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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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District Court Denies Motion to Dismiss Declaratory Judgment Action for Lack of Jurisdiction and Failure to Allege a Controversy of Sufficient Immediacy
Shamrock Holdings of Ca., Inc. v. Arenson, C.A. No. 04-1335-SLR, 2006 U.S. Dist. LEXIS 9835 (D. Del. Mar. 14, 2006). Plaintiff Shamrock Holdings of Ca., Inc. ("Shamrock") was a Class A member of ALH Holdings, Inc. ("ALH"), a Delaware limited liability company, and the other plaintiffs were employees and/or members of ALH's Supervisory Board (the "Board"). In connection with the failure of ALH's business, and its investors' subsequent loss of their investments, plaintiffs filed an action in the Court of Chancery seeking a declaration that (i) they did not breach ALH's operating agreement; (ii) they did not breach their fiduciary duties as ALH employees, members or Board members; (iii) they had relied in good faith on the advice of experts and professionals in making their decisions; (iv) they were not liable to the defendants under the terms of a consulting agreement; and (v) they were entitled to advan
All of the defendants moved to dismiss the complaint on the grounds that the court did not have personal jurisdiction over them, and that the plaintiffs therefore had failed to join indispensible parties. Noting that "[a] single act of incorporation in Delaware will suffice to confer jurisdiction over a nonresident defendant if such purposeful activity is an integral component of the total transaction to which plaintiff's cause of action relates," the court concluded that because the declaratory judgment action arose from and related to the incorporation of ALH and its subsidiary, the defendants' participation in the formation and incorporation of the two companies was sufficient to confer personal jurisdiction upon them, and denied the motion to dismiss on jurisdictional grounds. The court then denied the defendants' motion to dismiss for failure to join indispensible parties as moot. Defendant Arenson also moved to dismiss the declaratory judgment action, arguing that the plaintiffs failed to allege that a controversy of sufficient immediacy existed between him and the plaintiffs. Plaintiffs contended that Arenson might bring an action alleging that plaintiffs deprived him, as the Class B Board representative, of any meaningful role in the Board's decision-making process. The court held that because Arenson was not a member of ALH and only served on the Board as the Class B representative, any harm allegedly suffered at the hands of the plaintiffs would be suffered by the Class B members, not Arenson. Plaintiffs next contended that Arenson had interests adverse to the plaintiffs because he was an "indirect holder of Class B equity interests." The court rejected this argument, concluding that plaintiffs had failed to present any legal basis to support their contention that "a financial interest in a company is enough to require a party to defend a declaratory judgment action." With respect to their contention that a dispute has arisen between Arenson and the plaintiffs regarding plaintiffs' rights to indemnification and advancement, however, the court concluded that Arenson's role in the Board's decision-making process was the subject of discovery and declined to grant Arenson's motion to dismiss.