Republic Business Credit, LLC v. Metro Design USA, LLC ( 2016 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
REPUBLIC BUSINESS CREDIT, LLC, )
Plaintiff,
V. C.A. No. Nl5C-09-233 JRJ
METRO DESIGN USA, LLC,
AMROCK CAPITAL LLC, GREG
WETANSON, MAXINE
WETANSON, SEAN MACPHERSON,
and ROBERT JACOBS,
S\./\./\./\J\i\JS\J%/\./\/
Defendants.
OPINION
Date Submitted: April 8, 2016
Date Decided: June 29, 2016
Upon Defendants Metro Design USA, LLC, Greg and Maxz``ne Wetanson, Sean
MacPherson and Robert jacobs ’ Motion to Dismiss: GRANTED in part, and
DENIED in part.
Upon Defena'ant AmRock Capital, LLC 's Motion to Dismiss Complaintfor Lack of
Personal Jurisdiction: GRANTED.
Stephen E. Jenkins, Esquire, Peter H. Kyle, Esquire (argued), Ashby & Geddes,
P.A., Wilmington, DE, Attorneys for Plaintiff Republic Business Credit, LLC.
R0nald J. Drescher, Esquire, Drescher & Associates, P.A., Wilmington, DE, Sean
S. MacPherson, Esquire (pro hac vice) (argued), MacPherson Counsel LLP,
Redding, CT, Attorneys for Defendants Metro Design USA, LLC, Greg Wetanson,
Maxine Wetanson, Sean MacPherson, and Robert Jacobs.
Elihu E. Allinson III, Esquire (argued), Sullivan Hazeltine Allinson LLC,
Wilmington, DE, Attorney for Defendant AmRock Capital LLC.
Jurden, P.J.
I. INTRODUCTION
Before the Court is Defendants Metro Design USA, LLC, Greg and Maxine
Wetanson, Sean MacPherson, and Robert Jacobs’s Motion to Dismiss‘ for lack of
personal jurisdiction and Defendant AmRock Capital, LLC’s Motion to Dismiss
Complaint for Lack of Personal Jun``sdiction.z
For the following reasons, Defendants Metro Design USA, LLC, Greg and
Maxine Wetanson, Sean MacPherson, and Robert Jacobs’ Motion to Dismiss is
GRANTED in part, and DENIED in part, and Defendant AmRock Capital,
LLC’s Motion to Dismiss Complaint for Lack of Personal Jurisdiction is
GRANTED.
l Defendants[] Metro Design USA, LLC, Greg and Maxine Wetanson, Sean MacPherson and
Robert Jacobs’ Memorandum of Law in Support of Their Motion to Dismiss ("Investors’ Mot.
Dismiss") (Trans. ID. 58094786); Defendants Greg and Maxine Wetanson, Sean MacPherson
and Robert Jacobs’ Supplemental Memorandum of Law in Support of Their Motion to Dismiss
("Investors’ Reply") (Trans. ID. 58368687).
2 AmRock’s Motion to Dismiss also alleges insufficiency of service of process because: (l) the
individual served was not AmRock, an employee or officer of AmRock, or an agent of AmRock;
and (2) service was not addressed to AmRock’s registered agent. Defendant AmRock Capital,
LLC’s Opening Brief in Support of Motion to Dismiss Complaint for Lack of Personal
Jurisdiction and insufficiency of Service of Process 1 40 ("AmRock’s Mot. Dismiss") (Trans.
ID. 58l79060). After AmRock moved to dismiss, Plaintiff Republic Business Credit, LLC
served AmRock through its registered agent and submitted copies of the Alias Summons and
mail retum receipt as exhibits to its response to AmRock’s Motion to Dismiss. Plaintiff Republic
Business Credit LLC’s Response in Opposition to Defendant AmRock Capital LLC’s Motion to
Dismiss for Lack of Personal Jurisdiction at 26-27 ("RBC Resp. AmRock’s Mot. Dismiss")
(Trans. ID. 5832800). "The retum receipt or other official proof of delivery shall constitute
presumptive evidence that the notice mailed was received by the defendant or the defendant’s
agent." 10 Del. C. § 3l04(h)(2). AmRock made no further argument on the issue of service of
process either in its reply brief or at oral argument. Thus, AmRock’s insufficient service of
process argument is moot.
NJ Metro Design’s intangible assets, including NJ Metro Design’s "name, business
contacts, existing supply relationships . . . and other proprietary information."s
Accordingly, the Court will consider RBC’s alleged bases for the Court’s personal
jurisdiction over Defendants.
RBC argues that the Court has jurisdiction over all Defendants under
Delaware’s long-arrn statute, 6 Del. C. § 3104, and the Instituto Bancario
conspiracy theory of jurisdiction.% "[T]he conspiracy theory does not support
jurisdiction unless it works in tandem with a statute authorizing service of
process."47 Thus, RBC cannot assert conspiracy jurisdiction unless it first presents
a prima facie case that the Court has personal jurisdiction over one of the alleged
conspirators under Delaware’s long-arm statute.
45 Compl. 11 l3. T0 support this allegation, RBC highlights evidence that the Wetansons and
Jacobs contacted retailer clients of NJ Metro Design, sold inventory to those clients, and
transacted the sales using account numbers assigned to NJ Metro Design. Compl. 1[1] 46-47. See
Wetansons Aff. 1111 ll-l4; Jacobs Aff. 1111 15-17; Investors’ Mot. Dismiss 11 32 ("The
representatives at [Home Depot] indicated that they did not want to be burdened with setting up
new client numbers and therefore would allow Jacobs/Wetansons to process orders through old
[NJ Metro Design] account numbers since [NJ Metro Design] was no longer authorized to use
them.").
46 Under the Instituto Bancario conspiracy theory of personal jurisdiction, Delaware Courts have
personal jurisdiction over a nonresident conspirator if the plaintiff can make a factual showing
that: "(l) 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." Istituto
Bancario Italiano SpA v. Hunter Eng’g Co., 449 A.2d 2l0, 225 (Del. 1982). Conspiracy
jurisdiction is the only alleged basis for the Court’s exercise of personal jurisdiction over
AmRock. RBC Resp. AmRock’s Mot. Dismiss at 17-26.
47 Chandler, 2003 WL 21040185, at *10 (citing HMG/Courtland Properties, Inc. v. Gray, 729
A.zd 300, 307(1)@1. ch. 1999)).
11
RBC also argues that Jacobs and the Wetansons are "managers" of DE
Metro Design, and therefore, the Court has personal jurisdiction over Jacobs and
the Wetansons pursuant to Delaware’s implied consent statute, 6Del. C. § 18-
109(3)."*1
B. Pers0nal Jurisdiction Under Delaware’s Long-Arm Statute
Delaware courts apply a two-pronged analysis to determine whether a
plaintiff has met its burden of establishing personal jurisdiction over a nonresident
under the long-arm statute.49 The Court must first consider whether the long-arm
statute is satisfied and then determine "whether subjecting the nonresident to
jurisdiction in Delaware violates the Due Process Clause of the Fourteenth
Amendment."§° l
Delaware’s long-arm statute, 10 Del. C. § 3104(c), confers personal
jurisdiction over any nonresident who:
(1) Transacts any business or performs any character of work or
service in the State;
(2) Contracts to supply services or things in this State; [or]
(3) Causes tortious injury in the State by an act or omission in this
48 RBC Resp. Investors’ Mot. Dismiss at 19-21.
49 Aeroc;lobal capital Mgm¢., LLC v_ Cirms lndus., lnc., 871 A.2d 428, 437-38 (Del. 2005)
(citing LaNuova D & B, S.p.A. v. Bowe Co., Inc., 513 A.2d 764, 769 (Del. 1986)); see also Fisk
Ventures, LLC v. Segal, 2008 WL 1961156, at *6 (Del. Ch. May 7, 2008), ajj"d, 984 A.2d 124(Del. 2009) ("[T]he burden rests on the plaintiff to demonstrate the two bedrock requirements for
personal jurisdiction: (1) a statutory basis for service of process; and (2) the requisite ‘minimum
contacts’ with the forum to satisfy constitutional due process.").
50 AeroGlobal, 871 A.2d at 438 (citing LaNuova, 513 A.2d at 769).
12
State . . . .51
RBC argues that three different acts confer personal jurisdiction under the
long-arrn statute: (1) the formation of DE Metro Design; (2) the filing of the
Certificate of Amendment to change the name of DE Metro Design to Lloyd
Harbor; and (3) the sale of the inventory "for distribution on the Eastern seaboard,
including in Delaware."$z
1. The Filing of the Certificate of Formation for DE Metro Design
"Where personal jurisdiction is asserted on a transactional basis, even a
single transaction is sufficient if the claim has its origin in the asserted
953
transaction.’ "[A] single act of incorporation, if done as part of a wrongful
scheme, will suffice to confer personal jurisdiction under § 3104(0)(1)."54
RBC argues that Defendants "set up a dummy corporation in Delaware that
intentionally mimicked the name of a company in neighboring New Jersey" in
order to sell NJ Metro Design’s inventory (in which RBC had a senior security
51 10 Del. C. § 3104(¢).
52 RBC Resp. Investors’ Mot. Dismiss at 16~18.
53 LaNuova, 513 A.2d at 768 (first citing Speakman Co. v. Harper Bujj'z``ng Mach. Co., 583 F.
Supp. 273, 275 (D. Del. 1984); then citing Wilmington Supply Co. v. Worth Plumbing &
Heating, Inc., 505 F. Supp. 777, 780 (D. Del.l980)).
54 Connecticut Gen. Life Ins. Co. v. Pinkas, 2011 WL 5222796, at *2 (Del. Ch. Oct. 28, 2011)
(first citing Papendick v. Bosch, 410 A.2d 148 (Del. 1979); then citing Cairns v. Gelmon, 1998
WL 276226, at *3 (Del. Ch. May 21, 1998)). "But merely participating in the formation of a
Delaware entity, without more, does not create a basis for jurisdiction in Delaware. Instead, the
formation must be ‘an integral component of the total transaction to which plaintiffs cause of
action re1ates."’ Id. (quoting Shamrock Hola'ings of Cal., Inc. v. Arenson, 421 F. Supp. 2d 800,
804 (D. Del. 2006))).
13
interest).$$ The Investor Defendants do not deny that the name DE Metro Design
(Metro Design USA, LLC) was intended to mimic the name of NJ Metro Design
(Metro Design USA LLC).56 In fact, the Investor Defendants point to the
similarity between the names as evidence supporting their principle argument-DE
Metro Design was legitimately formed as a condition of the Note Purchase
Agreement between NJ Metro Design and Lausar, and therefore, the formation
cannot be considered part of a wrongful scheme.57
Pursuant to the Note Purchase Agreement, NJ Metro Design agreed to
"merge with and into a newly formed Delaware limited liability company."$g
MacPherson-who drafted the Certificate of Formation and filed it through a
service company-affirms that NJ Metro Design was intended to merge into DE
Metro Design as part of the transaction with Lausar, a third-party investor not
accused of any wrongdoing in this case.59 Consistent with MacPherson’s affidavit,
in a complaint filed by Lausar against Vogel in the United States Bankruptcy Court
for the District of New Jersey, Lausar alleged that Vogel breached the terms of the
Note Purchase Agreement when he failed to consummate the planned merger of NJ
55 RBC Resp. Investors’ Mot. Dismiss at 15.
56 Investors’ Reply at 4 ("Having [DE Metro Design’s] name be as similar as possible to [NJ
Metro Desigr1’s] name was deliberate as the restructuring contemplated a seamless continuation
of business when [NJ Metro Design] merged with and into [DE Metro Design].").
57 _.ifn'»,fza:zz;ia;»_»_s’-~=Mor. x:si~s»r_a-i;ss 1111 4-15, 36, 42, §a_,_:_-sz:z_.____vz.
58 P-t-l;rtj':hase _;z_’¢‘it_g_i-‘e\'§§i:;;'aent at 1 (second "l‘lv"flfh_ez-‘éé*``a's" clause).
59 MacPherson Aff. 1111 4, 9, l2.
14
Metro Design with DE Metro Design.6°
In light of the documents and sworn affidavits submitted by the Investor
Defendants, RBC’s allegation that the filing of a Certificate of Forrnation for DE
Metro Design was part of a wrongful scheme is conclusory and insufficient to
support of prima facie showing of personal jurisdiction.“
2. The Filing of the Certificate of Amendment for DE Metro Design
RBC alleges that the filing of the Certificate of Amendment to change the
name of DE Metro Design to Lloyd Harbor constitutes a transaction of business
that confers personal jurisdiction over Defendants.éz As stated by the Court of
Chancery in Sample v. Morgan, "[t]he involvement of a defendant in arranging,
either directly or through an agent . . . for the filing of a corporate instrument in
__ Delaware that facilitated transactions under challenge in litigation . . . has been
repeatedly recognized as sufficient to constitute the transaction of business under
§3104@)(1)."“ Hewever, even if the filing er the cenineaie er Amendment in
60 Investors’ Reply, Ex. G.
61 RBC argues in a footnote that even if the Court accepts the Investor Defendants’ argument that
DE Metro Design was legitimately forrned, "any such formation pursuant to the terms of the
Note Purchase Agreement would have been on behalf of [NJ] Metro Design," and, therefore, NJ
Metro Design would have an ownership interest in DE Metro Design that has been usurped by
Defendants, RBC Resp. Investors’ Mot. Dismiss at 16 n.9. According to RBC, "such
misappropriation of a Delaware entity in furtherance of a fraud would serve as yet another act
sufficient to convey jurisdiction over Defendants." Ia'. RBC cites no statute or caselaw to
support this state1nent. Accordingly, RBC has not satisfied its burden of establishing a prima
facie showing that the Court can exercise personal jurisdiction over Defendants,
62 RBC Resp. Investors’ Mot. Dismiss at 16.
63 Sample, 935 A.2d at1057; see also ia'. at 1057 n.42 (listing examples of cases where the filing
of a corporate instrument in Delaware has supported the exercise of personal jurisdiction). "The
15
this case constitutes a transaction of business under § 3104(c)(1),64 the burden
remains on RBC to show that the alleged causes of action arise from that
65 "The ‘arising from’ language requires the defendant’s act set ‘in
transaction.
motion a series of events which form the basis for the cause of action before the
court."’66
RBC argues that the filing of the Certificate of Amendment relates to the
alleged causes of action because the Investor Defendants changed the name of DE
Metro Design "in order to mask the wrongful intent of their actions."67 This
allegation is insufficient to demonstrate that the filing of the Certificate of
Amendment set in motion a series of events which form the basis for the alleged
causes of action.
First, the Certificate of Amendment was filed on October 6, 2015,68 after
‘single act’ or specific jurisdiction subsections of § 3104(c), such as § 3104(c)(1), only allow
jurisdiction over causes of action that are closely intertwined with the jurisdictional contact." Ia'.
at 1057 n.43 (citing Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial
Practice in the Delaware Court of Chancerjy § 3-5[a][l][iii] (2005))).
64 The long-arrn statute "is to be broadly construed to confer jurisdiction to the maximum extent
possible under the Due Process Clause." Hercules Inc. v. Leu Trust & Banking (Bahamas) Ltd.,
611 A.2d 476, 480 (Del. 1992).
65 10 Del. C. § 3104(0) ("As to a cause of action brought by any person arising from any of the
acts enumerated in this section . . . ."); 10 Del. C. § 3104(j) ("When jurisdiction over a person is
based solely upon this section, only a cause of action arising from any act enumerated in this
sez_:``tf.'i``<;zzi may br:-'§_i_':z~sezc§_i.j:d_~;zgainst the person.").
66 ,z;zz:a;;;.~‘zaza'v. 'c'.t.?z»zzvaz~_,; 1‘§°>:§:4 wL 497868, ar *4 (Del. ch. Aug. 25, 1994) (quoring sam R@ebuck
& Co. v. Searsplc, 752 F. Supp. 1223, 1227 (D. Del. 1990)).
67 RBC Resp. Investors’ Mot. Dismiss at 16.
68 RBC Resp. Investors’ Mot. Dismiss, Ex. 5.
16
RBC filed the instant Complaint.69 Second, in their Motion to Dismiss, the
Investor Defendants volunteered the fact that they sold inventory through DE
Metro Design and that they changed the name of DE Metro Design to Lloyd
Harbor.m RBC did not allege that the name change was evidence of wrongful
intent until after the Investor Defendants admitted that they changed the name of
DE Metro Design to Lloyd Harbor.” In response to RBC’s allegation, Jacobs and
the Wetansons, in their sworn affidavits, stated that they changed the name because
"the ‘Metro’ name had a very negative stigma attached to it."n Finally, RBC
alleges that the Investor Defendants and DE Metro Design "usurped the name" of
NJ Metro Design.73 If anything, changing the name of DE Metro Design to Lloyd
Harbor would have eliminated confusion caused by the similarity of the names NJ
Metro Design and DE Metro Design.
Thus, RBC has not met its burden of presenting a prima facie case to show
that the alleged causes of action arise from the filing of the Certificate of
Amendment.
69 The Complaint was filed on September 25, 2015.
70 Investors’ Mot. Dismiss 11 33.
71 RBC Resp. Investors’ Mot. Dismiss at l6.
72 Jacobs Aff. 11 17; wew.nsons Aff. 11 14.
73 Compl.1]13.
17
3. The Utilization of DE Metro Design to Sell Inventory
RBC argues that the Wetansons’ sale of inventory through DE Metro Design
confers jurisdiction because: (l) the sale of inventory is a transaction of business
under § 3l04(c)(l); (2) the sale of inventory was a contract to supply goods under
§ 3104(0)(2); and (3) any impairment of RBC’s interests caused by the sale of
inventory constitutes tortious injury under § 3 l04(c)(3).
To support these conclusions, RBC alleges that the Wetansons sold
inventory "for distribution on the Eastem seaboard, including in Delaware."m
Other than this conclusory statement, RBC has not presented any evidence that the
Wetansons sold inventory in Delaware, the Wetansons contracted to sell inventory
in Delaware, or that any inventory was distributed in Delaware. Rather, the
"Routing and Distribution Instructions" RBC submitted as evidence that the
Wetansons sold inventory to T.J. Maxx lists purchase orders associated with
Charlotte, North Carolina, Worcester, Massachusetts, Evansville, Indiana, and
75 Additionally, through swom affidavits, the Investor
North Las Vegas, Nevada.
Defendants aver that no inventory was sold for distribution in Delaware.% RBC’s
conclusory allegation is insufficient to satisfy RBC’s burden to present a prima
facie case that this Court has personal jurisdiction over Defendants under
74 RBC Resp. Invest0rs’ Mot. Dismiss at 17-18,
75 1¢1., Ex. 4.
76 Wetansons Aff. 11 16; Jacobs Aff. 11 l9.
18
§ 3l04(c).
RBC also alleges that the Wetansons’ sale of inventory caused tortious
injury to RBC in Delaware by diminishing "demand for other sellers" in the market
and by "wrongfully prevent[ing RBC] from using the Metro Design name in
Delaware . . .because that name was already wrongfully claimed by [DE Metro
Design]."
The long-arrn statute does not confer personal jurisdiction based merely on
tortious injury in Delaware, but on "tortious injury in the State [caused] by an act
or omission in this State."78 Because RBC has not established a prima facie case
that Jacobs or the Wetansons contracted to supply any inventory in Delaware
(either individually or through DE Metro Design) or that the Wetansons or DE
Metro Design sold any inventory in Delaware, RBC’s alleged injury based on
impairment of the market likewise fails. Moreover, RBC’s allegation that it has
suffered a tortious injury because Defendants have prevented RBC from using NJ
Metro Design’s name in Delaware fails because RBC has not alleged that it ever
attempted to use NJ Metro Design’s name or was unable to do so. Consequently,
RBC has not made a prima facie case that the Court has personal jurisdiction over
Defendants based on the Wetansons’ utilization of DE Metro Design to sell
77 RBC Resp. Investors’ Mot. Dismiss at l8.
78 lO Del. C. § 3104(0)(3) (emphasis added); Abajian v. Kennea'y, 1992 WL 8794, at *l0 (Del.
Ch. Jan. l7, 1992) ("In order to find jurisdiction under § 3l04(c)(3), the defendant must have
caused a tortious injury in Delaware by its acts or omissions in Delaware.").
19
inventory¢
Because RBC has not presented a prima facie case that the long-arrn statute
confers personal jurisdiction over any of the Defendants, RBC’s assertion of
personal jurisdiction based on the conspiracy theory of jurisdiction necessarily
fails.79 The only basis for jurisdiction asserted against AmRock is conspiracy
jurisdiction, and therefore, AmRock’s Motion to Dismiss for Lack of Personal
Jurisdiction is GRANTED. The only basis for jurisdiction asserted against
MacPherson is the long-arrn statute and conspiracy jurisdiction, and therefore, as to
MacPherson, the Investor Defendants’ Motion to Dismiss is GRANTED.
C. Personal Jurisdiction Over Jacobs and the Wetansons Under
6 Del. C. § 18-109
The "implied consent" provision of the Delaware Limited Liability
Company Act, 6 Del. C. § 18-l09, authorizes service of process on the managers
of Delaware limited liability companies. A "manager" is either "a person who is a
manager as defined in § 18-l0l(l0)" or "a person, whether or not a member of a
limited liability company, who . . . participates materially in the management of the
limited liability company."go RBC alleges that Jacobs and the Wetansons have
impliedly consented to personal jurisdiction because they participated materially in
79 Chana'ler, 2003 WL 2l040l85, at *l0 ("[T]he conspiracy theory does not support jurisdiction
unless it works in tandem with a statute authorizing service of process." (citing HMG/Courtland,
729 A.2d at 307).
*‘° 6 Del. C. § 18-109(a).
20
II. FACTUAL BACKGROUND
A. Parties and Causes of Action
Plaintiff Republic Business Credit, LLC (“RBC") is a Louisiana limited
liability company with a principal place of business in New Orleans, Louisiana.3
RBC is a business that "factors accounts receivable."4
Defendant Metro Design USA, LLC ("DE Metro Design") is a Delaware
limited liability company and is registered as a foreign limited liability company in
New Jersey under the name "Metro Design USA Delaware LLC."S
Defendant AmRock Capital, LLC ("AmRock") is a Florida limited liability
company that financed inventory for non-party Metro Design USA LLC ("NJ
Metro Design").6
Defendants Sean MacPherson and Robert Jacobs are residents of
Connecticut,7 and Defendants Greg Wetanson and Maxine Wetanson are residents
of New Yorkg (collectively "the Investor Defendants").
RBC asserts seven causes of action: (1) breach of contract (against
AmRock); (2) conversion (against all Defendants); (3) violation of the Delaware
Deceptive Trade Practices Act (against all Defendants); (4) common law fraud
__3 compl. 1[1 (Trans. 1D. 57922133).
t res _ _
fm
§§ ``Zl¢¥'- 'f‘*?:. Ei;f_.
at trr-'@*
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the management of DE Metro Design and are, therefore, "managers" of DE Metro
Design.gl
Assuming, arguendo, that Jacobs and the Wetansons participated materially
in the management of DE Metro Design (such that they are "managers’ under § 18-
l09(a)), the burden remains on RBC to show that the exercise of personal
jurisdiction in this case comports with due process.gz Section l8-l09(a) provides
that this Court may assert personal jurisdiction over a nonresident manager of a
Delaware limited liability company "in all civil actions . . . involving or relating to
the business of the limited liability company or a violation by the manager . . . of a
duty to the limited liability company. . . ." To invoke the "involving or relating
to" clause of § 18-l09(a), a plaintiff must establish that the exercise of personal
jurisdiction over a defendant would not offend due process.83 Due process requires
that the defendant "have certain minimum contacts with [the forum state] such that
the maintenance of the suit does not offend ‘traditional notions of fair play and
substantial justice. "’84
Delaware Courts have held that due process will not be offended by the
exercise of personal jurisdiction under § l8-l09(a) if a plaintiff can show that: "(l)
81 RBC Resp. Investors’ Mot. Dismiss at 19-21.
82 PT china LLC v. PT Korea LLC, 2010 wL 761145, at *5 (r)el. ch. Feb. 26, 2010) ("Even if
one is served pursuant to § 18-l09, personal jurisdiction must still be consistent with due
rocess.").
3
Id.
84 Int’l Shoe Co. v. State of Wash., Ojj‘ice of Unemployment Comp. & Placement, 326 U.S. 310,
316 (1945) (quocing Mmzken v. Meyer, 311 U.s. 457, 463 (1940)).
21
the allegations against the defendant-manager focus centrally on his rights, duties
and obligations as a manager of a Delaware LLC; (2) the resolution of the matter is
inextricably bound up in Delaware law; and (3) Delaware has a strong interest in
providing a forum for the resolution of the dispute relating to the manager’s ability
to discharge his managerial functions."g$
RBC’s causes of action against Jacobs and the Wetansons focus on Jacobs
and the Wetansons’ alleged usurpation of NJ Metro Design’s assets. This
usurpation was allegedly made possible by Jacobs’ previous work attempting to
restructure NJ Metro Design,86 and the Wetansons’ purchase of AmRock’s position
as a creditor of NJ Metro Design pursuant to the Assignment Agreement.87
According to the Wetansons, they appointed DE Metro Design as their agent
because they did not want to sell inventory in their individual capacities.gg
85 Har¢sel v. Vanguard Grp., lnc., 2011 wL 2421003, at *9 (Del. Ch. June 15, 2011) (firsc citing
Vichi v. Koninklijke Philips Elecs. N. V., 2009 WL 4345724, at *8 (Del. Ch. Dec. l, 2009); then
citing Assist Stock Mgmt. LLC v. Rosheim, 753 A.2d 974, 981 (Del. Ch. 2000)), ajj"d, 38 A.3d
1254 (Del. 2012); see also Assist Stock Mgmt., 753 A.2d at 978 ("'l``he language of this statute, of
course, suggests the exercise of jurisdiction over [the manager of a Delaware limited liability
company] in an action properly alleging a breach of fiduciary duty in his managerial capacity.
The more difficult question is whether, and if so, in what circumstances it permits the exercise of
jurisdiction in the other disputes involving or relating to the business of [the Delaware limited
liability company]." (footnote omitted)).
86 Compl. 11 8 ("Jacobs is a Manager of Metro Design USA, LLC and Metro Design USA LLC");
Jacobs Aff. 11 15 ("The Wetansons contacted me and asked for my assistance in recouping their
investment since I was familiar with the situation.").
87 Compl. 1l 3(); Wetansons Aff. 1[ 5 ("We invested $I,OO0,000 into [NJ Metro Design] through
taking assignment of AmRock’s senior secured position . . . .").
88 Wetansons Aff. 11 14.
22
The Court will make "a realistic evaluation of the relationship" that Jacobs
and the Wetansons have established with Delaware to determine whether it is
keeping with traditional notions of fair play and substantial justice to require them
to defend this dispute in Delaware.gg RBC does not allege that Jacobs and the
Wetansons breached fiduciary duties as managers of DE Metro Design created by
Delaware law and of special concem to Delaware. RBC is not an entity to whom
Jacobs and the Wetansons owe a fiduciary duty, and the alleged wrongs have not
been committed against a Delaware limited liability company, but rather, against
RBC, a Louisiana limited liability company, as the creditor of NJ Metro Design, a
New Jersey limited liability company, Finally, RBC only asserts conclusory
allegations that Jacobs and the Wetansons committed tortious acts within Delaware
or that the alleged tortious conduct had any impact in Delaware.
The instant case does not "focus centrally on [] rights, duties and
obligations" of Jacobs and the Wetansons as managers of a Delaware limited
liability company; it is not "inextricably bound up in Delaware law;"9° and RBC
has not demonstrated that "Delaware has a strong interest in providing a forum for
the resolution of the dispute" relating to a manager’s ability to discharge their
89 Assist Stock Mgmt, 753 A.Zd at 980 (quoting In re USACafes, L.P. Litig., 600 A.Zd 43, 52
(Del. Ch. l99l)).
90 RBC’s only argument involving choice of law is its argument that Florida law governs the
Purchase and Sale Agreement. RBC Resp. Investors’ Mot. Dismiss at ll n.7.
23
91
managerial functions. Rather, as discussed above, this case involves tort claims
unconnected with the internal affairs of DE Metro Design.gz
RBC has not met its burden of presenting a prima facie case that the exercise
of personal jurisdiction over Jacobs and the Wetansons under 6 Del. C. § 18-lO9
comports with due process, and therefore, as to Jacobs and the Wetansons, the
Investor Defendants’ Motion to Dismiss is GRANTED.
D. Personal Jurisdiction Pursuant to 6 Del. C. § 18-105 Over DE Metro
Design
Service of process on domestic limited liability companies is govemed by
6 Del. C. § l8-lO5. While the Investor Defendants include DE Metro Design in
the title of their Motion to Dismiss for lack of personal jurisdiction and in their
prayer for relief, they do not make any specific arguments regarding the Court’s
personal jurisdiction over DE Metro Design.
91 In contrast to this case, in Assist Stock Management LLC v. Rosheim, a defendant-manager
challenged personal jurisdiction in a dispute that involved: (l) ownership interests in a Delaware
limited liability company and (2) the manager-defendant’s ri ghts_as a manager of the Delaware
limited liability company_"to provide or withhold consent to the admission of additional
members into [the Delaware limited liability company’s subsidiary, also a Delaware limited
liability company]." 753 A.Zd at 977. The Court of Chancery concluded that the exercise of
personal jurisdiction over the defendant-manager comported with due process because "failure of
co-managers to agree as to the scope of their respective rights and obligations in their capacity of
managers . . . [is] a matter of substantial interest to this state" and because "[t]he controlling
agreement relies on Delaware law to delineate those rights and obligations." Id. at 98l.
92 See USACafes, 600 A.2d at 52 (distinguishing between the claims brought in the case and "tort
or contract claims unconnected with the internal affairs or corporate governance issues that
Delaware law is especially concerned with."); Hazout v. Tsang Mun Ting, 134 A.3d 274, 292
(Del. 20l6) (f``1nding that the exercise of personal jurisdiction under the director implied consent
statute, 10 Del. C. § 3l 14, comported with due process where, inter alia, the claims against the
director "involve his actions in his official capacity of negotiating contracts that involved the
change of control of a Delaware public corporation.").
24
DE Metro Design is a limited liability company incorporated in Delaware.
RBC served DE Metro Design as a domestic limited liability company,% and DE
Metro Design answered the Complaint.% Therefore, as to DE Metro Design, the
Investor Defendants’ Motion to Dismiss is DENIED.
V. CONCLUSION
For the foregoing reasons, Defendants Metro Design USA, LLC, Greg and
Maxine Wetanson, Sean MacPherson and Robert Jacobs’ Motion to Dismiss is
GRANTED in part, and DENIED in part. Defendant Amrock Capital, LLC’s
Motion to Dismiss Complaint for Lack of Personal Jurisdiction is GRANTED.
IT IS SO ORDERED.
93 Praecipe (Trans. ID. 57948186) (requesting that a summons be issued to DE Metro Design
§’€f‘~.``f?’£»'lzi»"s_s;lt to §_T:iourt Civ'ili_".’l{_t_.jife 4(§(1)=;{1:1_¢5§¥§ 'z'§sé§_° C. § 131 1_§§."._$_).
iii ``Hef¥;.~rz'd_f.z'si-z"zt M``c»:_tr"x':'). Design L-’_.§§‘.ék, LLC’s Ari=.``=z>_ae'ér and B"+.H?imiiative Defenses (Trans. ID.
58094772).
25
(against all Defendants); (5) tortious interference with contract (against the
Investor Defendants and DE Metro Design); (6) civil conspiracy (against all
Defendants); and (7) unjust enrichment (against all Defendants).g
B. The Relationship Between NJ Metro Design, RBC, and AmRock
NJ Metro Design is a company that marketed and sold household products to
"Big Box" retailers.l° In August 2013, Plaintiff RBC entered into an "Amended
and Restated Agreement for Purchase and Sale" with NJ Metro Design (the
"Factoring Agreement")." Pursuant to the Factoring Agreement, RBC agreed to
buy NJ Metro Design’s accounts receivable and advance money to NJ Metro
Design.lz In exchange for RBC’s financial services, NJ Metro Design granted
RBC a "first priority and exclusive security interest" in all of NJ Metro Design’s
assets, including "General Intangibles."”
To secure additional financing, NJ Metro Design entered into a "Purchase
and Sale Agreement" with Defendant AmRock.M Pursuant to the Purchase and
Sale Agreement, AmRock became an "inventory lender" to NJ Metro Design,
purchasing inventory from suppliers for NJ Metro Design.ls
In connection with the Purchase and Sale Agreement, NJ Metro Design,
9 551 §z;-,;zzz:¢-
”uWaWn
ll I¢:i;.__? {_"F'z§ctoring Agreement").
‘2 Ci:¢;zrr:pfi_-_. fL'-.¢_ir
‘3 P~S:::»r<_;ari'r;g_ ,»;».'s-,@rai::inenc 11 6.
14 Investors’ Mot. Dismiss, Ex. A ("Purchase and Sale Agreement").
lsAmRock’s Mot. Dismiss at 2; Purchase and Sale Agreement at 1.
4
AmRock, and RBC entered into an "Intercreditor Agreement," which granted
AmRock a first priority security interest "in any or all of the Inventory
Collateral."lé The Intercreditor Agreement defined "Inventory Collateral" as all of
NJ Metro Design’s inventory "while owned by [NJ Metro Design], excluding
inventory sold in the normal course which sale has given rise to an Account
[receivable] ."17
In early 2014, NJ Metro Design engaged Defendant Robert Jacobs
("Jacobs") and his company, Robo Associates, LLC, to "evaluate opportunities to
stabilize and grow the business."lg In an attempt to restructure NJ Metro Design’s
debt, Jacobs began discussions with NJ Metro Design’s creditors, including
AmRock.w
In January 2015, in lieu of exercising its remedies under the Purchase and
Sale Agreement, AmRock entered into a "Forbearance Agreement" with NJ Metro
Design.z° Pursuant to the Forbearance Agreement, NJ Metro Design agreed that it
was in default under the Purchase and Sale Agreement and agreed "that all
inventory held by [NJ Metro Design] is owned by AmRock, and [NJ Metro
16 Compl., Ex. 4 ("Intercreditor Agreement").
17 Intercreditor Agreement at l (third "Whereas" clause).
18 Investors’ Mot. Dismiss at 2. NJ Metro Design had substantial outstanding debts, including
approximately $1,000,0()().00 owed to AmRock. Investors’ Mot. Dismiss, Ex. B
11 °_l__{‘§."i'£*?’zsz:``tié)t:¢z_'zrzzxiz~s;z: Agre'e;zxent").
19 ``Ii=x‘?e``s_l*,§a~;$»g~" f¥§.el;'-:ly, 11 4 ("Jacobs Aff."); AmRock’s Mot. Dismiss, Ex. A 11 8 ("Tomasino
Aff.").
20 Forbearance Agreement1l 5.
Design] is holding such Inventory for and on behalf of AmRock, and subject to
AmRock’s direction and control."zl
C. The Lausar Investor and the Creation of DE Metro Design
As Jacobs continued to work toward restructuring NJ Metro Design, a third-
party investor ("Lausar") expressed an interest in investing $500,000.00 in NJ
Metro Design through a "Note Purchase Agreement" and an "Unsecured
»22
Convertible Note. In the Note Purchase Agreement, Lausar conditioned its
agreement to invest on NJ Metro Design merging into a newly formed Delaware
limited liability company.” In connection with the anticipated merger, NJ Metro
Design would completely restructure its operations and debt.24
Defendant Sean MacPherson ("MacPherson"), a lawyer working with Jacobs
to effectuate the restructuring of NJ Metro Design, filed a certificate of formation
for "Metro Design USA, LLC" ("DE Metro Design") through a service company
on January 12, 2015.25 Jacobs was the "placeholder owner of [DE Metro Design]
21 2a am 5, 7.
22 lz``_``“ivéaitors’ Mot. Dismiss, Ex. C ("Lausar Note Purchase Agreement"); Jacobs Aff. w 3-5.
23 Jacobs Aff. 11 5; Investors’ Reply, Ex. K 1111 4, 12 ("MacPherson Aff.").
24 Jacobs Aff. 11 4-6; MacPherson Aff. 11 4; Lausar Note Purchase Agreement at l (second
"Whereas" clause) ("WHEREAS, the Purchaser, as a condition to entering into this Agreement,
requires that the Company. . . enter into an agreement (the ‘Merger Agreement’) pursuant to
which it will merge with and into a newly formed Delaware limited liability company (‘New
Metro’) and that New Metro will enter into an amended and restated operating agreement (the
‘New Operating Agreement’).").
25 Compl., Ex. l; MacPherson Aff. 1111 2, 12.
pending consummation of the merger."zé Despite the steps taken to effectuate NJ
Metro Design’s commitment to Lausar, the anticipated merger never occurred due
to alleged misconduct of one of NJ Metro Design’s principals, Warren S. Vogel
("Vogel").”
D. The Relati0nship Between the Investor Defendants and AmRock
Sometime in late 2014 or early 20l5, during the time NJ Metro Design was
working toward restructuring, Jacobs introduced AmRock to Defendants Greg
Wetanson and Maxine Wetanson (the "Wetansons"), who were interested in
investing in a restructured NJ Metro Design.zg On April 14, 2015, AmRock and
the Wetansons entered into an "Assignment Agreement." Pursuant to the
Assignment Agreement, AmRock assigned its interest in the Purchase and Sale
Agreement and the Forbearance Agreement to the Wetansons.”
Shortly after AmRock and the Wetansons entered into the Assignment
Agreement, Vogel allegedly pledged all of NJ Metro Design’s equity to two third-
26 Jacobs Aff. 1[ 17. AmRock denies any knowledge of the formation of DE Metro Design.
Tomasino Aff. 11 16 ("AmRock only learned about [DE] Metro [Design] when it read the
Complaint.").
27 Id. 1111 l2-l4. Vogel, among other alleged misdeeds, failed to disclose substantial back taxes
that NJ Metro Design owed the State of New Jersey. Investors’ Mot. Dismiss 1111 l7, 25-26.
28 Compl. 1[ 39; Investors’ Reply, Ex. I 1111 3-4 ("Wetansons Aff."). The Complaint also alleges
that AmRock was heavily indebted to the Wetansons. Compl. 11 25 . This alleged indebtedness is
linked to the allegation that the Investor Defendants, at some point, took over control of AmRock
and, thereby, "sought, whilst standing in AmRock’s shoes, to also take over control of NJ Metro
Design." Compl. 11 38. AmRock submitted the sworn affidavit of Frank Tomasino, a managing
member of AmRock, who denies that AmRock has ever been indebted to any of the Investor
Defendants. Tomasino Aff. 1111 20-2l.
29 Investors’ Mot. Dismiss, Ex. D.
30
party individuals. According to Jacobs, this action was inconsistent with NJ
Metro Design’s commitment to restructure NJ Metro Design and merge it into DE
1
Metro Design.3 Consequently, Jacobs abandoned his efforts to restructure NJ
Metro Design "because no third parties would deal with Warren Vogel and the
uncertainty in equity ownership of [NJ Metro Design] made it impossible to
effectuate the restructuring."”
As of April 2015, NJ Metro Design was failing, if not completely
33
insolvent. At that time, the Wetansons contacted Jacobs to help minimize their
losses.34 The Wetansons, with Jacobs’ assistance, "appointed" DE Metro Design
as their "agent" to sell inventory purchased pursuant to the Purchase and Sale
Agreement and the Forbearance Agreement.” In October 2015, Jacobs and the
Wetansons changed DE Metro Design’s name to Lloyd Harbor Partners, LLC
("Lloyd Harbor").% The name DE Metro Design was changed to Lloyd Harbor
30 Jacobs Aff. 11 l2.
3‘1¢1.
32 Id. 1111 12-14.
33 ln a Notice of Default and Termination that RBC sent to NJ Metro Design on April l, 2015,
RBC recounted the history of NJ Metro Design’s defaults under the Factoring Agreement.
Investors’ Mot. Dismiss, Ex. E. In that Notice, RBC stated that it previously gave NJ Metro
Design notice of multiple "Events of Default" under the Factoring Agreement on November 7,
201 3. Id. Despite NJ Metro Design being in default for more than a year, RBC did not accelerate
NJ Metro Design’s payment obligations, and as of April 1, 2015, when the Notice of Default and
Terrnination was sent, RBC stated that NJ Metro Desigr1 owed RBC $850,813.50.1¢1.
34 Wetansons Aff``. 11 ll. _
” 1a 11 14;-1~::;<.:<>1>5 Aff. 1111 12~1_<;*-;
36 Jacobs__,_€§i°*f_``, 11 l7; Wetansoi'z-``$.,Y_xff. 11 14; Plaintiff’s Response in Opposition to Defendant Greg
and Maxine Wetanson, Sean MacPherson and Robert Jacobs’ Motion to Dismiss for Lack of
Personal Jurisdiction, Ex. 5 ("RBC Resp. Investors’ Mot. Dismiss").
8
because the NJ Metro Design name allegedly "had a very negative stigma attached
to it," such that a perceived relationship between the entities was undesirable.”
According to the Investor Defendants, DE Metro Design was not utilized to
impersonate NJ Metro Design, but rather, as a matter of convenience, to save the
Wetansons from going "through [the] mitigation process in their individual
capacities."38
According to RBC, however, Defendants formed and utilized DE Metro
Design with the intention of passing it off as NJ Metro Design.39 As evidence that
the Investor Defendants usurped NJ Metro Design’s identity, RBC highlights the
Wetansons’ sale of inventory, through DE Metro Design, to retailers under vendor
account numbers assigned to NJ Metro Design."°
III. STANDARH OF REVIEW
On a motion to dismiss for lack of personal jurisdiction under Superior
Court Civil Rule l2(b)(2), the plaintiff bears the burden to present "a prima facie
case establishing jurisdiction over a non-resident."‘" The "plaintiff[] must show
that an exercise of personal jurisdiction . . . would be consistent with Delaware
37 Jacobs Aff. 1111 15, 17; Wx_;».@fi»,z_;tsons Aff. 1111 12, 14.
38 Ja¢obs Af£ 11 17; weczz:ii;~=z.``»;r_tt,~._ Aff. 11 14.
39 I=?§``E;.{'l" ``.§j``»’-.;»:f¢$@i-_. l§=II“_':¢ai»‘¢;- 1 Pa;»zz;~:r-e,'»~»;;:,. L.P. v. Tumer, 846 A.zd 963, 974 (Del. Ch. 2000) (¢iring Harz
Holding C0. Inc. v. Drexel Burnham Lambert, Inc., 593 A.Zd 535, 539 (Del. Ch. l99l)).
9
"42 and the Court may look beyond the
statutory law and federal constitutional law,
pleadings to determine whether it has personal jurisdiction, viewing all factual
inferences in the light most favorable to the plaintiff.“
IV. DISCUSSION
A. Alleged Bases for Personal Jurisdiction Over Defendants
As an initial matter, the Investor Defendants assert that the Court does not
have personal jurisdiction over Defendants because they are nonresidents and no
wrongful conduct occurred. The Investor Defendants argue that the Wetansons
owned the inventory outright under the terms of the Forbearance Agreement, and
RBC "cannot assert a lien, much less any ownership interest, over property that its
"44 This argument, however, does not
debtor, [NJ Metro Design], does not own.
resolve the Motion to Dismiss for lack of personal jurisdiction because RBC does
not merely allege that the inventory belonged to NJ Metro Design. RBC alleges
that the Wetansons’ sale of inventory was accomplished through the usurpation of
42 chandler v_ czcc@»~zcc@, 2003 wL 21040185, ar *8 (Del. ch. May 5, 2003) wiring Newspan,
Inc. v. Hearthstone Funding Corp., 1994 WL 198721, at *3 (Del. Ch. May 10, 1994)).
43 Amaysing Techs. Corp. v. Cyberair Commc’ns, Inc., 2005 WL 578972, at *3 (Del. Ch. Mar. 3,
2005) (first citing Chandler, 2003 WL 21040185, at *8; then citing Computer People, Inc. v.
Best Int’l Grp., Inc., 1999 WL 288119, at *5 (Del. Ch. Apr. 27, 1999)).
44 Investors’ Reply at 2. In the Forbearance Agreement, NJ Metro Desigr1 agreed "that all
inventory held by [NJ Metro Design] is owned by AmRock, and [NJ Metro Design] is holding
such inventory for and on behalf of AmRock, and subject to AmRock’s direction and control."
Forbearance Agreement 1[ 7. NJ Metro Design also agreed that ownership of inventory would
pass to NJ Metro Metro Design "IMMEDIATELY PRIOR TO the delivery of the applicable
items to the third party purchaser." Ia'. Thus, according to the Investor Defendants, after
AmRock and NJ Metro Design entered into the Forbearance Agreement, the inventory was not
NJ Metro Design’s property, and, therefore, RBC’s security interest in NJ Metro Design’s assets
is irrelevant.
10