Which Choice of Law?

Which choice of law provision prevails when a Delaware Corporation reincorporates in Nevada restructured under an agreement governed by New York Law and then mergers with another Delaware Corporation? The Delaware Court of Chancery in Hamilton Partners, L.P. v. Highland Capital Mgmt., L.P. held that the internal affairs doctrine, though not so straightforward, dictated that choice of law was determined by the specific document controlling each respective action. The case involved a restructuring and merger between AHP, a Delaware corporation, and Highland Capital Management, a Delaware hedge fund. Prior to the merger, AHP entered into a restructuring agreement reincorporating AHP as a Nevada corporation. After many more steps in the restructuring agreement AHP would merge with Highland on approval of the board and stockholders. The plaintiffs alleged that Highland, owning 48% of AHP stock and 80% of their debt, was a controlling stockholder thereby owing the stockholders a fiduciary duty. The plaintiffs also alleged breach of fiduciary duty and aiding and abetting breach of fiduciary duty against an AHP director.

The court held the claims against the director were controlled by the restructuring agreement, construed under Delaware law. The court also held, that the actions for recommending the merger, after reincorporation in Nevada, were governed by Nevada law. Under these rules, the court denied Highland’s motion for summary judgment. The court then applied Nevada law in dismissing the claims against the director, as the events took place after reincorporation in Nevada. In applying Nevada law, the court looked to Delaware law and which required the plaintiffs to assert their claims against at least half of the directors who made the decision. Since they only alleged claims against one director, the allegations failed.