Much of the non-compete litigation occurs in Delaware because the parties (usually the former employee and his/her former employer) have consented to the jurisdiction of Delaware courts in the underlying contract. But in many of these cases, obtaining personal jurisdiction over third parties such as the former employee’s new employer may pose difficulties. If there’s evidence of a conspiracy between the defendants, however, one consideration is using the Conspiracy Theory to establish personal jurisdiction over the non-resident defendant.
When determining if it has personal jurisdiction over a non-resident defendant, a Delaware court conducts a two-part analysis. First, it considers whether the defendant’s conduct satisfies the state’s long-arm statute. Second, it considers whether the exercise of personal jurisdiction would violate the Fourteenth Amendment’s due process clause. The Conspiracy Theory is used to satisfy the long-arm statute when one defendant has engaged in conduct within the State that satisfies the long-arm statute, but the other defendant has not. In other words, the Conspiracy Theory is used to impute one defendant’s conduct to the other, thereby obtaining jurisdiction over both.
The standard for establishing personal jurisdiction using this theory not easy. A plaintiff must demonstrate that: (1) a conspiracy existed; (2) the defendant was a member of that conspiracy; (3) a substantial act or substantial effect in furtherance of the conspiracy occurred in the forum state; (4) the defendant knew or had reason to know of the act in the forum state or that acts outside the forum state would have an effect in the forum state; and (5) the act in, or effect on, the forum state was a direct and foreseeable result of the conduct in furtherance of the conspiracy.
This method of establishing jurisdiction was recently asserted in the case of LeCroy Corp. v. Hallberg, 2009 Del. Ch. LEXIS 178. In that case, Hallberg left his employment with LeCroy to work for a competitor, in violation of the non-competition provisions of his employment contract with LeCroy. The competitor was incorporated in Delaware, so the courts had jurisdiction over it, but the Hallberg had never lived or worked in Delaware. In order to obtain jurisdiction over Hallberg, the employer tried to establish a conspiracy between Hallberg and his new employer, in order to impute the employer’s tortious conduct in Delaware to Hallberg.
In this case, the tortious conduct on which LeCroy’s claim of conspiracy was based was the competitor’s decision to dissolve a predecessor business established in Colorado, and reincorporate the business in Delaware in order to hide the competitor’s connection with several of LeCroy’s former employees, all of whom were subject to non-competition agreements. However, the Court found that LeCroy failed to prove conspiracy because it could not demonstrate element (4), above. The Court held that Hallberg was hired after the competitor reincorporated in Delaware, thus there was no reason to assume that Hallberg knew of the reincorporation in Delaware. Based on its holding, the Court ordered that Hallberg be dismissed as a defendant for lack of personal jurisdiction.
As the Halberg case suggests, obtaining jurisdiction over a non-resident defendant using the Conspiracy Theory has its challenges. It is narrowly construed and will require more exacting factual allegations to withstand a motion to dismiss. Still, the theory can be a viable alternative for establishing personal jurisdiction where the facts suggest a conspiracy between the defendants, and where one or more defendants lacks contacts with Delaware.