Ross Holding and Management Co., et al. v. Advance Realty Group, LLC, et al., C.A. No. 4113-VCN (Del. Ch. April 28, 2010)

At the center of this case over breach of fiduciary duty, breach of contract, promissory estoppel, tortious interference, and civil conspiracy is a Delaware limited liability company, Advance Realty Group, LLC (“ARG”). The Court’s opinion addresses only those of the foregoing claims that are necessary to the Court’s determination of the defendants’ motions to dismiss certain allegations, and to invoke the parole evidence rule. This case summary addresses the only issue of relevance in the Court’s opinion for purposes of keeping current on the law of Delaware alternative entities. That issue is the Court’s determination as to one of the defendants’, Rothschild Realty, Inc., a New York corporation (“Rothschild”), motion for dismissal of all claims against it for lack of personal jurisdiction under Section 18-109 of the Delaware LLC Act.

As a foreign corporation that conducts no business in Delaware, under the facts of this case, Rothschild would only be subject to personal jurisdiction if exercise of such jurisdiction was appropriate under Delaware’s long-arm statute, or Section 18-109 of the Delaware LLC Act, which is Delaware’s “implied consent” statute for managers of Delaware limited liability companies. The Court held that Rothschild was not subject to personal jurisdiction based on Delaware’s long-arm statute.

Section 18-109(a) of the Delaware LLC Act provides that a manager of a limited liability company is amenable to jurisdiction in all civil actions brought in Delaware involving or relating to the business of the limited liability company or a violation by the manager of a duty to the limited liability, or any member of the limited liability company. Importantly, Section 18-109(a) expands the definition of “manager” to include any person who, while not a “manager” as defined in Section 18-101(10), nevertheless, “participates materially in the management” of a Delaware limited liability company. To determine whether it could properly exercise personal jurisdiction under Section 18-109, the Court analyzed whether the defendant was a “manager” as defined in the Delaware LLC Act.

Rothschild argued that it was not a “manager” of ARG, because (i) ARG’s operating agreement provided that ARG would be managed by a board of managers comprised of four individuals, none of which was Rothschild, and (ii) even though Rothschild may have indirectly designated certain of the managers appointed to the board, such a designation should not constitute management under the Delaware LLC Act. Section 18-109(a)(ii) expressly provides that the power to select a manager does not, by itself, constitute participation in the management of the limited liability company. Ultimately, the Court held that, pending additional discovery, it would defer ruling on whether it had personal jurisdiction because it was not presented with enough evidence to determine adequately whether Rothschild fell within the definition of a “manager” under the LLC Act.

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