Manichaean Capital, LLC v. SourceHOV Holdings, Inc.

Background

In 2017, the plaintiff shareholders petitioned the Delaware Court of Chancery to determine the fair value of their shares in SourceHOV Holdings, Inc. In 2020, that court determined the fair value to be $4,591 per share and entered a final judgment for $57,684,471 plus interest. The Delaware Supreme Court affirmed the judgment on January 22, 2021.

The plaintiffs then brought this federal action under the Full Faith and Credit Act, 28 U.S.C. § 1738, seeking recognition and enforcement of the Delaware judgment. SourceHOV moved to dismiss for lack of personal jurisdiction, meaning that the federal court lacked legal authority over the defendant.

Personal Jurisdiction

The court held that the plaintiffs had the burden to establish personal jurisdiction and could not rely on conclusory allegations without supporting facts.

For general personal jurisdiction, a corporation ordinarily is subject to suit where it is incorporated or has its principal place of business, unless an exceptional case exists. The complaint alleged that SourceHOV was incorporated in Delaware and had its principal place of business in Texas. It did not allege facts showing an exceptional relationship with New York, so the court found no general personal jurisdiction.

For specific personal jurisdiction, the court considered whether the case arose from or related to SourceHOV’s activities directed at New York. The plaintiffs’ action sought to enforce a Delaware judgment involving a Delaware corporation and a merger transaction under Delaware law. The complaint did not allege that the litigation arose from SourceHOV’s New York activities. The court therefore found no specific personal jurisdiction.

The court also rejected quasi in rem jurisdiction, a form of jurisdiction based on property located in the forum. New York law required property belonging to SourceHOV to be attached or seized before the action began. The plaintiffs acknowledged that they had not sought attachment of SourceHOV’s property allegedly located in New York.

Full Faith and Credit

The court rejected the plaintiffs’ argument that the Delaware judgment’s entitlement to full faith and credit excused them from proving personal jurisdiction in New York. According to the court, the rendering court’s jurisdiction may have preclusive effect when fully and fairly litigated, but the enforcing court must still have personal jurisdiction over the defendant. The court also found the federal judgment-registration statute inapplicable because this action involved enforcement of a state-court judgment rather than registration of a federal-court judgment.

Disposition

Judge Alvin K. Hellerstein dismissed the case for lack of personal jurisdiction. The Clerk was instructed to close the pending motion and terminate the case, and the January 27, 2021 oral argument was canceled. The opinion does not state that the Delaware judgment itself was vacated or otherwise invalidated.