The Delaware Court of Chancery addressed in a recent opinion the nuances of imposing personal jurisdiction (in a second ruling on the issue in as many days), in connection with someone who served as a de facto manager of an LLC. In Metro Storage International LLC v. Harron, C.A. No. 2018-0937-JTL (Del. Ch. July 19, 2019), the court provided what can be fairly described as a definitive and comprehensive analysis, in the nature of a treatise, on the topic of the implied consent to personal jurisdiction over a person who serves as a formal, or de facto, manager of an LLC, based on § 18-109(a) of the Delaware LLC Act. This decision is a “must read” for anyone who needs to understand the nuances of Delaware law on this topic.
In addition, the court provides a thorough discussion of the requirements, in general, for imposing personal jurisdiction over a non-resident. This should be compared with the decision issued a day earlier, by the same member of the Court of Chancery, which also discussed the requirements of imposing personal jurisdiction, in the matter styled: Clark v. Davenport, C.A. No. 2017-0839-JTL (Del. Ch. July 18, 2019), highlighted on these pages here.
This matter involved fraud claims against an LLC manager. The court recited many important aspects of Delaware corporate and commercial litigation, including the following important points:
- This opinion engages in a “deep dive” that includes a review of all the prior Delaware case law that addresses the issue of implied consent to personal jurisdiction over a person who serves as a formal or de facto manager of an LLC, based on § 18-109(a) of the Delaware LLC Act. This thorough analysis is must reading for anyone who needs to understand this topic and wants to review the most complete analysis of the applicable case law in one place. See pages 8-39.
- The court explains generally that based on the Delaware LLC Act, by default, an LLC is a member-managed entity unless the LLC Agreement provides otherwise. See page 39, citing § 18-402 of the Delaware LLC Act.
- The basic concepts of personal jurisdiction are explained in the context of the Delaware Long-Arm Statute, 10 Del. C. § 3104(c)(1).
- The court explains that “agency status” expands jurisdiction, and does not limit it under the plain language of the Delaware Long-Arm Statute.
- Moreover, the court explored the concept of the common-law agency theory of jurisdiction, which provides a basis for asserting jurisdiction over a non-resident principal by attributing the jurisdictional acts of the agent to the principal. When this theory applies, it does not shield the agent from jurisdiction–nor does it substitute the principal for the agent; it instead enables the plaintiff to add the principal to the case in addition to the agent.” See pages 50-51. See generally Donald J. Wolfe, Jr. & Michael A. Pittinger, Corporate and Commercial Practice in the Delaware Court of Chancery, § 3.04[c] (2d ed. & Supp. 2018).
- The court explained that an actor’s status as an agent provides an avenue to hold the principal liable in addition to the agent under principles of attribution. See Verrastro v. Bayhospitalists, LLC,—A.3d—, 2019 WL 1510458, at * 2 (Del. Apr. 8, 2019) (discussing respondeat superior).
- The court explained that in connection with analyzing whether there are sufficient minimum contacts with Delaware to require a non-resident to defend itself in the courts of this State, the court considers the following relevant factors: (i) the forum state’s interest in adjudicating the dispute; (ii) the interest of the plaintiff in obtaining convenient and effective relief; and (iii) the interstate judicial system’s interest in obtaining the most efficient resolution of controversies. See page 53 (citing Istituto Bancario Italiano SpA v. Hunter Eng’g Co., 449 A.2d 210, 225 (Del. 1982)) (citations omitted).
- The court in this matter also observed that because the non-resident traveled frequently around the country, and in other countries, that by comparison litigating in Delaware would be a “relatively inconsequential burden that Delaware’s interest far outweighs.” See page 55.
- The court also considered, in addition to the above factors, that: the citizens of Delaware have an interest in using its courts to recover for the injuries they claim to have suffered. See page 55.