Delaware Business Litigation Report

Superior Court Complex Commercial Litigation Division Addresses Standing Requirements For Foreign LLCs “Doing Business” In Delaware And Reaffirms That Some Preliminary Agreements Give Rise To Obligations To Negotiate A Final Agreement In Good Faith

Greentech Consultancy Co., WLL v. Hilco IP Services, LLC, C.A. No. N20C-07-052 AML CCLD (Del. Super. Ct. May 11, 2022)
This decision addresses two points of note relating to standing for foreign limited liability companies and to the binding nature of preliminary agreements.

First, for foreign limited liability companies seeking to file suit in Delaware, they must be aware of the requirements of Section 18-902 of the Delaware Limited Liability Company Act. Section 18-902 includes a threshold standing requirement, mandating that a foreign limited liability “doing business” in Delaware must first register with the Secretary of State before bringing suit in a Delaware court. However, the mere act of bringing a lawsuit in Delaware does not constitute “doing business” in Delaware and the failure to register with the Secretary of State in such circumstances does not deprive a foreign limited liability company of standing to bring suit in Delaware courts.

Second, the Superior Court reaffirmed that Delaware recognizes the binding nature of preliminary agreements, like initial term sheets, where the parties have agreed to certain material terms but have deferred negotiating other material terms. Known as “Type II” preliminary agreements, these agreements bind the parties to negotiate the remaining material terms in good faith. Relying upon the Delaware Supreme Court’s recent decision in Cox Communications, Inc. v. T-Mobile U.S. Inc., the Superior Court here confirmed that the obligation to negotiate in good faith need not be expressly stated in a preliminary agreement, but can be implied.

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