In the recent decision of In the Matter of Dissolution of Artic Ease LLC, C.A. No. 8932-VCMR (Del. Ch. Dec. 9, 2016), the Court of Chancery analyzed whether an LLC member and certain affiliated entities were subject to the jurisdiction of Delaware under 6 Del. C. § 18-109, and ultimately dismissed third-party claims for lack of personal jurisdiction.
Section 18-109 of the Delaware LLC Act allows Delaware courts to exercise personal jurisdiction over parties who manage Delaware limited liability companies in actions “involving or relating to the business” of the company. Section 18-109(a) describes two types of “manager[s]” for personal jurisdiction purposes: (1) managers as defined in the operative limited liability company agreement and (2) parties who “participate materially in the management” of a Delaware limited liability company.
The Court also cited to an opinion of the U.S. District Court for the District of Delaware, which held that alleged managers in charge of financial and commercial functions for a limited liability company who act subject to the board’s authority do not “participate materially in the management” absent a “control or decision-making role” in the company. Wakely Ltd. v. Ensotran, LLC, 2014 WL 1116968, at *5 (D. Del. Mar. 18, 2014).
The Court found that the third-party defendants were not managers and thus not subject to the Court’s jurisdiction under Section 18-109. Specifically, the Court rejected third-party plaintiffs’ argument that third-party defendant William Cohen was a manager of Summetria, LLC under Section 18-109(a)(i) because he was an original member of the Summetria board of directors, and as such, he possessed voting power. The Court disagreed, finding that Cohen is not a manager of Summetria under Section 18-109(a)(i) because the Summetria LLC Agreement makes clear that another individual, Carol Forden is the sole manager of Summetria. The Court also found that Cohen did not materially participate in the management of the LLC in that he had no control or decision-making role.
In sum, merely acting as an officer, without more, will not suffice when that person is subject to the control of others.
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 firstname.lastname@example.org.