McDermott was a Delaware
corporation that was a subsidiary of a Panamanian corporation. They
underwent a reorganization that changed the voting power of the shares in
a way that would be probably be prohibited by Delaware law, but was
allowable under Panamanian law.
Lewis, a shareholder, sued in
Delaware in order to block the reorganization. There was a question over
which law to apply.
In general, the internal
affairs doctrine, says that the law
of a State of incorporation should govern any disputes regarding that
corporations' internal affairs.
So if a corporation is
incorporated in Texas, Texas law applies, no matter what State the suit
is being heard in.
The Trial Court applied the
law of Delaware. McDermott appealed.
The Appellate Court reversed.
The Appellate Court found
that the internal affairs doctrine
should be applied. Therefore the law of Panama should be applied and the
merger was allowable.
The Court found that
Delaware's conflict of laws principles require that the laws of the
jurisdiction of incorporation should govern corporate disputes.
The Court found that
corporations had a constitutional due process right to be sure of what law would be applied
to their actions.
The Court found that the Commerce
Clause of the Constitution would be
violated by applying Delaware law, because it would allow Delaware to
interfere in the internal affairs of a foreign corporation having no
relationship to Delaware.
Contrast this decision to Ross
A. Wilson v. Louisiana-Pacific Resources, Inc. (1187 Cal.Rptr. 852 (1982)), where California decided that it
would not be unconstitutional to apply their law to a corporation not
incorporated in California.
