Delaware Superior Court Holds That Claim For Gross Negligence Against Corporate Managers Is An Equitable Claim For Breach Of Fiduciary Duty Over Which It Lacks Subject Matter Jurisdiction

Morris James LLP

Techview Investments Ltd., v. Amstar Poland Property Fund I, L.P., C.A. No. N20C-11-229 EMD CCLD (Del. Super. Ct. Aug. 31, 2021)

The court's ability to hear actions is limited by their jurisdiction – both jurisdiction over parties and jurisdiction over claims.  This recent decision from the Delaware Superior Court’s Complex Commercial Litigation Division provides guidance on (1) the scope of contractually granted personal jurisdiction; and (2) subject matter jurisdiction for claims of gross negligence against corporate managers in Delaware.

The litigation stemmed from a cross-border investment in which Plaintiffs entered into a Subscription Agreement and also became limited partners in one of the Defendants, a Cayman Island’s limited partnership (Amstar Global Fund), by executing a Limited Partnership Agreement (“LPA”).  The parties agreed to a forum selection clause in the Subscription Agreement, naming Delaware as the exclusive forum for disputes arising out of both the Subscription Agreement and the LPA.  The Subscription Agreement was executed by Plaintiffs and Amstar Global Fund.

When Plaintiffs filed suit in Delaware alleging claims of fraud and gross negligence, the Defendants moved to dismiss on, among other things, several jurisdictional grounds.  First, Defendants claimed that the Court lacked personal jurisdiction over the Defendant entities who were neither parties to the Subscription Agreement, nor the LPA, including Amstar Global Fund’s general partner.  With respect to the general partner, the Court rejected this argument, finding that the general partner, like Amstar Global Fund, was bound by the Delaware forum selection clause as a third-party beneficiary of the Subscription Agreement.  Second, Defendants moved to dismiss the gross negligence claim for lack of subject matter jurisdiction, arguing that claims of gross negligence against corporate managers are claims for breach of fiduciary duty, which are exclusively heard in the Delaware Court of Chancery.  The Superior Court found that it lacked jurisdiction over the gross negligence claims because the breach of fiduciary duty claims are within the exclusive jurisdiction of the Delaware Court of Chancery.  Accordingly, the Superior Court dismissed the gross negligence claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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