iBio, Inc. v. Fraunhofer-Gesellschaft Zur Forderung Der Angewandten Forschung E.V., C.A. No. 2017-0790-TMR (Del. Ch. Dec. 10, 2018), Montgomery-Reeves, V.C.
This action arises from the alleged breach of a technology agreement between Fraunhofer USA Inc. and Plaintiff iBio, Inc., in which the plaintiff sued the defendant Fraunhofer-Gesellschaft Zur Forderung Der Angewandten Forschung E.V. related to the defendant’s purported direction of its subsidiary to breach the agreement. This instant case is the third and latest chapter of a heavily litigated, four-plus-year dispute between the plaintiff and Fraunhofer. The defendant moved to dismiss the complaint based on lack of personal jurisdiction and the doctrine of laches.
The Court of Chancery found that the defendant was subject to jurisdiction based on a conspiracy theory of jurisdiction, which holds if there is a sufficient showing of the following elements: a conspiracy to defraud; the entity was a member of the conspiracy; a substantial act in furtherance of the conspiracy was committed in the forum state; the entity had reason to know that the relevant act was committed in or would have an effect on the forum state; and the effect on the forum state was a foreseeable result of the conduct committed in furtherance of the conspiracy.
Although the defendant was a not-for-profit entity formed under the Federal Republic of Germany, the Court found that the plaintiff pled sufficient facts to establish jurisdiction. The Court also found the plaintiff’s allegations persuasive, in that the defendant maintained a heavy hand in Fraunhofer’s activities such that the defendant “had a role in [Fraunhofer’s] withholding of technology from [the plaintiff], a corporation with its principal place of business in Delaware.” The defendant not only approved Fraunhofer’s agreements with the plaintiff and other parties, but it also made representations concerning Fraunhofer’s anticipated performance under the technology agreement and sanctioned the conduct underlying the breach. Based on these allegations, the Court concluded that it could exercise jurisdiction over the German company.
Despite its finding of jurisdiction, the Court of Chancery nevertheless granted the defendant’s Motion to Dismiss based on the doctrine of laches. The doctrine of laches “aids the vigilant, not those who slumber on their rights[,]” and the Court will “afford significant weight” to the relevant statute of limitations to assess whether a claim is timely. In the absence of a tolling exception or other circumstance, which renders the dismissal of a claim inequitable, the Court will dismiss an untimely claim. Although the parties to this lawsuit agreed that the relevant statute of limitations was three years, the plaintiff argued that the defendants’ fraudulent conduct tolled the limitation period. The Court disagreed. Citing the Complaint and the plaintiff’s filings in a separate litigation, the Court found that the plaintiff knew of Fraunhofer’s breach and was on inquiry notice more than three years prior to filing the lawsuit. “Inquiry notice does not require actual discovery of the reason for the injury. Nor does it require plaintiff[’s] awareness of all of the aspects of the alleged wrongful conduct.” The clock, rather, begins to run once an injured party should have discovered its claim. The plaintiff’s knowledge of the defendant’s active role in Fraunhofer’s contractual arrangements led the Court to conclude that the plaintiff possessed inquiry notice of the defendant’s alleged wrongdoing for purposes of filing a timely claim.
The Court of Chancery’s finding of jurisdiction highlights a seldom-used theory. The plaintiff relied on a conspiracy theory to bring suit against a German company in Delaware state court. Even though the defendant did not commit any acts in the State of Delaware, the Court exercised jurisdiction over the defendant based on the actions of its subsidiary, which had an effect in the State of Delaware. One may question whether a conspiracy theory of jurisdiction violates Delaware’s long-standing respect for the corporate form, but it does not. Although the act of the subsidiary in this case was relevant to a finding of jurisdiction, a conspiracy theory requires proof of an agreement to take action and a party’s knowledge of the effect of such action, in which the Court found that the plaintiff pled facts to establish the defendant’s agreement with Fraunhofer to breach the technology agreement and knowledge of the numerous steps undertaken by Fraunhofer to commit the breach. Thus, the Court’s finding of jurisdiction is premised not only on the subsidiary’s affirmative conduct, but also on the parent’s knowledge of and involvement in acts that constituted a breach of the agreement.