Delaware Business Litigation Report

Chancery Holds that LLC Agreement Did Not Confer Jurisdiction Over Contract and Tort Claims

Ramco Asset Mgmt. LLC v. USA Rare Earth, LLC, C.A. No. 2022-0665-SG (Del. Ch. Oct. 20, 2023)
Plaintiffs brought claims alleging improper dilution of their equity interests when transferring their holdings in an Australian rare-earth mining company to a Delaware limited liability company. Their claims included breach of fiduciary duty, fraud, breach of contract, and conspiracy. All five defendants moved to dismiss for failure to state a claim and on forum non conveniens grounds, and four of the five moved to dismiss for lack of personal jurisdiction.

The Court of Chancery addressed the threshold issue of personal jurisdiction. The plaintiffs alleged that two defendants were members of the Delaware LLC. The LLC agreement included a Delaware forum selection clause for matters arising out of or relating to the agreement or to the LLC’s activities or properties. The Court determined that the contract and tort claims were not covered by the Delaware forum selection clause because they did not relate to the internal operation of the LLC or arise from the LLC agreement. Similarly, the Court found it lacked personal jurisdiction over contract and tort claims against a manager of the LLC because Section 109 of Delaware’s Limited Liability Company Act conferred personal jurisdiction over managers only as to actions involving or relating to the business of the LLC, but not for contract or tort claims more broadly. Finally, the Court dismissed the conspiracy allegations as insufficient to establish personal jurisdiction because the complaint did not allege that a substantial act or effect in furtherance of the conspiracy occurred in Delaware.

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