In the recent decision of LVI Grp. Inv., LLC v. NCM Grp. Holdings, LLC, et al., C.A. No. 12067-VCG (Del. Ch. Mar. 28, 2018), the Court of Chancery considered fraud claims in the inducement of a merger.  In ruling on a motion to dismiss filed by certain principals, the Court addressed the scope of director consent statutes, and whether certain conspiracy claims were adequately pled.

The litigation resulted from the combination of two large demolition firms—LVI Group Investments, LLC (“LVI”) and NCM Group Holdings, LLC (“NCM”)—into a single entity, NorthStar Group Holdings, LLC.  Each of the combining entities accuses the other of fraudulently misstating financial statements in the inducement of the transaction. In this opinion, Vice Chancellor Glasscock addressed claims raised in LVI’s amended complaint against third parties associated with NCM, including its president, the limited partnership funds that owned most of NCM’s outstanding units, and the persons and entities that controlled such funds.  Such third-parties moved to dismiss the complaint.

Moving defendants argued, among other things, that the Court lacked personal jurisdiction over them as they were residents of the State of Washington.  Plaintiff argued that defendants consented to jurisdiction by serving as directors or officers of Delaware corporations involved in the transaction at issue, along with participating in a conspiracy to defraud LVI.  The Court held that it had personal jurisdiction over such director defendants under the “necessary or property party” clause of Section 3114 of Title 10 of the Delaware Code.

In making such a finding, Vice Chancellor Glasscock followed the guidance provided by the Delaware Supreme Court in Hazout v. Tsang Mun Ting, 134 A.3d 274 (Del. 2016), in which the High Court held that a Delaware nonresident director or officer could be subject to the jurisdiction of Delaware under the “implied consent” statute, even if no claims were asserted against such individual for breach of fiduciary duty.  [Click here to read an earlier post summarizing the Hazout opinion.]

Finally, the Court rejected moving defendants’ argument that they could not plead conspiracy among a parent, subsidiary and its agents.  The Court noted that NCM was not wholly owned by the moving defendants.

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 cneff@foxrothschild.com.