The Delaware Court of Chancery recently determined that regardless of the absence of a formal title or role, one can be found to be acting as a de facto manager of an LLC, and therefore, subject to personal jurisdiction of the court, as well as being bound by common law fiduciary duties, pursuant to Section 18-109(a) of the Delaware LLC Act. See In re P3 Health Group Holdings, LLC, consol. C.A. No. 2021-0518-JTL (Del. Ch. Oct. 26, 2022).
The court’s analysis, with application of supporting caselaw on pages 23 and 24, includes many basic principles of widespread applicability such as the following:
- “It is the very nature of equity to look beyond form to the substance of an arrangement.”
- There is no requirement that an acting manager have an official title or role with an LLC to be treated as an acting manager for purposes of service of process, or as a de facto manager for purposes of the merits.
Once a de facto manager status is determined, a due process analysis also must be performed. In that regard, the court explained that:
- “Delaware has a strong interest in providing a forum for disputes relating to the ability of managers of an LLC formed under its law to properly discharge their respective managerial functions.”
The court further reasoned that:
- “Due process is satisfied as long as (i) the allegations against the defendant-manager focus centrally on the defendant’s rights, duties an obligations as a manager of a Delaware LLC, and (ii) the resolution of the matter will be inextricably bound up in Delaware law.”
Slip op. at 25.