In Next Level Ventures, LLC v. AVID USA Technologies, LLC, C.A. 2022-0699-MTZ (Del. Ch. Mar. 16, 2023), Vice Chancellor Zurn found personal jurisdiction over de facto managers of a Delaware LLC for the purposes of binding them to a preliminary injunction, despite arguments by the defendants that the entity was a mere shell for a joint venture that never really took off.
The dispute was between the holders of vape device marks (a married couple, Jonathan and Hanna Carfield) and the company that they had contacted with to market and distribute vape products bearing those marks (Next Level). The relationship between the Carfields and Next Level ultimately soured, and the Carfields sought to set up a competing business. To set up this competing business, the Carfields, along with new investors, established a Delaware LLC for their new joint venture. However, the new joint venture fell apart before getting off the ground.
Next Level sued the Delaware LLC and the Carfields in the Court of Chancery and sought a preliminary injunction seeking to enjoin them from conduct including making public statements disparaging Next Level’s business in violation of the Delaware Deceptive Trade Practice Act (DDTPA). While Next Level sought a more expansive injunction than just for the DDTPA claims, the Court found that those requests were not supported by the briefing and only entered the PI with respect to the alleged DDTPA violations. The Court held that the PI bound the Carfields personally. The Carfields disputed the Court’s personal jurisdiction over them.
The Court found that it had personal jurisdiction over the Carfields pursuant to 6 Del. C. § 18-109, which provides for jurisdiction over managers of Delaware LLCs. “Managers” under Section 18-109 encompasses both persons named as managers, as well as acting or de facto managers. The statute defines an acting or de facto manager as a person who “participates materially in the management of the limited liability company.”
Explaining that the standard for personal jurisdiction for a preliminary injunction is the same “reasonable likelihood” of success as for the merits, the Court found a reasonable likelihood that the Carfields qualify as managers under Section 18-109. The Court found that Next Level is “reasonably likely to demonstrate” that Jonathan is a de facto manager based on facts including: (i) Jonathan signed a draft operating agreement on behalf of the Delaware LLC, listing his title as “Manager” because—per his own testimony—that was what he “thought was accurate at the time”; (ii) Jonathan directed the filing of a certificate of amendment to the LLC’s certificate of formation; (iii) Jonathan directed the content to appear on the website for the new business; and (iv) Jonathan appeared to have been the primary point of contact concerning the loan that one of his co-joint venturers made to the business. The Court similarly found that Hanna was a manager based on, among other things, her participation in the creation of the website and her apparent direction of content to be added to/deleted from that website (which included strategically deleting certain items in response to the earlier TRO against the LLC).