No Delaware Jurisdiction Over Manager of Delaware LLP
New Media Holding Co., LLC v. Brown, C.A. No. 7516-CS (Del. Ch. Nov. 14, 2012).
Issue addressed: Does Delaware have jurisdiction over the manager of a limited liability partnership (LLP) accused of breach of fiduciary duty claims, based on acts taken in the course of his work for the LLP, absent acts taken in Delaware in furtherance of the alleged wrongdoing? Short answer: No.
Brief background: This case involves a dispute over the management of a Delaware limited liability partnership (LLP). The LLP began as a Delaware LLC which was later converted into a Delaware LLP. After the conversion, the plaintiff was sold 50% of the LLP. The complaint is based on the alleged abuse of the management position in which the manager allegedly diluted the plaintiff’s stake from 50% to less than 1%. Both the manager, Brown, and the company he worked for, Capita, are based outside the U.S. Both moved to dismiss based on lack of jurisdiction, pursuant to Court of Chancery Rule 12(b)(2). [As an aside, I note in passing that this is the shortest decision labeled as a Memorandum Opinion, at a total of 4 pages, that this writer can recall in the almost 8 years that we have been summarizing Chancery opinions on these pages.]
In contrast to other alternative entities, the court explained that: Delaware law provides no statutory basis for exercising jurisdiction over the manager of a Delaware LLP for breaches of fiduciary duty in the course of his work for the LLP, absent acts taken in Delaware in furtherance of the alleged wrongdoing. See footnote 16.
The alleged dilution in this case was not related to any acts that occurred in Delaware. Unlike a merger, which requires a filing in Delaware to consummate it, the complaint does not allege any acts that occurred in Delaware in furtherance of the dilutive scheme. Simply forming the LLP and paying annual Delaware LLP taxes is not sufficient to confer jurisdiction over unrelated actions outside Delaware by the manager. The LLP itself was not named as a defendant in this matter. Section 3104(c)(1) of Title 10 of the Delaware Code is the part of Delaware’s long-arm statute at issue here. This specific basis of jurisdiction requires a nexus between the actions taken by the defendant in Delaware and the cause of action brought by the plaintiff. That nexus was not present in this case. Nor (perhaps surprisingly to some) does the LLP statute provide any basis to sue in Delaware based on the facts of this case. Compare: Section 18-109(a) of the Delaware LLC statute which provides that a manager of an LLC consents to service of process in Delaware by virtue of agreeing to serve as an LLC manager. See also, Chancery decision cited at footnote 12, holding that non-resident defendant was subject to jurisdiction in Delaware when the act of filing to effectuate the incorporation of a Delaware company was central to the claims of wrongdoing.
UPDATE: Prof. Verity Winship has authored an article that addresses these jurisdictional issues and provides a chart that describes the provisions for personal jurisdiction as they relate to the various business-law consent statues. Her article is entitled: “Jurisdiction over Corporate Officers and the Incoherence of Implied Consent” (forthcoming in the University of Illinois Law Review), http://ssrn.com/abstract=2064952.