Jurisdiction Over Manager Of Delaware Limited Liability Partnership Denied–Lack Of Statutory Authority

By Sheldon Rennie on November 30, 2012

It is doubtless troubling to New Media that Delaware law provides no statutory basis for exercising jurisdiction over the manager of a Delaware limited liability partnership for breaches of fiduciary duty in the course of his work for the partnership, absent acts taken in Delaware itself in furtherance of the alleged wrongdoing. But this is the state of our law, and I must apply it as it is.

The Delaware Court of Chancery in New Media Holding Company, LLC v. Brown, C.A. No. 7516-CS, addressed the issue of whether personal jurisdiction can be exercised over a manager of a limited liability partnership based solely upon an applicable consent statute and absent specific acts taken by the manager in Delaware to further the alleged wrongdoing.

The case involved a dispute between two businessmen over the ownership of a television station. One of the businessmen created a Delaware limited liability company, Iolta Ventures LLC, to hold the television network and thereafter, converted the company into a limited liability partnership. The other businessman, through his company New Media Holding, purchased a 50% stake in the partnership. The partnership was managed by a fiduciary services company, Capita Fiduciary Group and its employee Grant Brown. New Media brought a claim against Brown and Capita alleging that they abused of their management position which reduced New Media’s stake in the Partnership from 50% to 0.3%. Brown and Capita moved to dismiss the complaint against them based upon a lack of personal jurisdiction.

The Court of Chancery granted the motion to dismiss, and held that New Media did not sustain its burden of demonstrating that the court had specific jurisdiction over Brown and Capita under Delaware’s long arm statute, 10 Del. C. sec. 3104(c )(1). The Court reasoned that New Media did not demonstrate that its claims of dilution were related to acts that Brown and Capita carried out in Delaware, and no act in Delaware was necessary to, or done in connection with the alleged dilutive scheme.

The Court further held that New Media could not assert jurisdiction over the defendants under 6 Del. C. sec. 18-109(a), which provides for service of process on the managers of limited liability companies. The Court so held because the Iota Ventures LLC was converted into a limited liability partnership before the alleged wrongdoing by the defendant managers took place. Notably, the Court held that there was no comparable provision to 6 Del. C. sec. 18-109(a) under which a manager of a limited liability partnership could be subject to personal jurisdiction where the alleged wrongful acts did not occur in Delaware in furtherance of the wrongdoing. In so holding the Court stated, “It is doubtless troubling to New Media that Delaware law provides no statutory basis for exercising jurisdiction over the manager of a Delaware limited liability partnership for breaches of fiduciary duty in the course of his work for the partnership, absent acts taken in Delaware itself in furtherance of the alleged wrongdoing. But this is the stat of our law, and I must apply it as it is.”

Application:

This case is important for practitioners who might be unaware of the lack of statutory authority to assert personal jurisdiction over a manager of a limited liability partnership absent specific acts of wrongdoing conducted in the state in furtherance of the wrongdoing. It would make sense that such a provision be enacted to address this loophole, particularly since statutory authority exists in the limited liability context to assert personal jurisdiction over a manager even where acts in furtherance of alleged wrongdoing did not occur in Delaware. See 6 Del. C. sec. 18-809(a) (“A manager’s . . . serving as such constitutes such person’s consent to the appointment of the registered agent of the limited liability company (or, if there is none, the Secretary of State) as such person’s agent upon whom service of process may be made as provided in this section.”) See also, 6 Del. C. sec. 15-114(a) (providing for service of process on the partners and liquidating trustees of a partnership, but not on managers).

The Court of Chancery granted the motion to dismiss, and held that New Media did not sustain its burden of demonstrating that the court had specific jurisdiction over Brown and Capita under Delaware’s long arm statute, 10 Del. C. Sec. 3104(c)(1). The Court reasoned that New Media did not demonstrate that its claims of dilution were related to acts that Brown and Capita carried out in Delaware, and no act in Delaware was necessary to, or done in connection with, the alleged dilutive scheme.

The Court further held that New Media could not assert jurisdiction over the defendants under 6 Del. C. Sec. 18-109(a), which provides for service of process on the managers of limited liability companies. The Court so held because the Iota Ventures LLC was converted into a limited liability partnership before the alleged wrongdoing by the defendant managers took place. Notably, the Court held that there was no comparable provision to 6 Del. C. Sec. 18-109(a) under which a manager of a limited liability partnership could be subject to personal jurisdiction where the alleged wrongful acts did not occur in Delaware in furtherance of the wrongdoing. In so holding the Court stated, “[i]t is doubtless troubling to New Media that Delaware law provides no statutory basis for exercising jurisdiction over the manager of a Delaware limited liability partnership for breaches of fiduciary duty in the course of his work for the partnership, absent acts taken in Delaware itself in furtherance of the alleged wrongdoing. But this is the stat of our law, and I must apply it as it is.”

Application:

This case is important for practitioners who might be unaware of the lack of statutory authority to assert personal jurisdiction over a manager of a limited liability partnership absent specific acts of wrongdoing conducted in the state in furtherance of the wrongdoing. It would make sense that such a provision be enacted to address this loophole, particularly since statutory authority exists in the limited liability context to assert personal jurisdiction over a manager even where acts in furtherance of alleged wrongdoing did not occur in Delaware. See 6 Del. C. Sec. 18-109(a) (“A manager’s . . . serving as such constitutes such person’s consent to the appointment of the registered agent of the limited liability company (or, if there is none, the Secretary of State) as such person’s agent upon whom service of process may be made as provided in this section.”) See also, 6 Del. C. Sec. 15-114(a) (providing for service of process on the partners and liquidating trustees of a partnership, but not on managers).