Monday, January 8, 2018

Gary W. Stisser v. SP Bancorp, Inc. (Ct. of Special Appeals)

Filed: November 29, 2017

Opinion by: Andrea M. Leahy

Holding: In a shareholder class action lawsuit for breach of directors’ fiduciary duties following a merger, Maryland did not have personal jurisdiction over directors of the company incorporated in Maryland, nor over the Texas-based merging company because under the jurisdictional analysis it is insufficient that the Texas-based merging company merely incorporated a subsidiary in Maryland to facilitate the merger but conduct no other business activity there, and mere directorship in a Maryland company is insufficient given the absence of factors such as: a director-consent statute, actual business activity in Maryland, and any merger-related activities directed toward Maryland.

Facts: Appellants are shareholders of a company incorporated in Maryland (the “Company”). Appellants filed a shareholder class action lawsuit for breach of fiduciary duties following the merger of the Company into a Maryland subsidiary (the “Maryland Subsidiary”) of a bank holding company incorporated under Texas law with its principal place of business in Texas (the “Holding Company”). The lawsuit named both the Company and its directors (the “Directors”), as well as the Holding Company and its Maryland Subsidiary, as the defendants. 

Appellants are not residents of Maryland. They owned shares in the Company. The Company was incorporated in Maryland, but its headquarters and principal place of business were located in Texas. The Company served as a holding company and parent of a Texas-chartered state bank. The Company did not have any offices in Maryland and did not employ any individuals in Maryland. The Directors did not reside in Maryland, nor were they employed there. The merger negotiations with the Holding Company took place in Texas. 

The Circuit Court for Baltimore City granted motions to dismiss by the defendants, finding in part that the Court lacked personal jurisdiction over the Directors and the Holding Company. The questions on appeal were whether the Holding Company subjected itself to personal jurisdiction in Maryland by forming the Maryland Subsidiary, and whether the Directors were subject to personal jurisdiction because they filed the Articles of Merger in Maryland.  

Analysis: Personal jurisdiction over out-of-state defendants must be established under Maryland’s long-arm statute and comport with the Due Process Clause of the Fourteenth Amendment. Appellants argued that Maryland had general jurisdiction over the Holding Company because it formed the Maryland Subsidiary as an instrumentality or alter ego, and exercised complete control over the Maryland Subsidiary until it was shuttered following the merger. Appellants did not argue the Holding Company was “at home” in Maryland under the traditional  general jurisdiction analysis. 

The Court held that the incorporation of and control over a subsidiary in Maryland is insufficient to establish general jurisdiction over the nonresident parent company, citing in support DaimlerChrysler AG v. Bauman, 134 S. Ct. 746 (2014). In Daimler, Argentine residents sued a U.S. subsidiary of a German parent company whose Argentine-based subsidiary allegedly collaborated in government war crimes. The Supreme Court rejected the establishment of personal jurisdiction over a parent company due merely to its control over a resident subsidiary. Thus, Appellants’ argument fails. 

Moreover, even if the Maryland Subsidiary were an alter ego of the Holding Company, the Holding Company would only be subject to personal jurisdiction upon a showing that it was “at home” in Maryland. Normally, this means the place of incorporation and principal place of business.  

The Court also rejected Appellants’ claim that the Holding Company’s actions of forming the Maryland Subsidiary and consummating the merger in Maryland subjected the Holding Company to specific jurisdiction.  The Court found that the Holding Company did not “transact business,” pursuant to Maryland’s long-arm statute, because the mere filing of the Articles of Incorporation of the Maryland Subsidiary are insufficient.  The Maryland Subsidiary was not intended to do business in Maryland and did not direct activities toward Maryland residents. The Holding Company did not have offices or solicit business in Maryland, nor did it appoint a registered agent there. Moreover, the filing of the Articles of Incorporation is only tangentially related to the underlying claims, and thus insufficient for specific jurisdiction. Additionally, the filing of the Articles of Merger is also insufficient because these were not filed by the Holding Company. 

The Court rejected the argument that by accepting directorship in the Company, the Directors are subject to personal jurisdiction in Maryland. The Maryland legislature never enacted a “director consent” statute which is necessary to provide prospective directors notice sufficient enough to satisfy the Due Process Clause in light of the Supreme Court’s ruling in Shaffer v. Heitner, 433 U.S. 186 (1977). The Court also held that the Pittsburgh Terminal Corp. v. Mid Allegheny Corp., 831 F.2d 522 (4th. Cir. 1987) ruling — which held that a director-consent statute is not always necessary because Shaffer did not require any particular statutory “words of art” — did not apply here because the Pittsburgh Terminal corporation actually did business in the forum state, unlike the Company here. 

The Court also rejected the Appellants’ argument that the Directors are subject to personal jurisdiction because the Directors caused the merger in Maryland and filed the Articles of Merger in Maryland. Appellants did not allege that the Directors directed any contact toward Maryland with respect to the merger. The Directors were non-residents who never entered Maryland in connection with Company business. The filing of the Articles of Merger was the only act that occurred in Maryland. The filing cannot be imputed to the Directors for jurisdictional purposes because the Directors did not file the Articles of Merger personally and did nothing more than participate in the merger decision.

The opinion is available in PDF here.

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