C.A. No. 2184- VCP (Del. Ch. September 2, 2008).
The petitioner, a Delaware limited liability company (the “Petitioner”) with a New York principal place of business, was formed in February 2004 as part of a restructuring plan. A Dutch private limited liability company (the “Member”) owns an approximately 2.5% interest in Petitioner. The Member is a whollyowned subsidiary of a Dutch corporation (the “Parent”), who was listed as a “designated lender” in the amended and restated limited liability company agreement of the Petitioner (the “LLC Agreement”), but was not a party to the LLC Agreement. Under the LLC Agreement, a member of the Petitioner was required to reimburse the Petitioner for tax advances made by the Petitioner on that member’s behalf, along with applicable interest on those taxes (collectively, the “Tax Advances”). The Petitioner filed a petition seeking reimbursement for the Tax Advances made by the Petitioner on behalf of the Member. Reimbursement was also sought from the Parent for the Tax Advances. The Parent filed a motion to dismiss the action for lack of personal jurisdiction under Rule 12(b)(2). The Court granted the Parent’s motion to dismiss because the Petitioner failed to legally satisfy the requirements for exercising personal jurisdiction against the Parent in Delaware.
The Petitioner asserted four bases for obtaining personal jurisdiction against the Parent in Delaware: (i) Delaware’s long-arm statute (10 Del. C. § 3104), (ii) certain terms of the LLC Agreement, (iii) alter ego or veil piercing theories of jurisdiction, and (iv) the agency theory of personal jurisdiction. The first two theories applied directly to the Parent; the second two theories applied to the Parent indirectly through the Member.
Under the long-arm theory, a court may exercise personal jurisdiction over any nonresident, or a personal representative, who in person or through an agent transacts any business or performs any character of work or service in Delaware from which the claim has arisen. Formation of a subsidiary is sufficient to obtain personal jurisdiction over the parent, where the formation of the subsidiary is central to the claims of alleged wrongdoing. In the case at hand, the Petitioner failed to allege (i) that the Parent formed or even that it participated in the formation of the Petitioner in a meaningful fashion, (ii) that the Petitioner was “controlled” by the Parent, or that such control gave rise to its claim, or (iii) any specific elements of fraud.
A foreign person or entity may contractually consent to jurisdiction in Delaware. The Member, as a party to the LLC Agreement, consented to personal jurisdiction in Delaware, but the Court held that the consent of the Member as a party to the LLC Agreement did not apply to its affiliated Parent, which was not a party to the agreement. The Court noted that the LLC Agreement resulted from negotiation among sophisticated parties, and reasoned that while the submission to jurisdiction clause was applicable only to the parties of the agreement, the limited liability and indemnification provisions of the LLC Agreement were applicable to members and their affiliates. The purposeful inclusion of affiliates in the indemnification provision but the exclusion of affiliates in the submission to jurisdiction provision demonstrated an intent to exclude affiliates from the contractual submission to jurisdiction.
Under the agency and alter ego theories or indirect personal jurisdiction, the agent’s or subsidiary’s jurisdictional activities may be attributed to its principal or parent, thereby satisfying the long-arm statute through either an agent or an entity that is merely the alter ego of the principal or parent. Under the alter ego approach, fraud must be shown. The second factor is whether the subsidiary’s actions satisfy the long-arm statute. Thirdly, a fact intensive inquiry is required. Drawing all inferences in favor of the Petitioner, the Court found that the Member did act as the Parent’s agent. Nevertheless, the Court found that there were not acts in Delaware that satisfied the long-arm statute. The Court also did not find sufficient grounds to find that the Member was the alter ego of the Parent. Furthermore, the Petitioner did not satisfactorily demonstrate fraud or other inequity.
The full opinion is available here.