Monday, October 7, 2013

Even Delaware Courts Get Confused

Even Delaware Courts Get Confused

      A recent decision from the Delaware Court of Common Pleas demonstrates that even Delaware courts can get confused as to points of business law.  In this case, the Court seems to have entirely lost sight of the distinctions that exist between corporations and LLCs.  Avis Rent A Car System, LLC v. Holly, 2013 WL 5436759 (Del. Com. Pl. Sept. 27, 2013).
      Holly rented a car from Avis that she totaled.  At the time of the accident, Holly was acting as an employee of FranklyLegal, LLC.  When Avis sought to collect on the damages to the car, Holly filed a counter-claim against FranklyLegal asserting it was liable for any damages as they occurred while she acting within the scope of her employment.  In turn, FranklyLegal filed a motion to dismiss for lack of personal jurisdiction.
      Initially, there was some confusion over FranklyLegal’s organizational structure; at an oral argument it was stated that FranklyLegal is a series of Frankly Companies, LLC, all organized under Delaware law.  Essentially, FranklyLegal sought to argue that the Delaware Court had no jurisdiction over it in that the company had no connection with Delaware (its principal place of business being located in Philadelphia) beyond the fact that it is organized in that jurisdiction.  In contrast, Holly asserted that jurisdiction existed by the fact that FranklyLegal is organized in Delaware.
      It is here that the wheels start to fall off and the Court begins referring to FranklyLegal, an LLC, as having been “incorporated” in Delaware and as well referring to it as a “Delaware corporation.”  From there, the Court began looking to cases addressing jurisdiction over corporations.  Still, it ultimately applied the correct rule, namely that an entity created pursuant to laws of a particular state is subject to jurisdiction within that state, but again it did the analysis in the terms of “the corporation.”
      Not Delaware’s finest hour.

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