Delaware Business Litigation Report

Non-Resident Asset Managers Found Not To Be “Acting Managers” Subject To Personal Jurisdiction Under Delaware LLC Act

Dlayal Holdings, Inc. v. Gracey, C.A. 2020-1070-LWW (Del. Ch. Dec. 27, 2021)
Under 6 Del. C. § 18-109(a), serving as the manager of a Delaware LLC constitutes consent to be served through the company’s registered agent for all Delaware proceedings “involving or relating to the [company’s] business ... or a violation by the manager ... of a duty” to the company or its members. By its terms, the statute applies not only to formal managers identified in the company’s governing documents but also to acting managers – that is, persons who “participate[] materially in the management” of the company. This case clarifies what constitutes material participation under § 18-109(a).

The plaintiff is the sole member of a limited liability company (“Oasis”) formed to own and manage real estate in various states, including two ranches in Kansas. Under Powers of Attorney signed by Oasis’s managers, one defendant managed the Kansas’ ranches’ affairs. The other two defendants performed work for the ranches. In its complaint, the plaintiff alleged that the defendants were acting managers who misappropriated funds and otherwise harmed Oasis. The defendants – all Kansas residents – moved to dismiss for lack of personal jurisdiction.

The Court sided with the defendants. Relying on several precedents, the Court drew a line between managing certain the assets of the company and managing the company itself. Here, the defendants oversaw some of Oasis’ assets (the Kansas ranches) but had no authority or input into the operation of Oasis itself. The defendants, therefore, were not acting managers of Oasis, so § 18-109(a) did not provide a basis for jurisdiction over them. Because there were no other alleged ties to Delaware, the Court dismissed the action.

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