In the recent decision of CelestialRX Investments, LLC v. Krivulka, C.A. No. 11733-VCG (Del. Ch. Mar. 27, 2019), the Delaware Court of Chancery addressed whether certain named defendants were subject to jurisdiction in Delaware under the implied consent statute of 6 Del. C. § 18-109(a). That statute provides a statutory basis for “managers” (as defined in the LLC Act), and those who otherwise participate materially in the management of the LLC, to be subject to personal jurisdiction in Delaware, provided that due process would not be offended.
According to the Court, “Due process would not be offended if Plaintiffs can show that (1) the allegations against the defendant-manager focus centrally on his rights, duties and obligations as a manager of a Delaware LLC; (2) the resolution of the matter is inextricably bound up in Delaware law; and (3) Delaware has a strong interest in providing a forum for the resolution of the dispute relating to the manager’s ability to discharge his managerial functions.” Slip op. at 51, citing Hartsel v. Vanguard Grp., Inc., 2011 WL 2421003, at *9 (Del. Ch. June 15, 2011).
The complaint alleged that one defendant was a former manager and the other served as President and CEO of the company. However, the Court found that these allegations were insufficient to exercise personal jurisdiction over such defendants where the complaint alleged that another defendant, named as the “manager” in the operating agreement of the LLC, exercised “absolute control an discretion” over the LLC. As a result, the Court found that the two defendant officers did not “participate materially” in the management of the LLC under the implied consent statute of the Delaware LLC Act, and thus declined to exercise jurisdiction over such individuals under that statute.
Carl D. Neff is a partner with the law firm of Fox Rothschild LLP. Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at email@example.com.