. The only tie that Tirex Canada had to Delaware was the fact that its parent corporation is a Delaware corporation. But none of the conduct at issue occurred in Delaware. No Delaware act of Tirex could be imputed to Tirex Canada. In addition, IM2 no longer owned any shares of Tirex, and so, the court dismissed its breach of fiduciary duty claim against it. As to Sinclair’s similar claim, the complaint lacked any allegations supporting demand excusal. Sinclair didn’t even own shares of Tirex when the misconduct supposedly occurred, which also barred him from attacking Tirex for breach of fiduciary duty. The court also commented that plaintiffs were attempting to turn an ordinary commercial dispute into a breach of fiduciary claim. If plaintiffs “did not receive what it was promised … its claims would be under common law contract and tort theories, not against the directors for breach of fiduciary duty.” That wasn’t the final problem with the complaint. It wasn’t specific enough, Strine wrote. Dismissal of the fiduciary duty claims without prejudice would be in order to “allow the defendants and the court” to “have the chance to grapple with an understandable claim.” John F. Thomas Jr. of Frank & Rosen of New Castle represented plaintiffs. Of counsel was David F. Conn of Frank & Rosen of Philadelphia. Defense attorney Klayman is with Wolf Block Schorr & Solis-Cohen of Wilmington, Del.

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