Delaware Business Litigation Report

District Court Allows Estoppel, Breach of Contract, Fraud Claims Against LLC Member, Dismisses Other Defendants

Christ v. Cormick, 2007 WL 2022053 (D.Del. Jul 10, 2007)

In this action for damages based on promissory estoppel, breach of contract, fraud and civil conspiracy, Plaintiff sued the founding member of a Delaware LLC (“Member Defendant”), as well as various foreign individuals and entities (“other Defendants”) associated with the Member Defendant. Plaintiff’s claim arose out of an alleged agreement with the Member Defendant to invest $350,000 in exchange for a 50% equity interest in a South African investment management corporation and a Delaware LLC which owned certain intellectual property rights. Plaintiff claimed that the Member Defendant accepted $250,000 from Plaintiff, but diverted the money to another entity he was affiliated with. Plaintiff further alleged that the Member Defendant promised to repay Plaintiff the $250,000 that was invested, but did not do so. The Defendants moved to dismiss the action under F.R.C.P. Rule 12(b)(2) for lack of personal jurisdiction. The Defendants also moved for dismissal of the conspiracy claim under F.R.C.P. Rule 12(b)(6) for failure to state a claim, and dismissal of both the fraud and conspiracy claims as being outside the statute of limitations. Finally, the Defendants moved for a stay of the action under principles of comity in favor of Plaintiff’s earlier filed action in South Africa.

Plaintiff argued that the Member Defendant was subject to personal jurisdiction under 6 Del. C. § 18-109(a) because participated materially in the management of a Delaware LLC. The District Court found that the Member Defendant met the definition of manager under § 18-109(a), and therefore was subject to jurisdiction under the Delaware long-arm statute, because he participated materially in the formation and management of a Delaware LLC that was an integral component of the transaction to which Plaintiff’s claims related. The Court found, however, that Plaintiff’s allegations of conspiracy between the Member Defendant and the other Defendants were not sufficiently supported by facts that justified exercise of jurisdiction over those other Defendants under the Delaware long-arm statute. The Court therefore found both that jurisdiction over the other Defendants was unwarranted and that the conspiracy count should be dismissed. The Court also found that under Delaware’s choice of law principles, the Member Defendant’s act of incorporating the LLC in Delaware was perhaps the most significantly related act to Plaintiff’s claims, such that Delaware’s three year statute of limitations would apply and the fraud claim should proceed. The Court further found that although several factors weighed in favor of exercising comity in favor of the earlier-filed action in South Africa, the fact that the South African court was unlikely to exercise jurisdiction over the action demanded that the Delaware action proceed. The Court found that sanctions against Plaintiff for maintaining the earlier-filed action, as well as for impleading the other Defendants in the Delaware action, were not warranted.

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