On October 26, 2022, the Delaware Court of Chancery issued an opinion in In re P3 Health Group Holdings, LLC concluding that the actions of a private equity sponsor’s principal may constitute those of a de facto manager of a Delaware limited liability company (LLC) portfolio company if the principal materially participates in the company’s management, despite the principal not having any formal role with the company. The Court considered this issue within the context of whether or not service of process pursuant to 6 Del. C. § 18-109(a) was proper for a defendant who was not a formal manager of a Delaware LLC. The Court held that “[f]rom a legal standpoint … a defendant need not have an official role with an LLC before a plaintiff can serve the defendant as an acting manager under Section 18-109(a)(ii) or proceed against the defendant as a de facto manager on the merits,” and “[f]rom a factual standpoint … the complaint’s allegations [were] sufficient to support the exercise of jurisdiction” over the defendant as an acting manager.

For context, the general dispute in the ongoing matter centers around a transaction that occurred between P3 Group Holdings, LLC (P3) and a special purpose acquisition company (SPAC) called Foresight Acquisition Corp. (Foresight). P3 is a portfolio company of Chicago Pacific Founders Fund, L.P. (Chicago Pacific), which is a private equity fund focused on the healthcare industry. P3 is engaged in the business of population healthcare management, essentially providing administrative support to physicians and other healthcare providers so patients receive more cost-effective healthcare. Chicago Pacific provided the initial capital for P3 and so refers to itself as P3’s founding investor. Hudson Vegas Investment SPV, LLC (Hudson) is a minority investor in P3.

In August 2020, P3 began to consider ways to raise capital accessing public markets. One option was a three-way merger among P3, Foresight, and MyCare, another Chicago Pacific portfolio company. Because the merger would include a transaction between P3 and another Chicago Pacific portfolio company, the LLC agreement required Hudson’s consent before P3 could move forward with the merger. Ultimately, Hudson withheld its consent to the merger because it thought the economics of the deal were too generous to Chicago Pacific.

P3, Chicago Pacific, and Foresight then began working on an alternative merger that would involve only P3 and Foresight. MyCare was dropped from the deal structure so as not to trigger the need for Hudson’s consent. The deal proceeded in this way, and in December 2021, a merger closed between P3 and Foresight.

Hudson now challenges that merger, and in doing so, asserts that Sameer Mathur, a principal of Chicago Pacific, tortiously interfered with Hudson’s contractual rights under P3’s LLC agreement by inducing or otherwise causing Chicago Pacific and P3 to not comply with the LLC agreement. Mathur moved to dismiss on the merits, but also under Delaware Chancery Court Rule 12(b)(2) for lack of personal jurisdiction by claiming he did not have an official role at, or enough involvement in, P3 to be considered as its manager and so did not fall under the Delaware LLC Act’s provisions regarding service of process of LLC managers.

Accordingly, the Court needed to consider whether it could exercise personal jurisdiction over Mathur. Among other things, personal jurisdiction requires valid service of process. Hudson argued that it validly completed service of process pursuant to the mechanisms outlined in 6 Del. C. § 18-109(a). That section allows for service of process for two types of managers: one that encompasses persons whom the governing LLC agreement formally names as managers (formal managers) and one that encompasses persons who participated materially in the management of the LLC, regardless of whether the LLC agreement formally names them (acting managers). Hudson argued that Mathur constituted an acting manager of P3.

The Court first considered whether Mathur “participated materially” in the management of P3. The Court noted that based on dictionary definitions, “participate” means to take part or play a role in an activity or event. Citing Metro Storage Int’l LLC v. Harron, 2019 WL 3282613, at *8 (Del. Ch. July 19, 2019), the Court explained that introducing the word “materially” adds a level of significance that requires meaningful rather than minor participation. Therefore, under 6 Del. C. § 18-109(a), an acting manager is one “who has a significant role in managing an LLC or who plays a significant part in an activity or event that constitutes part of the management of the LLC.”

Despite Mathur’s arguments that he needed far deeper involvement in P3’s management than he had, the Court found that, taken as a whole, Mathur’s actions easily exceeded the bar for what would be considered as playing a significant role in P3’s management. Mathur was a central player in the yearlong transaction process that resulted in the merger of P3 and Foresight. During that year, Mathur negotiated on behalf of P3, attended P3 board Zoom meetings (despite not being on the board), circulated and reviewed content for board meetings, was included on email chains relating to possible mergers for P3 and what deal structures for the mergers would look like, interacted with and directed P3’s financial and legal advisors, and worked on other possible avenues of capital for P3. Mathur was so involved in P3’s management that he once berated P3’s legal advisors for sending documents for review to P3’s general counsel and chief financial officer and not to him—making it clear who was in charge.

The Court also addressed Mathur’s argument that his lack of any official position at P3 precluded the possibility of him being a manager. Citing several different cases, the Court held that it is not necessary to have a formal role or title with an LLC to qualify as an acting manager. The Court went on to note that, even outside the 6 Del. C. § 18-109 context, Delaware law establishes that one does not need an official title or position with an LLC to be treated as a manager. The Court recognized that there was “nothing surprising about a court of equity exercising jurisdiction based on the actual facts rather than the formality of titles,” and so, while a defendant holding a formal title or role may contribute to a finding that the defendant is a manager, such title or role is not necessary. This ruling outlines the types of actions that may constitute whether an individual “participated materially” in the management of an LLC so as to be considered an acting manager. The Court’s opinion makes clear that individuals should consider not only whether each of their individual actions may be viewed as that of an LLC acting manager, but also whether their actions cumulatively established an unofficial role that is so involved as to acquire acting manager status. And regardless, individuals should not rely on the fact that they are not named as a manager (or as some other official role or title) in an LLC agreement to protect them from facing liability as an LLC manager if their actions otherwise establish a de facto manager status, particularly within the context of service of process under 6 Del. C. § 18-109(a).