I recently questioned the basis for Delaware' assertion of personal jurisdiction over controlling stockholders. I noted that there is no "deemed consent" statute for controlling stockholders as there is for directors and officers. A recent California Court of Appeal decision, while not dealing with controlling shareholder, does illustrate why personal jurisdiction matters.
In Parafi Digital Opportunities LP v. Egorov, 2025 WL 210583 (Cal. Ct. App. Jan. 15, 2025) involved the defendant's cancellation of the plaintiffs’ investment in Curve, a decentralized cryptocurrency trading platform developed by the defendant. The trial court granted the defendant's motion to quash service for lack of personal jurisdiction and the Court of Appeal affirmed. The appellate court's opinion is a helpful and timely reminder that federal constitutional principles require have sufficient "minimum contacts" for a state to exercise personal jurisdiction.
In general, courts have focused on two types of jurisdiction - specific and general. Specific jurisdiction is present when the in-state activities give rise to the suit. In contrast, general jurisdiction exists when the defendant's activities are so substantial that suit in the state can be justified even if those activities did not give rise to the cause of action. Because the plaintiff did not argue for general jurisdiction, the opinion discusses only specific jurisdiction. The Court of Appeal notes that there are three requirements for a California court to exercise specific jurisdiction over a nonresident defendant:
- the defendant must purposefully avail themselves of forum benefits;
- the controversy must be related to or arise out of the defendant’s forum contacts; and
- the assertion of personal jurisdiction must comport with fair play and substantial justice.
It is difficult to comprehend how these requirements can be met in the case of a nonresident controlling stockholder who does not engage in activities within a state.
[View source.]
