Inspection Rights, Internal Affairs, and Personal Jurisdiction: Orchid Global’s Procedural Lesson
In Orchid Global, Inc. v. Salamon, Vice Chancellor Will addressed an important procedural question left open by the Delaware Court of Chancery’s 2020 decision in JUUL Labs, Inc. v. Grove. In JUUL, the Court of Chancery held that, under the internal affairs doctrine, Delaware law governs the inspection rights of stockholders of Delaware corporations notwithstanding that California’s stockholder inspection statutes apply by their terms to some foreign corporations headquartered in California. In Orchid, the Court considered whether a Delaware corporation could obtain a declaratory judgment that Delaware law governed a stockholder’s inspection rights, despite the stockholder’s reliance on California’s inspection statutes. Vice Chancellor Will held that it could not because the Court lacked personal jurisdiction over the stockholder.
This was not a mere forum dispute. The stockholder invoked California statutes that, on their face, provide an inspection regime that differs in significant respects from DGCL Section 220, including broader inspection rights in some respects and a statutory mechanism for recovering attorneys’ fees. Orchid therefore sought a declaration that Delaware law — not California law — governed the dispute. The Court of Chancery’s dismissal for lack of personal jurisdiction underscores that, even where Delaware law governs a Delaware corporation’s stockholder inspection rights and Delaware is the designated forum, a Delaware court cannot adjudicate a corporation-initiated declaratory judgment action against a stockholder unless it has an independent basis for exercising personal jurisdiction over the stockholder.
The dispute arose after Orchid offered to repurchase shares held by David Salamon, a minority stockholder who owned approximately 11.11% of the company. Rather than invoking DGCL Section 220, Salamon demanded inspection under California Corporations Code sections 1600 and 1601. Orchid rejected the demand, contending that, as a Delaware corporation, its stockholders’ inspection rights were governed by Delaware law rather than California’s inspection statutes.
Salamon then filed an action in California Superior Court seeking to enforce his asserted inspection rights under California law. Orchid moved to stay the California action, arguing that its forum-selection bylaw required inspection disputes to proceed in Delaware. While that motion was pending, Orchid filed a declaratory judgment action in the Delaware Court of Chancery seeking a declaration that Delaware law governed Salamon’s inspection rights and that it was not required to produce books and records in response to Salamon’s California demand. The California Superior Court granted the motion to stay, and that ruling is currently on appeal. The Delaware Court of Chancery nonetheless addressed the separate question of whether a Delaware court may adjudicate the corporation’s declaratory judgment action against the stockholder.
Vice Chancellor Will granted Salamon’s motion to dismiss for lack of personal jurisdiction. Orchid principally argued that Salamon had consented to jurisdiction through the company’s forum-selection bylaw. The Court disagreed. By its plain terms, the bylaw governed claims asserted against the corporation and its fiduciaries, not claims brought by the corporation against a stockholder. Because Orchid — not Salamon — had initiated the Delaware action, the Court held that the bylaw did not supply Salamon’s consent to personal jurisdiction.
The Court also rejected Orchid’s argument that Salamon had implicitly consented to jurisdiction by continuing to hold Orchid stock after adoption of the forum-selection bylaw. Passive ownership of a minority stake, without more, was insufficient to establish consent to jurisdiction in a corporation-initiated action.
The decision should not be read as retreating from JUUL or from Delaware’s view that the inspection rights of stockholders of Delaware corporations are governed by Delaware law under the internal affairs doctrine. Nor does it call into question the effectiveness of Delaware forum-selection bylaws in channeling stockholder claims to Delaware. Rather, Orchid clarifies that a standard forum-selection bylaw does not itself provide personal jurisdiction over a stockholder when a corporation seeks affirmative declaratory relief.
Importantly, the decision does not suggest that inspection disputes involving Delaware corporations should ultimately be resolved outside Delaware. To the contrary, Vice Chancellor Will observed that Salamon remained free to pursue his inspection claims through the ordinary mechanism Delaware law provides — a conventional action under DGCL Section 220. Orchid therefore concerns the procedural vehicle, not the ultimate availability of a Delaware forum to adjudicate inspection rights. It offers a procedural lesson: even where Delaware law governs a Delaware corporation’s stockholder inspection rights and Delaware is the designated forum, a corporation seeking affirmative declaratory relief must first establish an independent basis for exercising personal jurisdiction over the stockholder. The California appeal remains pending, so the broader dispute over the application of California’s inspection statutes to Delaware corporations has not yet run its course.
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