Conflicting decisions concerning whether directors of a Maryland corporation are subject to personal jurisdiction in Maryland dictate that Maryland corporations and REITs adopting forum selection bylaws consider requiring that officers and directors consent to personal jurisdiction in the chosen forum.

On April 8, 2015, the Circuit Court for Baltimore City resolved a motion to dismiss in stockholder litigation and held that directors of a Maryland corporation are not subject to personal jurisdiction in Maryland solely by virtue of being a director of a Maryland corporation.  Stisser v. SP Bancorp, Inc., Case No. 24-C-14-003610 (Cir. Ct. for Balt. City April 8, 2015). The court further held that the individual directors did not have sufficient minimum contacts with the State of Maryland to subject them to personal jurisdiction and then dismissed the directors.

The Stisser decision upsets what had previously appeared to be a settled issue in Maryland. Nine years earlier, the same court reached the opposite conclusion in Costa Brava Partnership III, L.P. v. Telos Corp. Case No. 24-C-05-009296 (Cir. Ct. for Balt. City March 30, 2006). In Costa Brava, the court concluded that, while the corporation’s principal place of business was Virginia, any action taken by the directors and officers of a Maryland corporation, with respect to the management of the corporation, can only be given effect in Maryland and under Maryland corporate law. The court further determined that the actions and business decisions underlying the stockholders allegations constituted “transacting business” in Maryland notwithstanding the fact that neither the corporation nor the individuals had any physical presence in, or involvement with, the State of Maryland. Based on that conclusion, the court denied that portion of the motions to dismiss filed by the directors and officers on personal jurisdiction grounds.  Although it appears that the plaintiff-stockholder in Stisser may have conceded the more general jurisdictional conclusion reached by the court in Costa Brava, it is difficult to reconcile the two decisions.

In the last several years, many Maryland corporations and REITs have adopted forum selection bylaws requiring stockholders to bring litigation against corporations and their officers and directors in specified courts, frequently the Circuit Courts of the State of Maryland. As widely observed, there are many benefits to the adoption of such a bylaw provision including the avoidance of costly multijurisdictional litigation.

Stisser creates a potential paradox for Maryland corporations and REITs adopting a forum selection bylaw. While a stockholder is required to bring litigation in the designated forum, directors and officers may not be subject to personal jurisdiction in the chosen forum. Although we are not aware of any Maryland court having decided the issue, any doubt as to personal jurisdiction of the chosen forum over officers and directors could be used as an argument by plaintiff-stockholders to attempt to overcome a forum selection bylaw in order to pursue litigation in an alternative jurisdiction.

To avoid the potential for such a collateral attack on a forum selection bylaw, Maryland corporations and REITs adopting a forum selection bylaw should consider including in indemnification agreements or their bylaws a requirement that all officers and directors of the corporation or REIT submit to the personal jurisdiction of the chosen forum.  While it is possible that directors and officers of a Maryland corporation or REIT having adopted a forum selection bylaw may be subject to personal jurisdiction in the chosen forum, until the conflict between Stisser and Costa Brava is resolved, corporations and REITs should consider such additional measures. 

¹ Miles & Stockbridge P.C. represents two of the individual defendants in Costa Brava.

This article was written by J.W. Thompson Webb, Principal and Scott R. Wilson, Associate members of the Corporate and Securities Group at Miles & Stockbridge.

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