Monday, August 10, 2020
Personal Jurisdiction Over Managers of Delaware LLC Extends to Tort Claims of Third-Parties
Personal Jurisdiction Over Managers of Delaware LLC Extends to
Tort Claims of Third-Parties
Delaware’s LLC Act, at § 18-109, provides that every manager of a Delaware LLC is subject to the jurisdiction of Delaware’s courts. This provision has been traditionally understood to relate to claims the LLC might bring, directly or on a derivative basis, against the manager in connection with his or her conduct as a manager. In a recent decision it was held that the statutes scope is broader, and that it encompasses third-party tort claims. CLP Toxicology, Inc. v. Casla Bio Holdings LLC, No. CV 2018-0783-PRW, 2020 WL 3564622 (Del. Ch. June 29, 2020).
The Delaware LLC Act, at § 18-109(a) provides in part
A manager’s or a liquidating trustee’s serving as such constitutes such person’s consent to the appointment of the registered agent of the limited liability company (or, if there is none, the Secretary of State) as such person’s agent upon whom service of process may be made as provided in this section. Such service as a manager or a liquidating trustee shall signify the consent of such manager or liquidating trustee that any process when so served shall be of the same legal force and validity as if served upon such manager or liquidating trustee within the State of Delaware and such appointment of the registered agent (or, if there is none, the Secretary of State) shall be irrevocable. As used in this subsection (a) and in subsections (b), (c) and (d) of this section, the term “manager” refers (i) to a person who is a manager as defined in § 18-101 of this title and (ii) to a person, whether or not a member of a limited liability company, who, although not a “manager” as defined in § 18-101 of this title, participates materially in the management of the limited liability company; provided however, that the power to elect or otherwise select or to participate in the election or selection of a person to be a “manager” as defined in § 18-101 of this title shall not, by itself, constitute participation in the management of the limited liability company.
In application, for example, it has been held that this statute gave the Delaware courts jurisdiction over an LLC’s manager who was resident in Singapore. See PT China LLC v. PT Korea LLC, No. CIV.A. 4456-VCN, 2010 WL 761145 (Del. Ch. Feb. 26, 2010). Who is a “manager” (i.e., participates materially in the LLC’s management without the “manager” title) has been considered in a number of decisions including Metro Storage International LLC v. Harron, No. CV 2018-0937-JTL, 2019 WL 3282613 (Del. Ch. July 19, 2019).
The Delaware General Corporation Law, Del. Code tit. 10, § 3114, contains an equivalent jurisdiction statute. In Hazout v. Tsang Mun Ting, 134 A.3d 274 (Del. 2016), it was held that this statute applied to situations outside of only a claim by the corporation; personal jurisdiction is proper “over a non-resident officer or director of a Delaware corporation in any civil action in which the corporation is a party.”
CLP Toxicology alleged that it was defrauded in the purchase of a biomedical company and brought suit against not only the seller but also certain of its constituent managers and members. They defended on grounds including that they were not subject to personal jurisdiction in the Delaware courts. In response to the assertion that the managers had consented to jurisdiction by reason of having served as a manager, see Del. LLC Act § 18-109(a) quoted above, they claimed that it should be restricted to claims involving the management of the LLC and not extend to third-party claims. Relying upon Hazout, it was held that the section 109(a) consent to jurisdiction included these third-party tort claims, and that the managers were subject to the Delaware court’s jurisdiction.
Other defendants, not managers, were dismissed from the action on the basis that classic Article III jurisdiction was not present.