McDermott Inc. v. Lewis

McDermott International (International) was incorporated in Panama. McDermott Incorporated (McDermott) (defendant), a Delaware corporation, was a subsidiary of International. Both International and McDermott had their executive offices in Louisiana. After a 1982 reorganization, International came to own 92 percent of McDermott, and McDermott held 10 percent of International’s common stock. Consequently, McDermott had about 10 percent of the voting power in International, with the other 90 percent held by International’s public stockholders. International made clear that because it controlled McDermott, McDermott’s 10 percent voting interest would be voted by International to oppose attempts by third parties to gain control of International. Harry Lewis and Nina Altman (plaintiffs) sued McDermott in a Delaware court, seeking to rescind the reorganization on the basis that Delaware law did not allow a subsidiary majority-owned by its parent corporation to vote shares in the parent corporation. However, International had no operations or contacts in Delaware, and Panamanian law allowed McDermott to vote its shares in International. International therefore argued that Panamanian law applied. The trial court disagreed and granted partial summary judgment in Lewis and Altman’s favor. McDermott appealed, arguing that under the internal-affairs doctrine, Panamanian law should have governed.