## Facts

- McDermott International, Inc. was a Panamanian corporation with executive offices in Louisiana and no meaningful business contacts with Delaware.
- McDermott Incorporated was a Delaware corporation that, after a 1982 reorganization, became a 92%-owned subsidiary of McDermott International.
- Following the reorganization, the Delaware subsidiary owned approximately 10% of the Panamanian parent’s common stock, representing about 10% of the parent’s voting power.
- Stockholders of the Delaware subsidiary sued to enjoin or unwind aspects of the reorganization, arguing the subsidiary could not vote the parent’s shares.
- Delaware corporate law generally prohibits a majority-owned subsidiary from voting shares of its parent.
- Panamanian law permitted the subsidiary to vote the parent’s shares under the circumstances presented.
- The Court of Chancery granted partial summary judgment for the stockholders, applying Delaware law to prohibit the voting.
- The Delaware subsidiary appealed, contending the voting question was governed by the parent’s place of incorporation under Delaware conflict-of-laws rules.

## Issues

1. Whether the right of a Delaware subsidiary to vote shares it holds in a Panamanian parent is an internal-affairs matter governed by the parent’s law of incorporation.
2. Whether Delaware may apply its own corporate rule to restrict voting in a foreign-incorporated parent lacking a sufficient nexus to Delaware.
3. Whether constitutional limits (due process and the Commerce Clause) constrain Delaware’s application of its corporate law to a foreign corporation’s internal governance.

## Decision

- The Delaware Supreme Court reversed the Court of Chancery’s partial summary judgment.
- The court held the dispute concerned the internal affairs of the Panamanian parent, not the internal affairs of the Delaware subsidiary.
- Under Delaware conflict-of-laws principles and the internal affairs doctrine, Panamanian law governed the voting rights attached to the parent’s shares.
- Because Panamanian law permitted the voting and the parent had no meaningful Delaware nexus, Delaware law could not be applied to prohibit the subsidiary’s vote.
- The court declined to follow contrary authority applying a different approach to similar foreign-parent/treasury-share voting arrangements.

## Legal Principles

- Internal corporate governance questions, including allocation of voting power and control, are governed by the law of the corporation’s jurisdiction of incorporation.
- Delaware conflict-of-laws rules generally require application of the incorporating jurisdiction’s law to disputes involving a foreign corporation’s internal affairs.
- A state’s application of its corporate law to the internal affairs of a foreign corporation with no meaningful local contacts may raise due process and Commerce Clause concerns.
- When the parent corporation is foreign-incorporated and the dispute is about the parent’s voting structure, Delaware’s statutory or common-law restrictions applicable to Delaware parents do not control.

## Conclusion

The Delaware Supreme Court held that Panamanian law governed the voting of shares in the Panamanian parent and therefore allowed the Delaware subsidiary to vote the parent’s stock, reversing the Chancery Court’s application of Delaware law to a foreign corporation’s internal affairs.


McDermott Inc. v. Lewis, 531 A.2d 206 (Del. 1987)