In the recently decided case of Gary W. Stisser v. SP Bancorp, Inc., Case No. 24-C-14-003610, 2015 MDBT 3 (Balt. Cir. Ct. 2015), the Circuit Court for Baltimore City granted motions to dismiss in stockholder litigation for lack of personal jurisdiction and failure to state a claim upon which relief can be granted. A key holding in the case was the court’s determination that the non-resident directors of a Maryland corporation were not subject to personal jurisdiction in Maryland (see Forum Selection Bylaws and the Personal Jurisdiction Trap for further discussion: http://www.milesstockbridge.com/news-resources/publications/forum-selection-bylaws-and-personal-jurisdiction-trap/).

In May 2014, SP Bancorp, Inc., a Maryland corporation, announced that it had entered in to a merger agreement with Green Bancorp, Inc., a Texas corporation. In June 2014, Gary W. Stisser and Fundamental Partners filed a complaint alleging class action and derivative claims on behalf of themselves and all other similarly situated shareholders of SP Bancorp for breach of fiduciary duty and aiding and abetting breach of fiduciary duty in connection with the proposed merger. The merger subsequently became effective on October 17, 2014, upon the filing of Articles of Merger with the Department of Assessments and Taxation of the State of Maryland. The defendants included SP Bancorp and its board of directors that approved the merger, and Green Bancorp and its wholly owned subsidiary, Searchlight Merger Sub, Inc., a Maryland corporation (created solely for the purpose of closing the merger).

After assignment to the Business and Technology Case Management Program, the defendants filed motions to dismiss arguing both that the complaint failed to state a claim and that the Maryland court lacked personal jurisdiction over the defendants. In response, the court held that even though SP Bancorp and Searchlight were subject to personal jurisdiction because they were Maryland corporations, the claims against those two defendants nevertheless were dismissed because they failed to state a claim.

In a somewhat surprising move, the court also dismissed the claims against Green Bancorp and the SP Bancorp directors on personal jurisdiction grounds, holding that the plaintiffs failed to show that the directors and Green Bancorp established sufficient connections with Maryland to be subject to either general or specific jurisdiction. Specifically, the court rejected the plaintiff’s contention that Green Bancorp’s formation of a Maryland merger sub was a “significant activity” subjecting Green Bancorp to personal jurisdiction, and held that the filing of the articles of merger in Maryland is not a “purposeful tortious act” under the Maryland long-arm statute. The court then described several facts supporting its conclusion, including that no merger negotiations occurred in Maryland, the merger agreement was governed by Delaware law and that the plaintiffs failed to show that Searchlight was the “alter ego” of its parent, Green Bancorp.

In regards to the SP Bancorp directors, the court noted that, unlike the State of Delaware, Maryland does not have a statute that provides the court with personal jurisdiction over non-resident directors of a corporation chartered in Maryland. The court then concluded that, as a matter of law, simply serving as a director of a Maryland corporation is not enough to subject a person to personal jurisdiction in Maryland. In the absence of any additional facts establishing minimum contacts, the court concluded that the plaintiffs failed to meet their burden of proof to show that the non-resident directors had sufficient contacts with the State to be subject to its jurisdiction. The court did leave open the possibility that it may have decided the case differently if the directors either attended meetings or negotiated the Merger Agreement in Maryland.

For the full text of the opinion click here.

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