Total Holdings USA, Inc. v. Curran Composites, Inc., C.A. No. 4494-VCS (Del. Ch. Oct. 9, 2009)
In this case, the Delaware Court of Chancery denied a motion to dismiss for lack of personal jurisdiction brought by a partner of a Delaware general partnership. In so ruling, the Court found that i) the Delaware Revised Uniform Partnership Act (“DRUPA”) governs a general partnership where the partnership’s only connection to Delaware is the choice of law clause in the partnership agreement, ii) DRUPA effectively governs all Delaware general partnerships, including those formed under the prior Delaware general partnership statute, the Delaware Uniform Partnership Act (“DUPA”), and iii) partners of a Delaware general partnership submit to personal jurisdiction in the State of Delaware for matters pertaining to the internal affairs of the partnership.
The plaintiffs and defendants in this case (collectively, the “Partners”) entered into a joint venture agreement (the “JVA”) in 1990 to establish a general partnership (the “Partnership”). In 2004, the Partners revised the JVA, leaving it almost identical to the previous JVA (together, the “JVAs”). Both JVAs included a choice of law clause that stated that Delaware law would govern the Partnership. At no time did the Partnership or any of the Partners do any business in the State of Delaware or register the Partnership with the State of Delaware (by filing a statement of partnership existence with the Delaware Secretary of State or otherwise). The Partnership’s sole connection to Delaware was the choice of law clause in the JVAs. In this opinion, the Court determined that Delaware law governed the Partners’ dispute pertaining to the value of the defendants’ interest in the Partnership when it exercised its right to “put” that interest.
The Court first addressed the threshold issue of whether DUPA or DRUPA governs the Partnership in this case. The Court needed to address this issue because DRUPA expressly grants personal jurisdiction over partners, while DUPA does not contain such an express provision. Thus, if DUPA applied, the Court might not have had a clear statutory basis to exercise personal jurisdiction over the Partners. The Court determined that DRUPA governed the Partnership in this case. The Court found that Section 15-1206(b) of DRUPA effectively requires that all Delaware general partnerships be governed by the terms of the DRUPA after January 1, 2002, regardless of such partnership’s date of formation. The Court reasoned that DRUPA (passed by the Delaware General Assembly in 2000) granted all Delaware general partnerships the opportunity to privately reorder their organization to avoid application of DRUPA, including by changing domicile, prior to the time that DRUPA would apply to them. Because the Partnership in this case did not engage in such private ordering to change its domicile from Delaware, the Court found that DRUPA therefore governed the Partnership. The Court also noted that the revised JVA took effect in 2004, when DRUPA was already in effect, and did not state anything to indicate that the Partners wanted to try to continue operation of the Partnership under DUPA. The Court further noted that the defendants indicated in emails that they subjectively believed that DRUPA governed the Partnership.
Next, the Court addressed the defendants’ argument that the Partnership was not a general partnership domiciled in Delaware. The Court found that the express language of the JVAs and Section 15-106 of DRUPA dictate that the Partnership is a Delaware general partnership. The JVAs state that the Partnership was formed “in, and in accordance with the laws of Delaware.” The Court also found that DRUPA itself contemplated that both registered and unregistered Delaware general partnerships would exist and operate under DRUPA. The Court further stated that it will respect the parties’ choice of law unless there is “no reasonable basis” for that law to govern or application of that law would be contrary to a fundamental policy of a state with materially greater interest than the designated state’s law. The Court reasoned that diverse partners may reasonably agree upon a choice of governing law that satisfies each of their interest and that Delaware has a strong public interest in deciding matters relating to the internal affairs of Delaware partnerships. In determining Delaware’s public interest, the Court confirmed that the internal affairs doctrine that applies to Delaware corporations also applies to Delaware partnerships. This doctrine provides that “internal affairs of a corporation are governed by the corporation’s domicile.” Thus, because the Partnership in this case was domiciled in Delaware, the Court found that the Delaware courts had a strong public interest in efficiently and predictably deciding the internal matters of the Partnership (such as a dispute between the Partners as to the value of one Partner’s interest).
Third, the Court rejected the defendants’ argument that DRUPA does not grant personal jurisdiction to partners who are not themselves domiciled in Delaware and do not otherwise have contacts with Delaware. The Court stated that DRUPA expressly grants personal jurisdiction over such partners in Section 15-114. In that section, DRUPA establishes personal jurisdiction over partners of a Delaware general partnership if the dispute pertains to matters involving or relating to the business of the partnership or a violation by a partner of a duty to the partnership or any other partner. The Court reasoned that a statute of this type that grants personal jurisdiction over partners fairly applies when used to subject a partner to Delaware jurisdiction in a dispute relating to the meaning of and compliance with the partnership’s governing documents. According to the Court, the dispute between the Partners in this case pertaining to the value of one Partner’s interest in the Partnership fell squarely within this statutory grant of jurisdiction and the fair application of the statute to the dispute pertaining to the JVAs.
Finally, the Court briefly addressed the defendants’ claim that Delaware courts’ exercise of personal jurisdiction over non-Delaware partners violates the due process clause of the Constitution. The Court reasoned that, because Section 15-114 of DRUPA applies fairly to this internal affairs dispute to grant personal jurisdiction over a non-Delaware resident Partner, the defendants’ due process rights were not violated by subjecting them to Delaware jurisdiction.