Deutsche Bank AG v. Devon Park Bioventures, L.P. ( 2021 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
DEUTSCHE BANK AG, )
)
Plaintiff, )
)
v. ) C.A. No. 2017-0822-SG
)
DEVON PARK BIOVENTURES, L.P., )
DEVON PARK ASSOCIATES, L.P., )
SEBASTIAN HOLDINGS, INC., and )
UNIVERSAL LOGISTIC MATTERS, )
S.A., )
)
Defendants. )
)
)
DEVON PARK BIOVENTURES, L.P., )
)
Counterclaim Plaintiff )
)
v. )
)
DEUTSCHE BANK AG, )
)
Counterclaim )
Defendant )
)
and )
)
SEBASTIAN HOLDINGS, INC. and )
UNIVERSAL LOGISTIC MATTERS, )
S.A., )
)
Crossclaim )
Defendants )
MEMORANDUM OPINION
Date Submitted: February 22, 2021
Date Decided: June 30, 2021
Stephen C. Norman and Aaron R. Sims, of POTTER ANDERSON & CORROON
LLP, Wilmington, Delaware; OF COUNSEL: David G. Januszewski and Sheila C.
Ramesh, of CAHILL GORDON & REINDEL LLP, New York, New York, Attorneys
for Plaintiff and Counterclaim Defendant Deutsche Bank AG.
James M. Yoch, Jr. and Kevin P. Rickert, of YOUNG CONAWAY STARGATT &
TAYLOR, LLP, Wilmington, Delaware; OF COUNSEL: Kevin C. Maclay, Todd E.
Phillips, Quincy M. Crawford, and Nathaniel R. Miller, of CAPLIN & DRYSDALE,
CHARTERED, Washington, DC, Attorneys for Defendant, Counterclaim Plaintiff,
and Crossclaim Plaintiff Devon Park Bioventures, L.P. and Defendant Devon Park
Associates, L.P.
William M. Kelleher and Phillip A. Giordano, of GORDON FOURNARIS &
MAMMARELLA, P.A., Wilmington, Delaware; OF COUNSEL: Ira S. Zaroff and
Richard M. Zaroff, of ZAROFF & ZAROFF LLP, Garden City, New York, Attorneys
for Defendant Sebastian Holdings, Inc.
P. Clarkson Collins, Jr., K. Tyler O’Connell, Albert J. Carroll, R. Eric Hacker, and
Damon B. Ferrara, of MORRIS JAMES LLP, Wilmington, Delaware; OF
COUNSEL: Ira S. Zaroff and Richard M. Zaroff, of ZAROFF & ZAROFF LLP,
Garden City, New York, Attorneys for Defendant CPR Management, S.A., f.k.a.
Universal Logistic Matters, S.A.
GLASSCOCK, Vice Chancellor
This matter will no doubt strike the reader as complex, as it did this judge,
with its flurry of entities and previous litigations. The allegations of the complaint,
at heart, are simple, however. Defendant Sebastian Holdings, Inc. (“Sebastian”), a
citizen of the Turks and Caicos, via a series of improvident margin trades became a
delinquent debtor of Plaintiff and Counterclaim Defendant Deutsche Bank AG
(“Deutsche”). Deutsche reduced this debt to a judgment in an English court in 2013,
comprising at present, with interest, about $300 million. If it is a truism that
obtaining a judgment is but half the battle, this matter is proof. Deutsche has spent
the last several years trying to collect.
At the time of the judgment, Sebastian’s assets included an ownership interest
in Defendant Devon Park Bioventures, L.P. (“Devon LP”), a Delaware limited
partnership with its principal office in Pennsylvania. Shortly after Deutsche
obtained a judgment against it, Sebastian purported to assign its interest in Devon
LP (the “Devon Interest”) to Defendant Universal Logistic Matters, S.A., now
known as CPR Management, S.A. (the “Transferee Entity”), a citizen of Panama.
The Plaintiff alleges that this transfer was a sham to defeat recovery of its judgment.
It notes that Sebastian’s sole owner and director is non-party Alexander Vik (“Vik
Jr.”), a Norwegian national, while the Transferee Entity is allegedly controlled by
Vik Jr.’s father, Erik Vik (“Vik Sr.”). They also point to the timing of the Transferee
1
Entity’s name change, in 2014, as indicative of a scheme to shield assets from
judgment.
Deutsche has attempted litigation to set aside the above transfer, and a
previous transfer to another entity, in several jurisdictions. In addition to the limited
partnership interest itself, Devon LP’s general partner, Defendant Devon Park
Associates, L.P. (“Devon GP” and, together with Devon LP, “the Devon Entities”)
has withheld distributions owed to the rightful owner of the Devon Interest.
Deutsche’s litigation efforts to levy have been fruitless thus far, as described below.
In this action, they seek, inter alia, a declaration that Sebastian remains the owner
of the Devon Interest, and that they are entitled to levy thereon in aid of collecting
the $300 million judgment resulting from the underlying English litigation. The
Devon Entities are agnostic—they seek to interplead the distributions.
Before me are the motions of Sebastian and the Transferee Entity, seeking
dismissal under Court of Chancery Rule 12(b)(2). As a Turks and Caicos entity and
a Panamanian entity, 1 respectively, they allege that this Court lacks personal
jurisdiction over them. I conclude below that the only substantial action these
1
Residents of Panama, in English, are referred to as Panamanians, thus the adjectival form
“Panamanian” entity. What are residents of the Turks and Caicos Islands called? Per the website
turksandcaicostourism.com, “Belongers,” a sobriquet that seems inappropriate to Sebastian, a so-
called “exempted company” which cannot itself even do business in the Turks and Caicos Islands.
See People of the Islands, Turks and Caicos Islands: Beautiful by Nature,
https://turksandcaicostourism.com/people-of-the-islands/ (last visited June 30, 2021). Therefore,
I will use the clunky locution “Turks and Caicos entity.”
2
entities are charged with is transferring an ownership interest in a limited partnership
that is itself a citizen of Delaware. I find that these entities have not subjected
themselves to Delaware long-arm service and do not have sufficient minimum
contacts with this state to satisfy due process in the exercise of jurisdiction over
them. Accordingly, the Motions to Dismiss must be granted. My rationale follows.
I. BACKGROUND 2
A. The Parties and Relevant Non-Parties
Below, I describe the entities and give them short referential names set off in
quotations—these names are different than the referential names used by the parties.
I do this in the interest of clarity, and because a blizzard of three-initial references
threatened to overwhelm this aging brain. I have included a graphic reference
showing the principal entities, their reference names, and the alleged controller for
each in Figure 1.
Plaintiff and Counterclaim Defendant Deutsche is a corporation organized
under the laws of Germany. 3 Deutsche maintains a branch office in New York, New
York and has consented to personal jurisdiction. 4
2
Except where otherwise noted, the facts in this background section are drawn from the Plaintiffs’
Verified Amended Complaint (“Am. Compl.”) and the documents incorporated therein. Dkt. No.
326.
3
Am. Compl. ¶ 8.
4
See id.
3
Defendant Devon LP is a Delaware limited partnership with its principal
office in Pennsylvania. 5 Devon LP has also filed counterclaims and crossclaims for
interpleader in this action.6
Defendant Devon GP is a Delaware limited partnership and the general
partner of Devon LP. 7
Defendant Sebastian is a corporation organized under the laws of the Turks
and Caicos Islands. 8 It is an exempted company, which cannot do business in the
Turks and Caicos Islands beyond a de minimis level.9
The Defendant Transferee Entity is a corporation organized under the laws of
Panama. 10 The Transferee Entity formally changed its name from Universal Logistic
Matters, S.A. to CPR Management, S.A. in 2015.11
Non-party Vik Jr. is a Norwegian billionaire. 12 He was, at all relevant times,
the sole shareholder and director of defendant Sebastian.13
5
Id. ¶ 9.
6
See Def. Devon Park Bioventures, L.P.’s Answer and Verified Countercls.–Crosscls. for
Interpleader (“Interpleader”), Dkt. No. 15.
7
Am. Compl. ¶¶ 10, 20.
8
Id. ¶ 11.
9
Id.
10
Id. ¶ 12.
11
Id. ¶ 12. The Transferee Entity appears to have been formerly known as both Universal Logistic
Matters, S.A. and Universal Logistics Matters, S.A. Id. ¶ 5.
12
Id. ¶¶ 2, 13.
13
Id. ¶ 11.
4
Non-party Vik Sr. is Vik Jr.’s father and the purported controller of the
Transferee Entity.14 At all times relevant to this action, Vik Sr. was also the sole
shareholder of non-party VBI Corporation (“VBI”), as described below.15
VBI is a corporation organized under the laws of the Turks and Caicos Islands
whose sole shareholder is, and was at all relevant times, Vik Sr.16 VBI is an
exempted Turks and Caicos company, which cannot do business in the Turks and
Caicos Islands beyond a de minimis level. 17
B. Proceedings in England
In 2008, Sebastian failed to satisfy margin calls Deutsche made to recoup
losses it incurred trading on Sebastian’s behalf. 18 Deutsche filed suit against
14
Id. ¶¶ 12, 13.
15
Id. ¶ 14.
16
Id. ¶ 14.
17
Id.
18
Id. ¶¶ 2, 36.
5
Sebastian in an English court in 2009 seeking amounts owed in connection with
those unpaid margin calls, as well as interest and costs (the “English Action”).19
Deutsche prevailed in that action, obtaining a judgment for $235,646,345 in
November 2013 (the “English Judgment”). 20 Sebastian was also judged liable for
85% of Deutsche’s costs, plus interest, and ordered to make an interim payment.21
Sebastian sought to appeal portions of the English Judgment, but its appeal
was struck when it failed to post the full amount of the judgment as security within
28 days of being ordered to do so by the English Court of Appeals.22 There is no
further prospect of any appeal of the English Judgment. 23
Deutsche also prevailed on two separate non-party costs applications against
Vik Jr. in 2014 and 2016, finding him personally liable for portions of the judgment
against Sebastian. 24 Vik Jr.’s attempts to appeal those orders were denied and there
is no further prospect of appeal.25
More than eight years later, Sebastian has not paid Deutsche any portion of
the amount due under the English Judgment.26 With interest, the judgment debt now
19
Id. ¶ 3, 44. The English Action is captioned Deutsche Bank AG v. Sebastian Holdings, Inc.,
Claim No. 2009 Folio 83. Id.
20
Id. ¶¶ 1, 3, 49–51.
21
See id. ¶¶ 50(b)–50(c).
22
Id. ¶¶ 61–63.
23
Id. ¶¶ 63–64.
24
Id. ¶¶ 55–59.
25
Id. ¶¶ 58, 60.
26
See id. ¶ 53.
6
exceeds $300 million. 27 Deutsche seeks to satisfy the English Judgment, at least
partially, from Sebastian’s remaining assets—specifically the Devon Interest.28
C. Sebastian Purports to Transfer the Devon Interest to VBI
In 2012, during the pendency of the English Action and a related action in
New York, Sebastian purported to transfer the majority of its remaining non-cash
assets to non-party VBI. 29 The transfer was purportedly made via an Installment
Purchase Agreement (the “VBI Agreement”) that provided that Sebastian would
maintain possession of all or part of the assets by holding them in trust for VBI for
up to 4 years.30 Among the assets transferred was the Devon Interest,31 which
Sebastian had acquired in 2006. 32 The transfer of the Devon Interest was never
approved by Devon LP’s general partner, Devon GP, as would have been required
by Devon LP’s December 1, 2006 Second Amended and Restated Limited
Partnership Agreement (the “Partnership Agreement”).33 Sebastian did not disclose
this transaction, or the identity of the purchaser to Deutsche until after the English
Judgment.34
27
See id. ¶¶ 216, 231.
28
Id. ¶ 228.
29
Id. ¶¶ 83–85, 90.
30
Id. ¶ 87.
31
Id. ¶ 90.
32
See, e.g., Interpleader ¶ 1.
33
Am. Compl. ¶¶ 90–94, 102–103.
34
Id. ¶¶ 97–100.
7
D. Sebastian Purports to Transfer the Devon Interest Again
In 2014, Sebastian purported to transfer the Devon Interest to a new entity.35
Sebastian and the Transferee Entity entered the Assignment and Assumption
Agreement (the “Assignment Agreement”) after the English Judgment was entered
and after Deutsche had instituted multiple proceedings in New York and one in
Connecticut to collect on that judgment.36 The Assignment Agreement encompasses
two steps, both of which, per Devon LP’s Operating Agreement, would have
required the approval of Devon GP: first, it provides for Sebastian to transfer its
limited partnership interest; second, it provides for the Transferee Entity to be
admitted as a limited partner. 37 Deutsche did not learn of this transfer until 2016, in
connection with another New York lawsuit seeking to collect amounts owed under
the English Judgment; this time by unwinding Sebastian’s transfer of the Devon
Interest to VBI. 38 I have represented the purported transfers graphically in Figure 2.
35
Id. ¶ 113.
36
Id. ¶ 133.
37
Id.
38
Id. ¶ 112.
8
E. Attempted Distributions to the Transferee Entity
After the 2014 transaction, Devon LP began making distributions to the
Transferee Entity that were owed to it as a limited partner.39 Devon LP successfully
wired $5,589,574 to the Transferee Entity in March of 2015. 40 However, two
months later, when Devon LP attempted to wire a second distribution to the
Transferee Entity using the same wire instructions, the transfer was rejected and the
funds were returned.41 Deutsche was the intermediary bank in that transaction.42
Devon LP next attempted to wire the distributions through JP Morgan, but this
transaction was also rejected.43 It was at this point that the Transferee Entity
39
Id. ¶¶ 168, 248; Interpleader ¶ 26.
40
Am. Compl. ¶¶ 168, 248.
41
Id. ¶¶ 169–171.
42
Id. ¶ 169.
43
Id. ¶¶ 170–171.
9
changed its name from Universal Logistic Matters, S.A. to CPR Management, S.A.44
The Transferee Entity also suggested several alternative methods for transferring the
distributions, including processing the transfer through alternative banks or directing
the distribution to other recipients.45 Devon LP did not do so and, to date, Devon
LP has not made any further distributions to the Transferee Entity. 46
F. Other Proceedings
After prevailing in the English Action, Deutsche attempted to collect on the
English Judgment with a series of actions in various courts: on December 5, 2013,
Deutsche commenced Deutsche Bank AG v. Vik et al., Index No. 161257/2013 (Sup.
Ct. N.Y. Co.) (the “2013 New York Action”), seeking to enforce the English
Judgment in New York. On December 13, 2013, Deutsche also commenced
Deutsche Bank AG v. Sebastian Holdings, Inc. and Alexander Vik, Docket No. X08-
FST-CV13-5014167-S (Conn. Super. Ct.) (the “Connecticut Action”), seeking to
enforce the English Judgment there. As of 2016, the 2013 New York Action has
been stayed pending the outcome of the Connecticut Action, which the parties have
represented is awaiting a post-trial decision. 47
44
Id. 170.
45
Id. ¶¶ 172–173.
46
Id. ¶ 179. Devon LP is now in the process of winding up its affairs pursuant to the terms of the
Partnership Agreement and Delaware Law. Id. ¶ 180.
47
Id. ¶ 118.
10
In 2016, Deutsche filed a third action seeking to collect amounts owed under
the English Judgment in the Supreme Court, New York County, against Vik Jr., Vik
Sr., Sebastian, and VBI, alleging inter alia that Sebastian’s transfer of the Devon
Interest to VBI constituted a fraudulent conveyance intended to hinder, delay, and/or
defraud Deutsche. 48 Devon LP sought to intervene in that action, which was
dismissed for lack of personal jurisdiction.49
In March 2017, the Transferee Entity initiated an arbitration proceeding
against the Devon Entities in Philadelphia, Pennsylvania, seeking to recover the
value of unpaid capital distributions from the Devon Interest (the “Pennsylvania
Arbitration”). 50 Deutsche sought to intervene in that arbitration in June, but the
arbitrator denied its request.51 The Devon Entities ultimately did not defend the
Pennsylvania Arbitration and the Transferee Entity was awarded the full value of the
unpaid distributions. 52 The award is awaiting confirmation, as discussed further
below.
On the same day it initiated this action, November 16, 2017, Deutsche also
filed another action in the Supreme Court, New York County, this time against only
Sebastian and the Transferee Entity, alleging inter alia that the Assignment
48
Id. ¶ 112. That action is captioned Deutsche Bank AG v. Erik Martin Vik Sr.; Alexander Vik;
VBI Corporation; and Sebastian Holdings, Inc., Index No. 652156/2016 (Sup. Ct. N.Y. Co.). Id.
49
Id. ¶¶ 113–115.
50
Id. ¶ 119.
51
Id. ¶ 121; Interpleader ¶ 57.
52
Am. Compl. ¶ 121.
11
Agreement constituted a fraudulent conveyance intended to hinder, delay, and/or
defraud Deutsche. 53 Sebastian and the Transferee Entity have contested jurisdiction
in that case, which has since been stayed pending the resolution of the instant
action. 54
On April 30, 2018, during the pendency of this action, the Transferee Entity
filed a petition to confirm the arbitration award in the Pennsylvania Court of
Common Pleas.55 Devon LP removed that action to the United States District Court
for the Eastern District of Pennsylvania, CPR Management, S.A. v. Devon Park
Bioventures, L.P., Index No. 18-cv-01973 (E.D. Pa.) (the “Pennsylvania Action”)
and interpleaded Deutsche as a party with a potential claim to the Devon Interest.56
The District Court struck the interpleader as procedurally improper and granted the
Transferee Entity’s petition, confirming the award. Deutsche’s appeal of both
decisions remains pending before the Third Circuit.57
G. Procedural History
Deutsche initiated this action on November 16, 2017, asserting claims for (1)
recognition and (2) enforcement of the English Judgment against Sebastian, (3) a
charging order against the Devon Interest pursuant to 6 Del. C. § 17-703, and (4)
53
Id. ¶ 118.
54
Id.
55
Id. ¶ 122. That action was captioned CPR Management, S.A. v. Devon Park Bioventures, Index
No. 180404628 (Pa. Ct. Common Pleas). Id.
56
Id. ¶ 123.
57
Id. ¶ 128.
12
fraud and (5) conspiracy against all defendants. 58 Devon LP answered the original
complaint on December 21, 2017.59 In that pleading, Devon LP asserted counter-
and crossclaims for interpleader against Deutsche and the other defendants to
determine the rightful owner of the Devon Interest and the distributions associated
with it and requested a declaration from this Court that it is entitled to
indemnification from Sebastian and the Transferee Entity under the Assignment
Agreement. 60 That same day, the Devon Entities also moved to dismiss Deutsche’s
claims against them under Court of Chancery Rule 12(b)(6).61
On January 29, 2018, this Court entered a temporary restraining order
preventing the Devon Entities from making any distributions associated with the
Devon Interest during the pendency of this action.62 Deutsche was later granted
limited jurisdictional discovery via Chancellor Bouchard’s oral ruling of July 20,
2018. 63
After more than two years, the Chancellor determined that there was “no basis
for any additional jurisdictional discovery.” 64 Deutsche amended its complaint on
58
See id. ¶¶ 212–59 (asserting same causes of action as the original complaint); Verified Compl.,
Dkt. No. 1.
59
See generally Interpleader, Dkt. No. 15.
60
Interpleader ¶¶ 65–69.
61
Devon LP and Devon GP’s Mot. to Dismiss, Dkt. No. 16.
62
Tr. of Jan. 29, 2018 Arg. on Pl.’s Mot. for Temporary Restraining Order and Rulings of the
Court 101:23–112:13, Dkt. No. 96.
63
Tr. of 7.20.18 Telephonic Ruling of the Court on Pl.’s Mot. to Compel Jurisdictional Discovery
19:8–19:11, Dkt. No. 157.
64
Ltr. re Recent Correspondence 2, Dkt. No. 318.
13
October 12, 2020.65 All defendants renewed their Motions to Dismiss.66 The
Motions were fully briefed by January 12, 2021.67 Due to time constraints at the
February 17, 2021 hearing on all motions to dismiss, the movants opted to submit
rebuttal letters in lieu of additional oral presentations. Those letters were received
on February 22, 2021 and I consider the motions submitted for decisions as of that
date. 68 This Memorandum Opinion addresses the Motions of Sebastian and the
Transferee Entity to dismiss for lack of personal jurisdiction. In light of my decision
here that those Motions should be granted, the parties should inform me what
portions of the other outstanding Motions remain to be addressed.
II. LEGAL STANDARDS
Delaware courts apply a two-step analysis to determine whether the exercise
of personal jurisdiction over a non-resident defendant is proper: “the court must first
determine that service of process is authorized by statute and then must determine
that the exercise of jurisdiction over the nonresident defendant comports with
65
Am. Compl., Dkt. No. 326.
66
Sebastian’s Mot. to Dismiss, Dkt. No. 329; The Devon Entities’ Mot. to Dismiss, Dkt. No. 330;
The Transferee Entity’s Mot. to Dismiss, Dkt. No. 332.
67
See Sebastian’s Opening Br., Dkt. No. 329 [hereinafter “Sebastian OB”]; The Devon Entities’
Opening Br., Dkt. No. 331 [hereinafter “Devon Entities OB”]; The Transferee Entity’s Opening
Br., Dkt. No. 333 [hereinafter “Transferee Entity OB”]; Countercl.-Pl. Devon Park LP’s Omnibus
Answering Br., Dkt. No. 338 [hereinafter “Devon LP AB”]; Deutsche Answering Br., Dkt. No.
339 [hereinafter “Deutsche AB”]; The Devon Entities’ Reply Br., Dkt. No. 351 [hereinafter
“Devon Entities RB”]; Sebastian’s Reply Br., Dkt. No. 352 [hereinafter “Sebastian RB”]; The
Transferee Entity’s Reply Br., Dkt No. 353 [hereinafter “Transferee Entity RB”].
68
See Ltr. from William Kelleher, Dkt. No. 365 [hereinafter “Sebastian Rebuttal Ltr.”]; Ltr. from
James M. Yoch, Jr., Dkt. No. 366 [hereinafter “Devon Entities Rebuttal Ltr.”]; Ltr. from K. Tyler
O’Connell, Dkt. No. 367 [hereinafter “Transferee Entity Rebuttal Ltr.”].
14
traditional due process notions of fair play and substantial justice.”69 In weighing
these elements, the Court “may consider the pleadings, affidavits, and any discovery
of record.” 70 “[T]he plaintiff bears the burden of showing a basis for the court’s
exercise of jurisdiction. However, where, as here, no evidentiary hearing has been
held, a plaintiff need only make a prima facie showing of personal jurisdiction, and
the record is construed in the light most favorable to the plaintiff.” 71
III. ANALYSIS
Sebastian and the Transferee Entity (together the “Jurisdictional Defendants”)
have moved to dismiss the Amended Complaint and Devon LP’s interpleader
crossclaims against them for lack of personal jurisdiction pursuant to Court of
Chancery Rule 12(b)(2). Because I conclude that exerting this Court’s jurisdiction
over them would not comport with the long-arm statute or with traditional due
process notions of fair play and substantial justice, I grant the Jurisdictional
Defendants’ Motions, in part.
The Jurisdictional Defendants argue that this Court lacks personal jurisdiction
over them because neither is a Delaware entity, they have not engaged in any activity
in Delaware that gives rise to the claims against them, and they are not subject to
69
Ryan v. Gifford, 935 A.2d 258, 265 (Del. Ch. 2007).
70
Id.71
Lacey v. Mota-Velasco, 2020 WL 5902590, at *6 (Del. Ch. Oct. 6, 2020) (citations and internal
quotation marks omitted).
15
jurisdiction under the conspiracy theory.72 Deutsche and Devon LP oppose the
Motions, arguing that jurisdiction is authorized by the long-arm statute and that both
entities have sufficient minimum contacts with Delaware to satisfy due process.73
Deutsche also argues that jurisdiction is permissible under the conspiracy theory.74
Although Devon LP denies Deutsche’s jurisdictional allegations of a conspiracy
between the Devon Entities and the Jurisdictional Defendants, it asks this Court to
take jurisdiction over the Devon Interest so that it may interplead the other parties
and avoid liability arising from the purportedly fraudulent Assignment Agreement.75
In its Amended Complaint, Deutsche includes explicit allegations as to
personal jurisdiction. Deutsche alleges that this Court has personal jurisdiction over
Sebastian primarily because: Sebastian is the judgment debtor of the English
Judgment to be enforced; Sebastian purportedly owns the 23% interest in Devon LP
over which Deutsche seeks a charging order; Sebastian is a signatory to Devon LP’s
Partnership Agreement and the Assignment Agreement, both of which contain
Delaware choice of law clauses; Sebastian’s bank was listed as the Delaware office
of JP Morgan Chase Bank N.A. in a separate agreement that predates the Assignment
Agreement, and employees of that branch assisted in preparing that earlier
72
See Transferee Entity OB 20–40; Sebastian OB 14–26.
73
Deutsche AB 45–57, 68–72; Devon LP AB 13–28.
74
Deutsche AB 62–67.
75
See, e.g., Devon LP AB 28–29.
16
agreement (the funds were ultimately deposited with the New York branch); and
Sebastian purportedly made false statements to the Devon Entities, Delaware entities
doing business in Pennsylvania, in the Assignment Agreement. 76 Similarly,
Deutsche alleges that this Court has personal jurisdiction over the Transferee Entity,
because it signed the Assignment Agreement containing the Delaware choice of law
clause; the Assignment Agreement appointed Devon GP, a Delaware entity, to act
as the Transferee Entity’s attorney-in-fact, with the ability to execute and file various
documents on its behalf; the Transferee Entity allegedly made knowingly false
statements to the Devon Entities in its request to be admitted as a limited partner of
Devon LP; and the Transferee Entity retained Delaware counsel in its disputes with
the Devon Entities, post-distributions. 77
76
Am. Compl. ¶ 21. I do not consider further alleged acts in Delaware that Chancellor Bouchard
previously held failed to state a non-frivolous case for personal jurisdiction: an alleged 2008
transfer from Sebastian to a Delaware bank account; the allegation that representatives of the
Transferee Entity encouraged Devon LP to transfer the Devon Interest again, this time to a
Delaware entity; or the possibility that Devon LP will file a certificate of cancellation in Delaware
as part of the alleged conspiracy. See generally Tr. of Telephonic Rulings on Pl.’s Mot. to Compel
Jurisdictional Discovery, Dkt. No. 157. These prior rulings are law of the case. Cf. Thorpe v.
CERBCO, Inc., 1997 WL 67833, at *4 (Del. Ch. Feb. 6, 1997), aff’d, 703 A.2d 645 (Del. 1997)
(“The doctrine of law of the case promotes efficiency and fundamental fairness in cases by
counseling against the reconsideration of issues that have already been decided.”).
77
With respect to Deutsche’s allegation that the Transferee Entity intentionally or recklessly
concealed or destroyed communications from counsel, and failed to produce other documents, that
would have established jurisdiction, I note only that this matter was before Chancellor Bouchard,
who, in closing discovery, denied Deutsche’s outstanding motions to compel and for sanctions.
See Denied ([Proposed] Order Granting Deutsche Bank AG’s Motion for Leave to Take
Depositions), Dkt. No. 319; Denied (Proposed Order Granting Deutsche Bank AG’s Motion to
Compel the Testimony of Defendant CPR Management, S.A.’s Designated Corporate Witness or
for Sanctions), Dkt. No. 320. I make my determination, therefore, on the facts of record, rather
than the absence thereof, together with Plaintiff-friendly inferences.
17
A. Long-Arm Statute
Delaware’s long-arm statute permits service of process over foreign
defendants where they have certain contacts with the state.78 It is intended to be
“broadly construed to confer jurisdiction to the maximum extent possible under the
Due Process Clause.” 79 However, for the long-arm statute to be satisfied, the claims
to be litigated must arise out of one or more of the contacts enumerated in the
statute.80 Deutsche and Devon LP maintain that the Jurisdictional Defendants satisfy
the statute, under either Sections 3104(c)(1) or 3104(c)(3), but neither the Amended
Complaint nor the Interpleader Claim describes any act in Delaware from which this
litigation could arise.
Section 3104(c)(1) authorizes personal jurisdiction over a nonresident
defendant who in person or through an agent “transacts any business” in Delaware.81
The Jurisdictional Defendants are not alleged to have transacted any business in
Delaware in connection with the causes of action asserted here. Two foreign entities
exchanging an ownership interest in a Delaware entity, whether fraudulent or
78
See 10 Del. C. § 3104(c).
79
Hercules Inc. v. Leu Tr. & Banking (Bahamas) Ltd., 611 A.2d 476, 480–81 (Del. 1992).
80
Mobile Diagnostic Grp. Hldgs., LLC v. Suer, 972 A.2d 799, 804 (Del. Ch. 2009) (“In order for
this Court to exercise jurisdiction under § 3104(c)(1), some act must actually occur in Delaware.”
Additionally, the claims must have a nexus to [the] forum-related conduct.”) (citations and internal
quotation marks omitted).
81
10 Del. C. § 3104(c)(1).
18
otherwise, is not, without more, a transaction of business in Delaware.82 The sole
additional relevant fact—that the parties included a Delaware choice of law (not
venue) provision in the Assignment Agreement governing the transaction—does not
change my analysis.83
82
Mobile Diagnostic Grp. Hldgs., LLC v. Suer, 972 A.2d at 805 (“It is well settled law that “a
contract between a Delaware corporation and a nonresident to . . . transact business outside
Delaware, which has been negotiated without any contacts with this State, cannot alone serve as a
basis for personal jurisdiction over the nonresident for actions arising out of that contract.”)
(quoting Newspan, Inc. v. Hearthstone Funding Corp., C.A. No. 13304, 1994 WL 198721, at *6
(Del.Ch. May 10, 1994)); see also, e.g., Greenly v. Davis, 486 A.2d 669, 671 (Del. 1984). In
Greenly, the Supreme Court affirmed the Superior Court’s dismissal for lack of personal
jurisdiction where the only contact with Delaware was that “a part of the negotiations included a
proposed sale of stock of a Delaware corporation which does transact business in Delaware.”
Greenly v. Davis, 486 A.2d at 671. Devon LP suggests that Greenly is inapplicable because here,
rather than a proposed sale, the Defendants consummated an assignment of the Devon Interest.
See Devon LP AB 19 n.9. Instead, per Devon LP, I should reach the same result as NRG Barriers,
Inc. v. Jelin, 1996 WL 377014 (Del. Ch. July 1, 1996) because the “Defendants actually sold stock
in a Delaware close corporation.” Id. at *3. In NRG, the Court found that the defendants had
transacted business in Delaware where they “sold stock in a corporation intentionally incorporated
in Delaware[;] deliberately chose Delaware law to govern the Stock Purchase Agreement[; and]
employed Delaware counsel who assisted in the process of negotiating the agreement.” Id. In
denying the motion to dismiss in NRG, however, the Court distinguished Greenly, noting “the
record in Greenly did not indicate a significant portion of the negotiations took place in Delaware,
let alone the consummation of the deal.” Id. Based on the record before it, the Court in NRG
surmised that “the business contact with Delaware does not derive solely from the mere fact [of]
record ownership of shares . . . in Delaware.” Id. Thus, to the extent the rationale in NRG is made
explicit, it is consistent with the holding of Greenly and other cases that transacting in an ownership
interest in a Delaware entity is insufficient to confer jurisdiction without additional acts in
Delaware related to the transaction. As will be discussed further as regards due process
considerations, such additional contact is lacking here. Accordingly, and as in Greenly, Section
3104(c)(1) is inapplicable, because the Jurisdictional Defendants did not transact business in
Delaware. Devon LP also invokes NRG for the proposition that “[t]he mix of these related facts
constitutes the transaction of business in Delaware.” I address this contention more fully as it
relates to due process.
83
Cf. Mobile Diagnostic Group Holdings, LLC v. Suer, 972 A.2d at 805 (“It is also well established
that a choice of Delaware law provision in a contract is not, of itself, a sufficient transaction of
business in the State to confer jurisdiction under [Section 3014] (c)(1)”).
19
Section 3104(c)(3) authorizes personal jurisdiction over a nonresident
defendant who in person or through an agent “causes tortious injury” in Delaware.84
The Jurisdictional Defendants are again not alleged to have caused any tortious
injury in Delaware. The tort allegations here are asserted by Deutsche, a foreign
entity, and are based on conduct outside the state, a fraudulent transfer designed to
frustrate Deutsche’s satisfaction of its judgment.
Deutsche did business with a citizen of the Turks and Caicos Islands, a British
Overseas Territory. It obtained a judgment against that entity in a British court. It
alleges that collection of that judgment has been frustrated by the judgment debtor’s
fraudulent transfer of an asset to a Panamanian citizen. The fact that the asset in
question was equity in a Delaware entity does not equate to an injury in Delaware,
nor, without more, to doing business in Delaware. Because the Jurisdictional
Defendants are not alleged to have taken any actions in Delaware that give rise to
the claims against them, the long-arm statute does not support exercising
jurisdiction.
B. Conspiracy Jurisdiction
Alternatively, Deutsche argues that the same factual allegations satisfy the
requirements for conspiracy jurisdiction.85 The conspiracy theory “does not attempt
84
10 Del. C. § 3104(c)(3).
85
Deutsche AB 62–67.
20
to create a separate basis for jurisdiction . . . . [Instead, it] asserts that those who
seek to avoid our courts by acting at a distance may nevertheless create sufficient
minimum contacts with Delaware to satisfy the long-arm statute and due process.”86
To establish jurisdiction under the conspiracy theory, a plaintiff must show that:
(1) a conspiracy to defraud existed; (2) the defendant was a member of
that conspiracy; (3) a substantial act or substantial effect in furtherance
of the conspiracy occurred in the forum state; (4) the defendant knew
or had reason to know of the act in the forum state or that acts outside
the forum state would have an effect in the forum state; and (5) the act
in, or effect on, the forum state was a direct and foreseeable result of
the conduct in furtherance of the conspiracy. 87
This five-part test functionally encompasses both prongs of Delaware’s
jurisdictional analysis 88—a statutorily defined nexus to the state and compliance
with constitutional notions of due process, which I address further below. The
conspiracy theory is not a key to unlock universal jurisdiction, however. 89 It is a
tool to ensure that actors, who know that their conspirators will take substantial
86
Lacey v. Mota-Velasco, 2020 WL 5902590, at *6 (Del. Ch. Oct. 6, 2020).
87
Istituto Bancario Italiano v. Hunter Engineering Co., 449 A.2d 210, 225 (Del. 1982).
88
See, e.g., Konstantino v. AngioScore, Inc., 2015 WL 5770582, at *7 (Del. Ch. Oct. 2, 2015).
89
See Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963, 976 (Del. Ch. 2000) (“This theory
is very narrowly construed. Plaintiffs must assert specific factual evidence, not conclusory
allegations, to show that the non-resident defendants were conspirators in some wrongful act
resulting in harm to Delaware entities or their owners in order for the Court to exercise jurisdiction
over them.”).
21
actions or cause harms in Delaware, do not escape our process.90 This, Deutsche has
failed to demonstrate, even with the benefit of inferences in its favor.
Deutsche alleges that the Jurisdictional Defendants (and the Devon Entities)
are engaged in a conspiracy to prevent Deutsche from recovering on the English
Judgment by fraudulently transferring the Devon Interest between different entities
and ultimately liquidating Devon LP. 91 Assuming at this stage that Deutsche’s fraud
and conspiracy allegations are sufficiently well-pled, I nonetheless conclude that this
theory fails because it is not reasonably conceivable that any substantial act or
substantial effect in furtherance of the conspiracy took place in Delaware.
Most of the specific facts alleged to be in furtherance of the conspiracy clearly
occurred outside Delaware: statements made in documents and emails exchanged
between the Jurisdictional Defendants and the Devon Entities in connection with the
Assignment Agreement occurred where the entities are located—respectively, the
Turks and Caicos Islands, Panama, or Pennsylvania—not in Delaware where the
Devon Entities were formed; 92 and, although Sebastian has a Delaware bank
account, the funds dispersed to Devon LP in 2014 pursuant to the Assignment
90
Computer People, Inc. v. Best Int’l Grp., Inc., 1999 WL 288119, at *5 (Del. Ch. Apr. 27, 1999)
(“The conspiracy theory of jurisdiction is not, strictly speaking, an independent jurisdictional basis,
but rather, is a shorthand reference to an analytical framework where a defendant’s conduct that
either occurred or had a substantial effect in Delaware is attributed to a defendant who would not
otherwise be amenable to jurisdiction in Delaware.”).
91
Am. Compl. ¶¶ 23–29.
92
See, e.g., id. ¶¶ 21–22, 139–150.
22
Agreement were released from an escrow account held by JP Morgan’s New York
branch. 93 These are thus not substantial acts in Delaware in furtherance of the
alleged conspiracy.
Deutsche next points to the Assignment Agreement’s appointment of Devon
GP as the Transferee Entity’s attorney-in-fact, with the ability to act on its behalf in
Delaware. That entity does business in Pennsylvania, however, and there is no
indication in the record that Devon GP took any action on behalf of the Transferee
Entity in Delaware. Indeed, there was no reason for Devon GP to take any action in
Delaware on the Transferee Entity’s behalf, because there is no allegation in the
Amended Complaint that any acts in Delaware were required to consummate the
Assignment Agreement.
The Amended Complaint also alleges that the Transferee Entity used
Delaware counsel to attempt to recover the distributions withheld by the Devon
Entities, post-transfer. The Transferee Entity retained Delaware counsel in 2016 in
connection with the Pennsylvania Arbitration, which, I note, took place in
Pennsylvania. 94 Deutsche does not allege that Delaware counsel took any acts in
Delaware and there is no precedent for the theory that merely retaining Delaware
counsel supports jurisdiction. I also note that the action contemplated, litigation by
93
See id. ¶¶ 16, 21.
94
See id. ¶¶ 17, 22, 178.
23
one of the Jurisdictional Defendants against its alleged co-conspirators the Devon
Entities, seems unlikely to be in furtherance of their conspiracy in any event.
In sum, neither a substantial act or substantial effect in furtherance of the
conspiracy is alleged to have occurred in Delaware, and no basis exists to extend
jurisdiction over the Jurisdictional Defendants under the conspiracy theory.
C. Due Process
The parties, at oral argument, concentrated on the due process prong of the
jurisdictional analysis. Accordingly, and in the interests of completeness, I address
it here.
Compliance with due process requires a “minimum contacts analysis, which
seeks to determine the fairness of subjecting a nonresident defendant to suit in a
distant forum by considering all of the connections among the defendant, the forum
and the litigation.” 95 Even a single act can be sufficient contact to confer
jurisdiction, where the claim is based on that act.96 But the act must be a substantial
one. 97 Thus, the “defendant's conduct and connection with the forum state should
95
Werner v. Miller Tech. Mgmt., L.P., 831 A.2d 318, 330 (Del. Ch. 2003) (citations and internal
quotation marks omitted).
96
See, e.g., Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963, 978 (Del. Ch. 2000).
97
See EBP Lifestyle Brands Holdings, Inc. v. Boulbain, 2017 WL 3328363, at *6 (Del. Ch. Aug.
4, 2017) (“[T]he contacts proffered by the plaintiff to meet his burden must relate to some act by
which the defendant has deliberately created obligations between himself and this forum.”)
(internal quotation marks omitted).
24
be such that he can reasonably anticipate being haled into court in the nonresident
forum.”98
Even assuming that Delaware’s long-arm statute supports exercising
jurisdiction, due process places the Jurisdictional Defendants beyond this Court’s
reach. The Jurisdictional Defendants are foreign entities, as is Deutsche.99 Deutsche
and Sebastian did business together, but not in Delaware. Deutsche sued and
obtained a judgment against Sebastian in Britain. Deutsche seeks to collect on that
judgment, in which Sebastian was found liable for conduct entirely outside
Delaware. Thus, there is no connection between Delaware and Sebastian’s status as
a judgment debtor of Deutsche. Sebastian is charged with a fraudulent transfer of
its interest in a Delaware entity to avoid collection of the judgment. Holding or
transacting in ownership interests in Delaware entities does not, without more, create
jurisdiction, however.100 Nor does our law support exercising jurisdiction based on
98
Werner v. Miller Tech., 831 A.2d at 330 (citations and internal quotation marks omitted).
99
Deutsche also suggests that the Transferee Entity waived its right to contest jurisdiction by
actively participating in this litigation beyond a limited appearance to challenge jurisdiction.
While a defendant can lose the right to contest jurisdiction, the factual record demonstrates that
the Transferee Entity properly raised jurisdiction as its “first defensive move” and participation in
preliminary discovery (even via aggressive litigation tactics), as has occurred here, does not
constitute abandonment of the defense. Ross Hldg. & Mgmt. Co. v. Advance Realty Grp., LLC,
2010 WL 1838608, at *11 (Del. Ch. Apr. 28, 2010).
100
Istituto Bancario Italiano SpA v. Hunter Eng’g Co., 449 A.2d 210, 222 (Del. 1982) (noting that
the statutory situs of stock in Delaware is insufficient to justify jurisdiction); Papendick v. Robert
Bosch GmbH, 410 A.2d 148, 152 (Del. 1979) (noting that stock ownership of a Delaware
subsidiary is not, without more, a sufficient contact for which to establish jurisdiction).
25
the other facts into which Deutsche seeks to sink its jurisdictional hook: 101 being
party to a contract with a Delaware choice of law clause,102 receiving distributions
from a Delaware entity, simply owning a Delaware bank account, appointing a
Delaware entity as attorney-in-fact, or engaging in fraud or conspiracy outside the
state.
Deutsche and Devon LP do not even seriously argue that any of the above
allegations, standing alone, provide a basis for jurisdiction. Instead, they encourage
me to look at them in the aggregate. In addition to the conspiracy theory invoked by
Deutsche, Devon LP cites to NRG Barriers, Inc. v. Jelin, insisting that the “mix of
[the above] related facts” demonstrates that the Jurisdictional Defendants “were on
notice [that the] Plaintiff could sue them in Delaware.”103 I disagree.
101
See, e.g., Lacey v. Mota-Velasco, 2020 WL 5902590, at *6 (Del. Ch. Oct. 6, 2020) (dismissing
for lack of jurisdiction where alleged conspiracy was between foreign entities acting outside
Delaware); EBP Lifestyle Brands Holdings, Inc. v. Boulbain, 2017 WL 3328363, at *7 (dismissing
for lack of personal jurisdiction where choice of law clause was only connection to Delaware);
Mobile Diagnostic Group Holdings, LLC, 972 A.2d 799, 805 (Del. Ch. 1999) (same);
HMG/Courtland Properties, Inc. v. Gray, 729 A.2d 300, 311 (Del. Ch. 1999) (receiving
partnership distributions from a Delaware entity insufficient to confer jurisdiction).
102
I also note that, to the extent Deutsche attempts to rely on Hazout v. Tsang Mun Ting, 134 A.3d
274 (Del. 2016), to grant jurisdiction, that case involved more than “[a]greements [that] reflected
the parties’ choice to use the law of Delaware as their common language of commerce, and their
understanding that litigation over later contractual differences could ensue in Delaware.” Id. at
293. The defendant contesting jurisdiction in that case was the director of a Delaware corporation
being sued for actions taken in his official capacity in connection with negotiating the agreements
at issue, albeit in Canada. Thus, in light of multiple connections between Delaware, the parties,
and the litigation, the Court noted “all sides to the matter understood that . . . the jurisdiction that
was their focus was the home of the fried oyster sandwich, and not the home of poutine or dim
sum. That Tsang happened to be in Hong Kong and Hazout in Canada was a matter of geography.”
Id.
103
NRG Barriers, Inc. v. Jelin, 1996 WL 377014, at *2, *5 (Del. Ch. July 1, 1996).
26
In NRG, the Court denied a motion to dismiss for lack of personal jurisdiction
where the plaintiff sought to enforce its rights under a Stock Purchase Agreement.
In concluding that the NRG defendants had sufficient minimum contacts with
Delaware to justify exercising jurisdiction, the Court noted that “statutory situs of
the stock is not the only connection to Delaware. It is one of many ties satisfying the
minimum [contacts] requirement.”104 Other ties the Court treated as significant
include that “Delaware lawyers were substantially involved in drafting the
agreement”105 and that “[t]he agreement is the basis on which [the plaintiff] brings
this action.” 106 Thus, the plaintiff in NRG did not invoke Delaware jurisdiction
merely based on ownership of stock in a Delaware entity. Rather, included in the
“mix” of related facts were the facts that the defendants in that case negotiated a
“significant portion” of the stock purchase agreement at issue in Delaware and the
plaintiff was asserting its rights under that agreement, which fulfilled both the long-
arm statute and due process prongs. No such allegation is made here; nor is such an
inference warranted based on the record. Here, it is alleged that two foreign entities
caused a Delaware limited partnership to transfer an ownership interest from one to
the other. There is simply nothing in the record to indicate that the agreement
regarding the transfer was negotiated in Delaware. The allegation that the
104
Id. at *4 (emphasis added).
105
Id. (emphasis added).
106
Id.
27
transaction was fraudulent does not change the jurisdictional analysis. Furthermore,
because the dispute in NRG was as to the meaning of the stock purchase agreement
itself, which was negotiated in Delaware and chose Delaware law, the cause of action
arose out of the defendants’ contact with Delaware. Thus, the Court’s finding of
jurisdiction in that case is completely consistent with the well-established directive
that defendants are only amenable to suit in Delaware for claims that arise where
they purposefully avail themselves of Delaware’s benefits and protections.
Allegations supporting such purposeful availment are lacking here. Accordingly,
jurisdiction is not available.
There is no allegation in the Amended Complaint that the Jurisdictional
Defendants’ contacts with Delaware are anything more than fortuitous; nor do the
claims against them arise from those contacts. At its heart, this is litigation is about
nothing more than an allegedly fraudulent transfer of equity in a Delaware entity
between two foreign citizens, to frustrate a judgment debt obtained by a third foreign
entity in a foreign jurisdiction. Accordingly, due process dictates that this Court
must stand aside.
IV. CONCLUSION
If the facts are as they appear from this pleadings-stage record, Deutsche is
rightfully frustrated at its inability to collect on its judgment, caused by fraudulent
transfers between its judgment debtor and other foreign entities. That frustration
28
based on the facts alleged here does not trump the long-arm statute or the due process
rights of the Defendants, however. The Jurisdictional Defendants’ Motions to
Dismiss are granted in part. As pointed out above, there are additional motions
outstanding. Nothing in this Memorandum Opinion is meant to resolve
jurisdictional issues regarding Deutsche’s request for a charging order or Devon
LP’s interpleader claim, which have been characterized as in rem or quasi in rem
and supported by statutory jurisdiction. The dismissal of the Jurisdictional
Defendants remains pending in that regard and the January 29, 2018 restraining
order shall remain in place. I note that several other jurisdictions are now
considering Deutsche’s request for aid in satisfaction of its judgment, and a stay of
portions of this litigation may be warranted. The parties should confer and schedule
a conference on the remaining pending motions, as described above.
29