In Connecticut General Life Insurance Company v. Pinkas, C.A. No. 5724-VCN (Oct. 28, 2011), the Court of Chancery granted a motion to dismiss filed by an individual third-party defendant and an entity he controlled for lack of personal jurisdiction. Read opinion here.
This summary was prepared by Kevin F. Brady of Connolly Bove Lodge & Hutz LLP.
The plaintiffs were investors in defendant Brantley Partners IV, L.P. which operated by defendants and Third-Party Plaintiffs Robert P. Pinkas and Brantley Venture Management IV, L.P. The Plaintiffs sued Pinkas and BVM IV who, in turn, sued Paul H. Cascio (“Cascio”), and two entities which he controls, Cascio Investment Co., LLC (“Investment”) and 3S Advisors, LLC (“3S”) for breaches of fiduciary duty and aiding and abetting. Cascio and only one of the entities he controlled, 3S, moved to dismiss the claims against them for, among other things, lack of personal jurisdiction. The Third-Party Plaintiffs, BVM IV and Pinkas (the “Plaintiffs”) claimed the Court had personal jurisdiction over Cascio on the following grounds: (1) transacting business within Delaware, 10 Del. C. § 3104(c)(1); (2) alter-ego; (3) executing documents as the general partner of BVM IV; (4) seeking advancement for the costs of this litigation under Delaware law; and (5) general jurisdiction because “the person regularly does or solicits business [or] engages in any other persistent course of conduct in [Delaware],” 10 Del. C. § 3401(c)(4).
Under Section 3104(c)(1), the Court would have jurisdiction only where Cascio transacted any business or performed any character of work or service in Delaware from which the Third-Party Plaintiffs’ claims arose. The Plaintiffs argued that Cascio participated in the formation of BVM IV in 1998 but the Court noted that to confer personal jurisdiction under § 3104(c)(1) and Delaware Supreme Court precedent, “a single act of incorporation, if done as part of a wrongful scheme, will suffice but merely participating in the formation of a Delaware entity, without more, does not create a basis for jurisdiction in Delaware.” The critical component is that the formation must be “an integral component of the total transaction to which plaintiff’s cause of action relates.” Here the Court found that the bases of the claims asserted against Cascio do relate to the formation of BVM IV only “in the most attenuated way possible—that BVM IV must have existed in order for Cascio to have damaged it in the way alleged.”
Under the alter ego theory, the Plaintiffs had to show: “(1) that the out-of-state defendant over whom jurisdiction is sought has no real separate identity from a defendant over whom jurisdiction is clear based on actual domicile or satisfaction of Delaware’s long-arm statute; and (2) the existence of acts in Delaware which can be fairly imputed to the out-of-state defendant and which satisfy the long-arm statute and/or federal due process requirements.” The Court found that the Plaintiffs did not meet their burden because they could only show that Investment, which did not move to dismiss, “was established by Cascio; that Cascio’s purpose for establishing Investment was his self-interest; and that Investment is an entity through which Cascio pursues financial gain.” The Court also found “no evidence that Investment was undercapitalized [or] that Investment has not remained in good standing under Ohio law…”
Under the “general partner” argument, the Plaintiffs showed that Cascio signed documents “in a manner that looks as if he is personally acting as a general partner of BVM IV.” However, the Court was not persuaded “[b]ecause Investment was a general partner and because Cascio is the controller of Investment, that Cascio’s signature appears is not surprising.”
With respect to the advancement, the Plaintiffs argued that Cascio consented to jurisdiction by seeking advancement for the costs of this litigation under Delaware law. The only actions the Plaintiffs cited however, was Cascio’s efforts to obtain advancement and his filing of the Motions to Dismiss based on a lack of personal jurisdiction. The Court found that since Cascio had not presented a defense on the merits of the Plaintiffs’ claims or filed an Answer, he had not waived the personal jurisdiction defense.
Finally, the Plaintiffs argued that the Court had jurisdiction under 10 Del. C. § 3104(c)(4) based on general jurisdictional concepts because, among other things, Cascio had been a general partner of a few Delaware limited partnerships, an employee of BVM IV and Brantley Management Company, a limited partner of BVM IV, a limited partner or member of various other Delaware limited partnerships and LLC’s, and a director of multiple Delaware entities. The Court noted that:
[i]n an odd twist of fate, they support this view by citing Saltz v. Brantley Mgmt. Co. (2011 WL 2535802) (Del. Super. May 31, 2011), in which the Superior Court found that Pinkas’s contacts to Delaware were sufficient to establish general jurisdiction. The Delaware connections cited in Saltz were Pinkas’s formation of at least 22 entities in Delaware since 1987, service on the boards of two of those companies, and use of those companies to manage his other Delaware companies’ investments and earn fees.
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Cascio is only alleged to have participated in the formation of one Delaware entity, and even in this instance, his alleged participation was primarily as an employee of the Pinkas-controlled entity that formed the limited partnership; had he taken a more active role in forming multiple Delaware entities, the result of this analysis might be different. His ownership of membership units and limited partnership interests and membership on boards of Delaware companies also do not provide a basis for the ‘persistent course of conduct in [Delaware]’ required for general jurisdiction.