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IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
WARREN DAVID YU, )
)
Plaintiff, )
)
Vv. ) C.A. No. N17C-07-200 JRJ
GSM NATION, LLC,
AHMED KHATTAK,
US MOBILE LLC, and
US MOBILE INC.,
Defendants.
OPINION
Date Submitted: January 30, 2018
Date Decided: April 24, 2018
Upon Defendant GSM Nation, LLC’s Motion to Dismiss Counts I, III, and IV of
the Amended Complaint: GRANTED in part, and DENIED in part.
Upon Defendant Ahmed Khattak’s Motion to Dismiss Counts IL, III, IV, and V of
the Amended Complaint: GRANTED.
Upon Defendant US Mobile LLC’s Motion to Dismiss Counts II, IV, and V of the
Amended Complaint: GRANTED in part, and DENIED in part.
Upon Defendant US Mobile Inc.’s Motion to Dismiss Counts LII, IV, and V of the
Amended Complaint: GRANTED.
Attorneys and Law Firms
David A. Dorey, Esquire (argued), Larry R. Wood, Jr., Esquire, Adam V.
Orlacchio, Esquire, Craig N. Haring, Esquire, of Blank Rome LLP, 1201 N.
Market Street, Suite 800, Wilmington, Delaware; and Frank A. Dante, Esquire (pro
hac vice), of Blank Rome LLP, One Logan Square, Philadelphia, Pennsylvania,
Attorneys for Plaintiff.
Margaret F. England, Esquire (argued) and Michael Busenkell, Esquire, of Gellert
Scali Busenkell & Brown, LLC, 1201 N. Orange Street, Suite 300, Wilmington,
Delaware, Attorneys for Defendant GSM Nation, LLC.
Alexandra M. Cumings, Esquire (argued) and John P. DiTomo, Esquire (argued),
of Morris, Nichols, Arsht & Tunnell LLP, 1201 N. Market Street, P.O. Box 1347,
Wilmington, Delaware, Attorneys for Defendant Ahmed Khattak.
Blake Rohrbacher, Esquire (argued), Susan M. Hannigan, Esquire, and Katharine
L. Mowery, Esquire, of Richards, Layton & Finger, P.A., One Rodney Square, 920
North King Street, Wilmington, Delaware, Attorneys for Defendants US Mobile
LLC and US Mobile Inc.
Jurden, P.J.
I. INTRODUCTION
Plaintiff, Warren David Yu, brings this action against Defendants GSM
Nation, LLC (“GSM”), Ahmed Khattak, US Mobile LLC, and US Mobile Inc.
(collectively, “Defendants”), alleging Breach of Contract, Fraudulent Inducement,
Fraudulent Transfer, Unjust Enrichment, and Tortious Interference in connection
with a series of loans Yu made to GSM.! Before the Court are Defendants’
Motions to Dismiss. For the reasons explained below, all the motions, except
Khattak’s Motion to Dismiss for lack of personal jurisdiction and GSM’s and US
Mobile LLC’s Motions to Dismiss Yu’s fraudulent transfer claim, are GRANTED.
Il. FACTUAL BACKGROUND
A. The Parties
GSM is a Delaware limited liability company in the mobile phone retail and
wholesale business.” Khattak is the chief executive officer, co-founder, and
manager of GSM, and owns 85% of the GSM units.? Junaid Shams is the other co-
founder of GSM.* Shams was acquainted with Yu through medical studies at the
George Washington University before Yu loaned money to GSM in the series of
transactions that gave rise to this controversy.° US Mobile Inc. was a Delaware
' See Am. Compl. 4 91 (Trans. ID 61288661) (D.I. 14).
2 Am Compl. 45.
3 Id. at] 6.
4 Def. Ahmed Khattak’s Opening Br. in Support of Mot. Dismiss the Am. Compl. (“Khattak
Opening Br.”) at 2 (Trans. ID 61422772) (D.I. 27).
5 Am. Compl. § 17.
3
corporation that was merged with and into US Mobile LLC, a Delaware limited
liability company, on July 1, 2015.° Khattak allegedly controls US Mobile LLC.’
B. The Loan Agreements
GSM was founded in 2010.8 In mid-2012, GSM sought to expand by
developing a mobile virtual network operator (“MVNO”), which would allow it to
provide cellular service plans to its customers.? According to the Amended
Complaint, GSM was cash strapped at the time, so “[a]t Khattak’s request,” Shams
approached Yu for the purpose of soliciting loans to GSM, and “GSM represented,
through Khattak,” that Yu’s loan would supply the capital GSM needed to launch
an MVNO.'° In October 2012, GSM provided Yu with a prospectus that included
the plan to form an MVNO as a division of GSM.'! Yu alleges that based on the
prospectus, he loaned $3,500,000 to GSM under a series of sixteen separate loan
agreements (the “Loan Agreements”) from October 15, 2012 through September 1,
© Id. at Ex. A { 16; Opening Br. in Support of US Mobile’s Mot. Dismiss (“US Mobile Opening
Br.”), Ex. 4 (Trans. ID 61422291) (D.I. 26) (“Certificate of Merger”). Khattak formed US
Mobile LLC, a Delaware limited liability company with its principal office in Washington, D.C.
(“US Mobile LLC (D.C.)”), on August 11, 2014. Am. Compl. Ex. A { 12. On November 21,
2014, Khattak converted US Mobile LLC (D.C.) into US Mobile Inc., a Delaware corporation.
Id. at Ex. A J 13. Khattak then formed US Mobile LLC, a Delaware limited liability company
with its principal office in Connecticut (“US Mobile LLC (Conn.)”) on May 13, 2015. Jd. at Ex.
A414. US Mobile LLC (Conn.) is the entity into which US Mobile Inc. was merged. It is
undisputed that personal jurisdiction exists over GSM and both US Mobile LLC entities. See 6
Del. C. § 18-105.
7 Am. Compl. fff 1, 57, 133, 154, Ex. AJ 14.
8 Id. at $14.
° Id. at FJ 15-16.
10 Id. at FJ 18-19.
'! Td. at Ff] 20-21; see Khattak Opening Br. Ex. B.
4
2014.'2 The Loan Agreements provide that the loans accrue 12% simple interest,
payable monthly," and Yu was entitled to call the loan at any time with 60 days’
notice to GSM.'4
GSM paid Yu the required monthly interest payments for approximately 34
months'5 and employed personnel to develop MVNO capabilities.'° Yu alleges
Khattak paid himself “a draw” of $10,000 to $15,000 per month from GSM while
Yu was making loans to GSM.'’ Yu further alleges Khattak used $5,000 from
GSM each month to cover his personal living expenses,'* and “even tried to buy a
luxury car using a cashier’s check from GSM.”'?
C. The MVNO
In April 2013, GSM released an MVNO business plan, which stated that the
MVNO GSM was developing would be a part of GSM.” Yu alleges that instead
of completing the MVNO development within GSM, Khattak applied to the
Federal Communications Commission on behalf of US Mobile LLC, on August 14,
12 Am. Compl. § 91; see Khattak Opening Br. Ex. C. Checks from Yu to GSM date back to
October 15, 2012. The Loan Agreements are dated from February 2, 2013 through September 1,
2014.
1 See Am. Compl. Ex. B.
14Td.
'5 See Am. Compl. ff 77, 80. The Loan Agreements are dated from February 2, 2013 through
September 1, 2014. GSM checks were returned for insufficient funds in early 2016.
6 Td. at $f 30-32.
"7 Td. at 449.
18 Td. at ] 50.
9 Id at 951.
20 Am. Compl. 40.
2014, to provide global or limited international facilities and resale services.?! As
a result, US Mobile LLC, not GSM, became the MVNO.” Yu also alleges, on
information and belief, that Khattak caused GSM to purchase cellular phones and
transfer them to US Mobile LLC without consideration.”
D. GSM’s Default
According to the Amended Complaint, GSM paid Yu the required monthly
interest payments under the Loan Agreements until early 2016, when GSM’s
interest check for January 2016 was returned for insufficient funds and the interest
check for February 2016 was returned twice for insufficient funds.4 Because
GSM was in default, Yu made a demand for full payment of the debt under the
Loan Agreements on February 17, 2016,> to which GSM allegedly responded,
“given the current state of the business, GSM is not able to repay or service the
loan.”? Yu alleges GSM provided him with a GSM income statement dated
December 4, 2015 which showed a net loss of $812,257, and a GSM balance sheet
dated January 31, 2016 which showed total assets of $112,730,27 and total
2 Id. at ]58.
22 Id. at 4] 60-64.
23 Td. at ]68. Yu does not allege when this transfer occurred.
24 Td. at 99.77, 80.
25 Am. Compl. §{ 81-82.
26 Id. at 487.
liabilities of $4,403,083.35.27” Yu also alleges GSM told him that if he filed suit
against GSM, GSM would file for bankruptcy.”
E. Yu Files Suit
On May 3, 2016, Yu filed a complaint against the Defendants in the Court of
Chancery for breach of contract, fraudulent inducement, equitable fraud, fraudulent
transfer, unjust enrichment, and sought to pierce the corporate veils of GSM and
US Mobile under an alter ego theory of liability against Khattak.”” Yu also sought
“equitable rescission” of the Loan Agreements, “reformation,” a “constructive
trust” voiding the transfers from GSM to US Mobile, and an “equitable
accounting.”3° Yu filed an amended complaint in Chancery on July 26, 2016.*!
The Court of Chancery dismissed the suit for lack of subject matter jurisdiction on
July 7, 2017.52 According to the Vice Chancellor, the “[allegations] suggest that a
monetary judgment is Yu’s best remedy to collect the debt he is owed...” and
“{aJssuming Yu succeeds on the merits of his claims, he can obtain that remedy
against GSM under the Loan Agreements or against US Mobile LLC as the
9933,
transferee of a fraudulent transfer.
27 Id. at 86.
28 Id. at (88.
29 See Yu v. GSM Nation, LLC, 2017 WL 2889515, at *2 (Del. Ch. July 7, 2017).
30Id.
31 Td.
2 Id. at *1.
33 Id. at *4-5,
Yu transferred his amended complaint from Chancery to this Court on July
20, 2017.34 Once in Superior Court, he amended his complaint to strike the
equitable claims.** The Verified Amended Complaint (“Amended Complaint”)
was filed on October 26, 2017.° On November 13, shortly thereafter, the
Defendants moved to dismiss.
Il]. PARTIES’ CONTENTIONS
Count I of Yu’s Amended Complaint alleges a claim for breach of contract
against GSM for failure to repay the loans.*’ Count II alleges a claim for
fraudulent inducement against GSM and Khattak in connection with the Loan
Agreements based on GSM’s and Khattak’s alleged representations that the
MVNO would be developed within GSM.** Count III alleges a claim for
fraudulent transfer of the loan monies against GSM, Khattak, US Mobile LLC, and
US Mobile Inc.2? Count IV alleges a claim for unjust enrichment against GSM,
34 Hereinafter, “Original Complaint.”
35 Yu struck from his Amended Complaint claims for equitable rescission, reformation,
constructive trust, equitable accounting, and piercing the corporate veil. See Am. Compl. Ex. 1
(Redline).
36 On October 4, 2017, the Court gave Yu 20 days to amend his Original Complaint by striking
the equitable causes of action (i.¢., constructive trust, equitable rescission, pierce the corporate
veil). See Transcript for Mot. to Stay Hearing Dated October 4, 2017, 30:12-20.
37 Am. Compl. ff 90-101. GSM does not seek to dismiss the breach of contract claim against it.
See Defendant GSM Nation, LLC’s Opening Br. in Support of Mot. Dismiss the Am. Compl.
(“GSM Opening Br.”) at 1 (Trans. ID 61421763) (D.I. 24).
38 Am. Compl. §¥f 102-11.
9 Id. at Ff 112-36.
Khattak, US Mobile LLC, and US Mobile Inc.,“° and Count V alleges a claim for
tortious interference against Khattak, US Mobile LLC, and US Mobile Inc.*!
Khattak argues the Amended Complaint should be dismissed for lack of
personal jurisdiction, failure to state a claim generally, and failure to plead the
fraud claims with sufficient particularity.” He further contends that even if the
Court has personal jurisdiction over him, Yu’s fraudulent inducement claim should
be dismissed because Yu does not allege any representations made by Khattak,"*
the alleged misrepresentations are statements of future performance that are not
actionable,“* and the fraudulent inducement claim constitutes an impermissible
bootstrap to the breach of contract claim.*° With regard to Yu’s fraudulent transfer
claim, Khattak argues he is not the transferor or transferee, and because Yu fails to
“allege any specific transfer of assets from GSM to US Mobile LLC,” the
Amended Complaint fails to meet the particularity standard under Superior Court
Civil Rule 9(b).4° With regard to the unjust enrichment claim, Khattak argues Yu
lacks standing as a creditor to complain about the manner in which the loan funds
were used, and even if that were not the case the breach of contract claim supplants
40 Id, at {9] 137-58.
4 Id, at FY 159-66.
#2 See Super. Ct. Civ. R. 12(b)(6), 9(b).
43 Khattak Opening Br. at 21.
44 Td. at 23.
45 Id. at 24,
46 Td. at 26-27.
the unjust enrichment claim.‘ Finally, Khattak argues that the tortious
interference claim is time-barred by the statute of limitations and the “affiliate
exception” precludes personal liability of directors of a contracting corporation for
tortious interference.*®
GSM argues dismissal is warranted because Yu fails to state a claim
generally and fails to plead the fraud claims with sufficient particularity.” With
regard to the fraudulent inducement claim, GSM argues that Yu fails to plead any
actionable false statements, GSM’s knowledge of the misconduct, its intent to
induce Yu’s action, and Yu’s reliance on the misrepresentations.*? GSM also
asserts that because the fraudulent inducement claim is impermissibly bootstrapped
to, and shares identically pled damages with, Yu’s breach of contract claim — it
cannot survive.*! Second, GSM maintains that the fraudulent transfer claim
against it fails under the particularity pleading standard.** With regard to Yu’s
unjust enrichment claim, GSM maintains it must be dismissed because a contract
governs the relationship between GSM and Yu, and the appropriate recovery is
based in law.*
47 Id. at 30-31.
48 Khattak Opening Br. at 32-33.
49 See Super. Ct. Civ. R. 12(b)(6), 9(b).
5° GSM Opening Br. at 6, 8-10.
5! Jd. at 9-11.
% Td, at 12-13; Super. Ct. Civ. R. 9(b).
53 GSM Opening Br. at 14-15.
10
US Mobile Inc. argues that it should be dismissed because it was merged
into US Mobile LLC and, therefore, “any surviving claims [against US Mobile
9954
Inc.] would remain against US Mobile LLC.
US Mobile LLC argues that it should be dismissed because neither the
fraudulent transfer claim, unjust enrichment claim, nor tortious interference claim
state a claim against US Mobile LLC. US Mobile LLC maintains that Yu’s
fraudulent transfer claim fails to allege the purported transfers were related to
GSM’s insolvency, and fails to allege any assets were transferred from GSM to US
Mobile LLC.*> US Mobile LLC also maintains that the unjust enrichment claim is
unable to survive its Motion because the Amended Complaint lacks allegations of
a relationship between Yu and US Mobile LLC.°° Finally, US Mobile LLC
contends that Yu’s tortious interference claim against it should be dismissed
because it is based entirely on conclusory allegations.*”
IV. STANDARD OF REVIEW
On a motion to dismiss for failure to state a claim upon which relief can be
granted,** the Court must read the complaint generously, accept all well-pled
allegations contained therein as true, and draw all reasonable inferences in the light
54 US Mobile Opening Br. at 7. After the merger, US Mobile LLC was the surviving entity and
US Mobile Inc. ceased to exist.
55 Id. at 8.
56 Id. at 15. One of the elements of unjust enrichment is a relation between the enrichment and
impoverishment.
57 Id. at 19.
58 See Super. Ct. Civ. R. 12(b)(6).
11
most favorable to the non-moving party.’ A complaint is well-pled if it puts the
opposing party on notice of the claim being brought against it. “Dismissal is
inappropriate unless the ‘plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible of proof.””*' Allegations
that are merely conclusory and lacking factual basis will not survive a motion to
dismiss.
A plaintiff alleging actual fraud must plead the circumstances constituting
the fraud with particularity. The underlying purpose of Rule 9(b) is to ensure that
a defendant is put on sufficient notice so that it may defend itself against a
plaintiff's allegations.“ To satisfy this purpose, it is usually necessary to allege
“the time, place and contents of the false representations,” while “[mlalice, intent
9965,
knowledge, and other condition of mind of a person may be averred generally.
5° In re Gen. Motors (Hughes) S'holder Litig., 897 A.2d 162, 168 (Del. 2006); Lagrone v. Am.
Mortell Corp., 2008 WL 4152677, at *4 (Del. Super. Sept. 4, 2008).
© Tagrone, 2008 WL 4152677, at *4 (citing Precision Air v. Standard Chlorine of Del., 654
A.2d 403, 406 (Del. 1995)).
6\ In re Gen. Motors (Hughes) S‘holder Litig., 897 A.2d at 168 (quoting Savor, Inc. v. FMR
Corp., 812 A.2d 894, 896-97 (Del. 2002)). See also Cent. Mortgage Co. v. Morgan Stanley
Mortgage Capital Holdings LLC, 27 A.3d 531, 535 (Del. 2011).
® Brevet Capital Special Opportunities Fund, LP v. Fourth Third, LLC, 2011 WL 3452821, at
*6 (Del. Super. Aug. 5, 2011).
Super. Ct. Civ. R. 9(b); see Ki-Poong Lee v. So, 2016 WL 6806247, at *3 (Del. Super. Nov.
17, 2016) (“Claims for actual fraudulent transfer brought under § 1304(a)(1) must meet the
heightened pleading standard of Superior Court Civil Rule 9(b).”).
° WP Devon Assocs. v. Hartstrings, LLC, 2012 WL 3060513, at *4 (Del. Super. July 26, 2012)
(citing Chesapeake & Potomac Tel. Co. v. Chesapeake Utils. Corp., 436 A.2d 314, 338 (Del.
1981)).
65 ITW Global Inv. Inc. v. American Industrial Partners Capital Fund IV, L.P., 2015 WL
3970908, at *5 (Del. Super. June 24, 2015); but see Seiden v. Kaneko, 2015 WL 7289338, at *12
12
However, the “particularity requirement must be applied in light of the facts of the
case and less particularity is required when the facts lie more in the knowledge of
9966
the opposing party than of the pleading party.
When, prior to discovery, a non-resident defendant challenges personal
jurisdiction under Superior Court Civil Rule 12(b)(2), the plaintiff bears the burden
of establishing a prima facie case that the Court has personal jurisdiction over the
non-resident defendant, and “the record is construed in the light most favorable to
the plaintiff.”*’ A prima facie case requires the “production of enough evidence to
allow the fact-trier to infer the fact at issue and rule in the party’s favor.”®* In the
case of a non-resident defendant, Delaware courts apply a two-step personal
jurisdiction analysis. First, the Court assesses whether there is a statutory basis for
personal jurisdiction.” Second, the Court determines whether the exercise of
(Del. Ch. Nov. 2, 2015) (citing Crafimatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 645 (3d Cir.
1989) (“Courts must be sensitive to the fact that application of Rule 9(b) prior to discovery ‘may
permit sophisticated defrauders to successfully conceal the details of their fraud.””).
6 H-M Wexford LLC v. Encorp, LLC, 832 A.2d 129, 146 (Del. Ch. May 27, 2003)
(acknowledging the precedent of applying the particularity requirement in light of the facts of the
case and less particularity is required when the facts lie more in the knowledge of the opposing
party.) (citing Carello v. PricewaterhouseCoopers, 2002 WL 1454111, at *8 (Del. Super. July 3,
2002); see also Phillips v. Delaware Power & Light Co., 194 A.2d 690, 697 (Del. Super. Oct. 1,
1963).
67 Wright v. American Home Products Corp., 768 A.2d 518, 526 (Del. Super. Apr. 20, 2000);
Aeroglobal Capital Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 437 (Del. 2005);
Cornerstone Tech., LLC v. Conrad, 2003 WL 1787959, at *3 (Del. Ch. Mar. 31, 2003).
68 Danny David Czarninski Baier v. Upper New York Inv. Co., LLC, et al., 2018 WL 1791996, at
*5 (Del. Ch. Apr. 16, 2018) (citing Prima facie case, Black's Law Dictionary (10th ed. 2014)).
© Id. at *8; Aeroglobal Capital Mgmt., 871 A.2d at 437; Mktg. Prod. Mgmt. LLC v.
HealthandBeautyDirect.com, Inc., 2004 WL 249581, at *1 (Del. Super. Jan. 28, 2004)
13
personal jurisdiction over the non-resident defendant comports with the Due
Process Clause of the Fourteenth Amendment to the United States Constitution
(the “minimum contacts” requirement).”? In assessing whether this Court can
exercise personal jurisdiction in a motion to dismiss under Superior Court Civil
Rule 12(b)(2), the burden of establishing a defendant’s amenability to suit is not
merely restricted to the allegations contained in the complaint.”’ Rather, extra-
pleading material may be used to supplement the complaint and establish
jurisdiction.” All allegations of fact concerning personal jurisdiction are presumed
true unless contradicted by affidavit.”
V. DISCUSSION
A. US Mobile Inc. is Improperly Named as a Defendant Because it No
Longer Exists
Yu alleges US Mobile Inc. was merged into US Mobile LLC.” Defendant
US Mobile Inc. argues it should be dismissed because as a result of that merger, it
no longer exists as a corporate entity separate from US Mobile LLC.” Yu agrees
that US Mobile Inc. no longer exists separate from US Mobile LLC, but argues
(Delaware’s long-arm statute, 10 De/. C. § 3104, is to be construed to the maximum extent
possible, consistent with due process).
70 Td.
1! Hart Holding Co. Inc. v. Drexel Burnham Lambert Inc., 593 A.2d 535, 538-39 (Del. Ch. Feb.
13, 1991).
2 Id.
® See Haisfield v. Cruver, 1994 WL 497868, at *5 (Del. Ch. Aug. 25, 1994).
™ Am. Compl. ¥ 8.
75 US Mobile Opening Br. at 5.
14
that US Mobile Inc. should not be dismissed because he “has a right to understand
and discover the details behind” the merger.”
Mergers of corporations into limited liability companies are governed by 8
Del. C. § 264. Pursuant to 8 Del. C. § 259, which is incorporated in § 264(e),’’ the
entity that merges into the surviving entity must cease to exist.’ Where a
corporation is dissolved by an absolute repeal of its charter or by any other legal
mode, it no longer exists for any purpose, unless there is some statutory provision
continuing its existence, and it cannot sue or be sued.”
US Mobile Inc. was merged into US Mobile LLC, the surviving entity, on
July 1, 2015.8° Because US Mobile Inc. did not survive the merger, its liabilities
76 P].’s Br. in Opp’n to Def. US Mobile’s Mot. Dismiss (“PI.’s Answering Br. to US Mobile”) at
6 (Trans. ID 61501509) (D.I. 38).
7 See 8 Del. C. § 264(e):
Sections 251(d)-(f), 255(c) (second sentence) and (d)-(f), 259-261
and 328 of this title shall, insofar as they are applicable, apply to
mergers or consolidations between corporations and limited
liability companies.
78 g Del. C. § 259(a):
When any merger...shall have become effective...all debts,
liabilities and duties of the respective constituent corporations shall
thenceforth attach to said surviving or resulting corporation, and
may be enforced against it to the same extent as if said debts,
liabilities and duties had been incurred or contracted by it.
79 Harned v. Beacon Hill Real Estate Co., 84 A. 229, 230 (Del. 1912).
80 See US Mobile Opening Br. at 3, 56; Certificate of Merger, US Mobile Opening Br. Ex. 4.
15
are attached to US Mobile LLC (hereinafter, “US Mobile”).5' US Mobile Inc.’s
Motion to Dismiss is GRANTED.
B. Personal Jurisdiction Over Khattak
Yu argues the Court has personal jurisdiction over Khattak because he is the
alter ego of GSM and US Mobile,® transacts and solicits business in Delaware,®?
was a director of US Mobile Inc.,°* and manages GSM, which was involved in a
fraudulent scheme.®* Khattak argues he cannot be subject to jurisdiction in
Delaware for liability on contracts he never negotiated and did not sign, and
exercising jurisdiction over him would not comport with due process.**
1. Alter Ego Theory of Jurisdiction
The Amended Complaint asserts Khattak is subject to personal liability
under an alter ego or veil piercing theory, which is an equitable claim.*’ The alter
ego theory of jurisdiction is based on the premise that the contacts of a Delaware
entity may be attributed to another person if the Delaware entity is the mere alter
81 See 8 Del. C. § 259(a). US Mobile Inc. argues that claims against it must be brought against
US Mobile LLC because its liabilities are attached to US Mobile LLC. See US Mobile Opening
Br. at 6.
82 Am. Compl. § 10.
83 See 10 Del. C. § 3104.
84 Am. Compl. § 10; see 10 Del. C. § 3114.
85 See 6 Del. C. § 18-109.
86 Def. Khattak’s Reply Br. in Support of Mot. Dismiss (“Khattak Reply Br.”) at 1 (Trans. ID
61554299) (D.L. 45).
87 Am. Compl. { 10; see Sonne v. Sacks, 314 A.2d 194, 197 (Del. 1973).
16
ego of such other perso 88 The theory permits courts to ignore corporate
boundaries where fraud or inequity in the use of the corporate form is found.*°
This practice is termed “piercing the corporate veil.” Because the Delaware Court
of Chancery has sole subject matter jurisdiction over actions to “pierce the
corporate veil,”? this Court cannot properly exercise personal jurisdiction over
Khattak under an alter ego theory.?!
2. 10 Del. C. § 3104, Delaware Long-Arm Statute
Yu contends that personal jurisdiction over Khattak is proper under the
Delaware long-arm statute, 10 Del. C. § 3104, because Khattak formed US Mobile
for the purpose of fraudulently transferring assets from GSM to an entity that did
not owe a debt to Yu.” The long-arm statute contemplates any non-resident who
commits certain acts or causes certain injuries in Delaware is subject to Delaware’s
jurisdiction.” The long-arm statute states, in pertinent part:
(c)...a [Delaware] court may exercise personal
jurisdiction over any nonresident...who in person or
through an agent:
88 Mktg. Prod. Mgmt., 2004 WL 249581, at *3 (citing Fitzgerald v. Cantor, 1998 WL 842316 at
*2 (Del. Ch. Nov. 10, 1998).
89 Td.
90 Sonne, 314 A.2d at 197 (“[P]iercing the corporate veil may be done only in the Court of
Chancery....”).
9! See id. This Court lacks jurisdiction to “pierce the corporate veil.”
% Pl.’s Br. in Opp’n to Def. Khattak’s Mot. Dismiss (“Pl.’s Answering Br. to Khattak”) at 6
(Trans. ID 61501485) (D.I. 37).
%3 Czarninski Baier, 2018 WL 1791996, at *8.
17
(1) Transacts any business of performs any character of
work or service in the State....*
“In order for this Court to exercise jurisdiction under 10 Del. C. §
3104(c)(1), ‘some act must actually occur in Delaware.””®> Mere ownership of
stock in a Delaware corporation is insufficient to establish jurisdiction over a
majority shareholder.°*® However, an act of incorporation is sufficient to confer
personal jurisdiction under 10 Del. C. § 3104(c)(1) if incorporation was for the
purpose of executing an agreement central to the litigation and there are significant
contacts between the defendant, the State of Delaware, and the litigation.”
Papendick, an in rem action involving the attachment of a parent-foreign
corporation’s stock interest in a wholly owned Delaware subsidiary,” included a
claim for breach of contract. The parent-foreign corporation had formed a
Delaware subsidiary for the purpose of executing a contract that was allegedly
breached.!° The Delaware Supreme Court concluded that the parent-foreign
5410 Del. C. § 3104.
°5 Mobile Diagnostic Grp. Holdings, LLC v. Suer, 972 A.2d 799, 804 (Del. Ch. Mar. 24, 2009)
(citing Kelly v. McKesson HBOC, Inc., 2002 WL 88939, at *17 (Del. Super. Jan. 17, 2002)).
% Shaffer v. Heitner, 433 U.S. 186, 212 (1977).
57 Cf, Papendick v. Bosch, 410 A.2d 148, 152 (Del. 1979) (holding that the act of incorporating a
subsidiary in Delaware to be the vehicle for channeling purchase money and stock in an
acquisition is sufficient to exercise personal jurisdiction over its non-resident incorporator); Vichi
v. Koninklijke Philips Elec. N.V.,2009 WL 4345724, at *2, *6 (Del. Ch. Dec. 1, 2009) (holding a
single act of incorporation in Delaware, if integral to the transaction between the parties and
done as part of a wrongful scheme, will suffice to exercise personal jurisdiction over the non-
resident defendant responsible for the scheme).
°8 Papendick, 410 A.2d at 149.
9 Id. at 148.
100 7d. at 149-50.
18
corporation, by forming a Delaware subsidiary for the purpose of implementing a
contract, implicitly consented to personal jurisdiction in an action brought against
it and its Delaware subsidiary for breach of that contract.'°' As noted by the
Delaware Supreme Court in Papendick, “[t]he decision of the foreign-parent
corporation to maintain a direct and continuing connection between Delaware and
itself, as the owner of a Delaware subsidiary, was found to be a ‘minimum contact’
99102
of paramount importance in the specific jurisdictional analysis of Papendick....
Yu does not allege that Khattak signed the Loan Agreements in Delaware,
participated in negotiations in Delaware, or organized US Mobile to implement a
transaction between the parties (e.g., to use the entity as a vehicle to execute the
Loan Agreements).'°> Had the well-pled facts alleged that Khattak formed US
Mobile LLC for the purpose of accepting Yu’s loan money directly and developing
an MVNO, personal jurisdiction over Khattak under Delaware’s long-arm statute
might exist.!°* Because these facts are not pled, however, 10 Del. C. § 3104(c)(1)
does not authorize service on Khattak.
10l 7d. at 152.
102 See Sternberg v. O'Neil, 550 A.2d 1105, 1120 (Del. 1988) (explaining the Delaware Supreme
Court's decision in Papendick).
'03 Yu alleges breach of contract against GSM only. See Am. Compl. § 91.
104 GSM pre-dates the Loan Agreements, so it would be US Mobile’s formation as central issue.
19
10 Del. C. § 3104(c)(4) addresses a situation in which a defendant is
generally affiliated with the forum jurisdiction.' That is, 10 Del. C. § 3104(c)(4)
is applicable when a defendant has contacts with this State that are so extensive
and continuing that it is fair and consistent with State policy to require that he
appear here and defend a claim, even when that claim arose outside of this State
and caused injury outside of this State.'°° Based on the facts as pled, Khattak’s
minimal contacts with Delaware are insufficient to allow service under 10 Del. C.
§ 3104(c)(4). Yu fails to allege facts establishing Khattak engaged in a “persistent
course of conduct in the State,” or that Khattak “derives substantial revenue from
services, or things used or consumed in the State.”!°’ As Khattak correctly notes,
mere formation of a Delaware entity is not sufficient to establish general
jurisdiction under 10 Del. C. § 3104(c)(4).!°8
Based on the facts as pled, there is no basis to authorize service upon
Khattak under 10 Del. C. § 3104.
105 Red Sail Easter Ltd. Partners, L.P. v. Radio City Music Hall Productions, Inc., 1991 WL
129174, at *3 (Del. Ch. July 10, 1991).
106 See Sternberg, 550 A.2d at 1117.
107 See 10 Del. C. § 3104(c)(4).
108 Khattak Opening Br. at 16 (citing Red Sail, 1991 WL 129174, at *3).
20
3. 10 Del. C. § 3114, Implied Consent Statute for Non-Resident
Directors of Delaware Corporations
Yu also asserts the Court has personal jurisdiction over Khattak pursuant to
10 Del. C. § 3114, which provides for the service of process on non-resident
directors:
in all civil actions or proceedings brought in this State, by
or on behalf of, or against such corporation, in which
such director, trustee or member is a necessary or proper
party, or in any action or proceeding against such
director, trustee or member for violation of a duty in such
capacity....!0
The Court has exercised personal jurisdiction over a non-resident director
under 10 Del. C. § 3114 when the non-resident director “used his position as
director of a Delaware corporation to commit fraud,” making him a necessary or
proper party.''!® Khattak notes that Yu has not alleged any misconduct by Khattak
Wt In response, Yu argues that
in his capacity as a director of US Mobile Inc.
Khattak “availed himself of certain duties under Delaware law because he formed
and acted as a director and officer of... US Mobile (all entities),” and therefore Yu
is entitled to discovery on the US Mobile Inc./US Mobile LLC merger.''? At this
stage, it is the well-pled allegations in the Amended Complaint on which the Court
must focus, and Yu alleges GSM and Khattak transferred resources and assets for
109 10 Del. C. § 3114.
"0 See id.; see Tsang Mun Ting v. Silver Dragon Resources, Inc., 2015 WL 3551871, at *4 (Del.
Super. June 3, 2015), affirmed by Hazout, 134 A.3d 274 (Del. 2016).
‘| Khattak Opening Br. at 16.
‘2 P].’s Answering Br. to Khattak at 10.
21
inadequate exchange,!!? and US Mobile was a transferee, through and separate
from Khattak.''* Under the facts as pled, service is not authorized on Khattak
under 10 Del. C. § 3114.
4 6 Del. C. § 18-109, Implied Consent Statute for Non-Resident
Managers of Delaware Limited Liability Companies
Finally, Yu asserts that personal jurisdiction over Khattak is proper under 6
Del. C. § 18-109(a) because Khattak is a manager of GSM and US Mobile.!'5
Because jurisdictional discovery has not been completed, the Court gives Yu the
benefit of the doubt and holds him to the lower burden of establishing a prima
facie case for this Court’s exercise of jurisdiction over Khattak.'!®
The Court looks to instructive Delaware Supreme Court cases addressing the
exercise of personal jurisdiction over non-resident directors of Delaware
corporations in non-breach of fiduciary duty claims, such as fraud claims that are
sufficiently related to and “predicated on the same nucleus of facts” as a fiduciary
duty claim.!!7 In Tsang Mun Ting v. Silver Dragon Resources, Inc., the Court
13 Am. Compl. { 135.
"4 7g. at 4117-18.
'S The Court notes that Khattak twice represents US Mobile LLC is a Connecticut LLC.
Khattak Opening Br. at 9, 16. If that were true, Delaware’s limited. liability company implied
consent statute would not apply. However, Yu filed a District of Columbia Superior Court
affidavit with his Amended Complaint, signed by Khattak, that declares Khattak
“formed a new Delaware LLC, US Mobile, LLC, with its principal office in Connecticut.” Am.
Compl. Ex. A J 14 (emphasis added).
"6 Cf Czarninski Baier, 2018 WL 1791996, at *5.
"7 10 Del. C. § 3114 is substantially similar to 6 Del. C. § 18-109. In light of the scarcity of
cases construing § 18-109, most of which predate the Delaware Supreme Court’s Hazout
decision that broadened its interpretation, the Court looks to the cases construing § 3114. Cf
22
found personal jurisdiction over a non-resident director with no State contacts
because he was “a necessary or proper party” to the action.''® The Court held there
must “be a close nexus between the claims involving the corporation which made it
a party to the suit, and the conduct of the non-resident fiduciary.”'!? Thus, “only
claims that involve conduct by the non-resident fiduciary using his corporate
power will make him a necessary or proper party.”'?° Although no fiduciary duty
claims were alleged, this Court held, and the Delaware Supreme Court affirmed,
that jurisdiction over the non-resident director was proper under 10 Del. C. § 3114
because it was clear to the Court that the alleged misconduct would be adverse to
121
the non-resident director’s fiduciary duties.
The Court’s decision in Tsang Mun Ting makes clear the breadth of 10 Del.
C. § 3114. There, a group of investors negotiated to acquire operating control of
Silver Dragon Resources, Inc. (“Silver Dragon”) by appointing a new slate of
Assist Stock Mgmt. LLC v. Rosheim, 753 A.2d 974, 979 n. 19 (Del. Ch. Feb. 3, 2000); Tsang
Mun Ting, 2015 WL 3551871, at *4 (citing Canadian Commercial Workers Indus. Pension Plan
v. Alden, 2006 WL 456786, at *11 (Del. Ch. Feb. 22, 2006) (citing Hovde Acquisition, LLC v.
Thomas, 2002 WL 1271681, at *4 n.16 (Del. Ch. June 5, 2002); Infinity Investors Ltd. v.
Takefman, 2000 WL 130622, at *6 (Del. Ch. Jan. 28, 2000))), affirmed by Hazout, 134 A.3d 274
(Del. 2016) (rejecting a long line of decisions that had significantly limited the circumstances in
which Delaware courts could exercise personal jurisdiction over non-resident directors and
officers of Delaware corporations under the implied consent statute).
118 10 Del. C. § 3114(a), (b); Hazout, 134 A.3d at 289.
"19 Hazout, 134 A.3d at 289.
120 Id.
21 Tsang Mun Ting, 2015 WL 3551871, at *4. Although such an action looks similar to a
derivative action, which must be brought in the Court of Chancery by a shareholder on behalf of
the entity, the Court emphasizes that Ting did not sue as a shareholder of Silver Dragon and the
Delaware Supreme Court affirmed this Court’s decision in Hazout, 134 A.3d 274.
23
directors in exchange for making loans to Silver Dragon totaling over three million
dollars.'?? One of the creditors, Tsang Mun Ting (“Ting”), made a wire transfer to
Silver Dragon in the amount of $1,014,140 in reliance upon representations that
123 The deal was
the executed documents would be delivered the following day.
never completed because one of Silver Dragon’s existing directors refused to
execute the agreement, and thereafter the defendants refused to return Ting’s
loan.'*4 Accordingly, Ting brought suit against Hazout, a Canadian resident who
was a director and officer of Silver Dragon, and others, for unjust enrichment,
fraud, and fraudulent transfer.'*° Hazout moved to dismiss the complaint against
him, arguing that 10 Del. C. § 3114 did not permit jurisdiction over him because
the complaint did not allege a breach of fiduciary duty.'”° Ting alleged that Hazout
acted in his corporate capacity as a Silver Dragon director and officer to commit
fraud by transferring approximately $750,000 of Ting’s Silver Dragon loan to a
creditor of Silver Dragon that Hazout owned.'?” The Court held, “[i]f proven, that
conduct would be in contradiction to [Hazout’s] obligations as a director of a
122 Td. at *1.
'23 Td. Ting was not a shareholder of Silver Dragon.
124 Td.
125 Id.
126 Hazout, 134 A.3d at 277.
"7 Tsang Mun Ting, 2015 WL 3551871, at *4.
24
Delaware corporation and traditional notions of justice and fair play require the
29128
Court to hold Hazout accountable for misusing his position.
a. Statutory Basis to Authorize Service
Section 18-109(a) is an implied consent statute applicable only to a manager
of a limited liability company, which is defined as either a manager fixed under the
operative limited liability company agreement or a “person who participates
materially in the management of the limited liability company.”!”° 6 Del. C. § 18-
109(a) states, in pertinent part:
A manager...of a limited liability company may be
served with process...in all civil actions...brought in the
State of Delaware 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...whether or not the manager... a
manager...at the time suit is commenced. A
manager's...serving as such constitutes such person's
consent to the appointment of the registered agent of the
limited liability company...as such person's agent upon
whom service of process may be made as provided in this
section. Such service as a manager...shall signify the
consent of such manager...that any process when so
served shall be of the same legal force and validity as if
served upon such manager...within the State of Delaware
and such appointment of the registered agent...shall be
irrevocable.'*°
An action “involves or relates to the business of a limited liability company” if:
128 Ta.
'29 Vichi, 2009 WL 4345724, at *7; 6 Del. C. § 18-109(a).
'30 6 Del. C. § 18-109(a) (emphasis added).
25
(1) the allegations against [the manager] focus centrally
on his “rights, duties and obligations” as a manager of a
Delaware limited liability company;
(2) the resolution of this matter is “inextricably bound up
in Delaware law;” and
(3) Delaware has a strong interest in providing a forum
for disputes relating to the ability of managers of a
limited liability company formed under its law to
properly discharge their respective managerial
131
functions.
First, the claims at issue focus on Khattak’s rights, duties, and obligations as
manager of GSM. The claims arise from Khattak allegedly misusing his position
as manager of GSM to commit fraudulent transfers by moving Yu’s GSM loan
money to an entity incorporated and controlled by Khattak.'3? If proven, such
conduct would be in contradiction to Khattak’s obligations as manager of GSM, a
133
Delaware limited liability company.
Second, the resolution of this matter is inextricably bound up in Delaware
law. The alleged fraudulent transfers were facilitated through the formation,
conversion, and merger of several Delaware entities.'*4 The question of whether
135
GSM’s assets were wrongfully transferred will be determined by Delaware law.
'31 Assist, 753 A.2d at 981 (citing Hana Ranch, Inc. v. Lent, 424 A.2d 28, 30 (Del. Ch. Dec. 19,
1980), overruled on other grounds by Hazout, 134 A.3d 274; Armstrong v. Pomerance, 423 A.2d
174 (Del. 1980)).
132 See Am. Compl. {ff 10, 114.
'33 Of Tsang Mun Ting, 2015 WL 3551871, at *4.
134 Am. Compl. J 113.
'35 See 6 Del. C. § 1304(a)(2).
26
Third, Delaware has a strong interest in providing a forum for the resolution
of disputes regarding the internal affairs of limited liability companies formed
under its laws.'°° The wrongs Yu alleges are not tort or contract claims unrelated
to the internal affairs of a Delaware limited liability company; rather, these claims
involve the alleged misuse of Khattak’s position as a manager of a Delaware
limited liability company to commit fraud.
Construing the well-pled allegations in the Amended Complaint in the light
most favorable to the Plaintiff, Yu has established a prima facie case that: (1) the
allegations against Khattak, a non-resident defendant-manager, focus centrally on
Khattak’s rights, duties, and obligations as a manager of a Delaware limited
liability company; (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.'*” Thus, the suit involves or relates to the business of
GSM, a necessary predicate to jurisdiction under 6 Del. C. § 18-109. In light of
the General Assembly’s decision to write 6 Del. C. § 18-109 more broadly than 10
86 Cf Cornerstone, 2003 WL 1787959, at *13 (“[T]his state has a strong interest in resolving
disputes regarding the internal affairs of LLCs formed under its laws.”); Assist, 753 A.2d at 981
(“Delaware has a strong interest in providing a forum for disputes relating to the ability of
managers of an LLC formed under its law to properly discharge their respective managerial
functions.”).
‘37 See Republic Bus. Credit, LLC v. Metro Design USA, LLC, 2016 WL 3640349, at *9 (Del.
Super. June 29, 2016); ef: Hazout, 134 A.3d at 285.
27
Del. C. § 3114,'°8 this conclusion is consistent with the Delaware Supreme Court’s
exercise of personal jurisdiction over non-resident directors of Delaware
139
corporations in non-breach of fiduciary duty claims. Therefore, the Court
concludes that service of process is authorized under 6 Del. C. § 18-109(a).
b. Due Process
Having determined that service is statutorily authorized, the Court must next
determine whether exercising personal jurisdiction over Khattak is consistent with
the Due Process Clause of the Fourteenth Amendment to the United States
Constitution.'4° “The constitutional standard for determining whether a state may
4
exercise judicial power over a person is fairness and substantial justice.
International Shoe, World-Wide Volkswagen, and their progeny require a specific
138 Compare 6 Del. C. § 18-109 with 10 Del. C. § 3114; see Assist, 753 A.2d at 981 (holding that
a dispute about
Preview
IN THE SUPERIOR COURT OF THE STATE OF DELAWARE WARREN DAVID YU, ) ) Plaintiff, ) ) Vv. ) C.A. No. N17C-07-200 JRJ GSM NATION, LLC, AHMED KHATTAK, US MOBILE LLC, and US MOBILE INC., Defendants. OPINION Date Submitted: January 30, 2018 Date Decided: April 24, 2018 Upon Defendant GSM Nation, LLC’s Motion to Dismiss Counts I, III, and IV of the Amended Complaint: GRANTED in part, and DENIED in part. Upon Defendant Ahmed Khattak’s Motion to Dismiss Counts IL, III, IV, and V of the Amended Complaint: GRANTED. Upon Defendant US Mobile LLC’s Motion to Dismiss Counts II, IV, and V of the Amended Complaint: GRANTED in part, and DENIED in part. Upon Defendant US Mobile Inc.’s Motion to Dismiss Counts LII, IV, and V of the Amended Complaint: GRANTED. Attorneys and Law Firms David A. Dorey, Esquire (argued), Larry R. Wood, Jr., Esquire, Adam V. Orlacchio, Esquire, Craig N. Haring, Esquire, of Blank Rome LLP, 1201 N. Market Street, Suite 800, Wilmington, Delaware; and Frank A. Dante, Esquire (pro hac vice), of Blank Rome LLP, One Logan Square, Philadelphia, Pennsylvania, Attorneys for Plaintiff. Margaret F. England, Esquire (argued) and Michael Busenkell, Esquire, of Gellert Scali Busenkell & Brown, LLC, 1201 N. Orange Street, Suite 300, Wilmington, Delaware, Attorneys for Defendant GSM Nation, LLC. Alexandra M. Cumings, Esquire (argued) and John P. DiTomo, Esquire (argued), of Morris, Nichols, Arsht & Tunnell LLP, 1201 N. Market Street, P.O. Box 1347, Wilmington, Delaware, Attorneys for Defendant Ahmed Khattak. Blake Rohrbacher, Esquire (argued), Susan M. Hannigan, Esquire, and Katharine L. Mowery, Esquire, of Richards, Layton & Finger, P.A., One Rodney Square, 920 North King Street, Wilmington, Delaware, Attorneys for Defendants US Mobile LLC and US Mobile Inc. Jurden, P.J. I. INTRODUCTION Plaintiff, Warren David Yu, brings this action against Defendants GSM Nation, LLC (“GSM”), Ahmed Khattak, US Mobile LLC, and US Mobile Inc. (collectively, “Defendants”), alleging Breach of Contract, Fraudulent Inducement, Fraudulent Transfer, Unjust Enrichment, and Tortious Interference in connection with a series of loans Yu made to GSM.! Before the Court are Defendants’ Motions to Dismiss. For the reasons explained below, all the motions, except Khattak’s Motion to Dismiss for lack of personal jurisdiction and GSM’s and US Mobile LLC’s Motions to Dismiss Yu’s fraudulent transfer claim, are GRANTED. Il. FACTUAL BACKGROUND A. The Parties GSM is a Delaware limited liability company in the mobile phone retail and wholesale business.” Khattak is the chief executive officer, co-founder, and manager of GSM, and owns 85% of the GSM units.? Junaid Shams is the other co- founder of GSM.* Shams was acquainted with Yu through medical studies at the George Washington University before Yu loaned money to GSM in the series of transactions that gave rise to this controversy.° US Mobile Inc. was a Delaware ' See Am. Compl. 4 91 (Trans. ID 61288661) (D.I. 14). 2 Am Compl. 45. 3 Id. at] 6. 4 Def. Ahmed Khattak’s Opening Br. in Support of Mot. Dismiss the Am. Compl. (“Khattak Opening Br.”) at 2 (Trans. ID 61422772) (D.I. 27). 5 Am. Compl. § 17. 3 corporation that was merged with and into US Mobile LLC, a Delaware limited liability company, on July 1, 2015.° Khattak allegedly controls US Mobile LLC.’ B. The Loan Agreements GSM was founded in 2010.8 In mid-2012, GSM sought to expand by developing a mobile virtual network operator (“MVNO”), which would allow it to provide cellular service plans to its customers.? According to the Amended Complaint, GSM was cash strapped at the time, so “[a]t Khattak’s request,” Shams approached Yu for the purpose of soliciting loans to GSM, and “GSM represented, through Khattak,” that Yu’s loan would supply the capital GSM needed to launch an MVNO.'° In October 2012, GSM provided Yu with a prospectus that included the plan to form an MVNO as a division of GSM.'! Yu alleges that based on the prospectus, he loaned $3,500,000 to GSM under a series of sixteen separate loan agreements (the “Loan Agreements”) from October 15, 2012 through September 1, © Id. at Ex. A { 16; Opening Br. in Support of US Mobile’s Mot. Dismiss (“US Mobile Opening Br.”), Ex. 4 (Trans. ID 61422291) (D.I. 26) (“Certificate of Merger”). Khattak formed US Mobile LLC, a Delaware limited liability company with its principal office in Washington, D.C. (“US Mobile LLC (D.C.)”), on August 11, 2014. Am. Compl. Ex. A { 12. On November 21, 2014, Khattak converted US Mobile LLC (D.C.) into US Mobile Inc., a Delaware corporation. Id. at Ex. A J 13. Khattak then formed US Mobile LLC, a Delaware limited liability company with its principal office in Connecticut (“US Mobile LLC (Conn.)”) on May 13, 2015. Jd. at Ex. A414. US Mobile LLC (Conn.) is the entity into which US Mobile Inc. was merged. It is undisputed that personal jurisdiction exists over GSM and both US Mobile LLC entities. See 6 Del. C. § 18-105. 7 Am. Compl. fff 1, 57, 133, 154, Ex. AJ 14. 8 Id. at $14. ° Id. at FJ 15-16. 10 Id. at FJ 18-19. '! Td. at Ff] 20-21; see Khattak Opening Br. Ex. B. 4 2014.'2 The Loan Agreements provide that the loans accrue 12% simple interest, payable monthly," and Yu was entitled to call the loan at any time with 60 days’ notice to GSM.'4 GSM paid Yu the required monthly interest payments for approximately 34 months'5 and employed personnel to develop MVNO capabilities.'° Yu alleges Khattak paid himself “a draw” of $10,000 to $15,000 per month from GSM while Yu was making loans to GSM.'’ Yu further alleges Khattak used $5,000 from GSM each month to cover his personal living expenses,'* and “even tried to buy a luxury car using a cashier’s check from GSM.”'? C. The MVNO In April 2013, GSM released an MVNO business plan, which stated that the MVNO GSM was developing would be a part of GSM.” Yu alleges that instead of completing the MVNO development within GSM, Khattak applied to the Federal Communications Commission on behalf of US Mobile LLC, on August 14, 12 Am. Compl. § 91; see Khattak Opening Br. Ex. C. Checks from Yu to GSM date back to October 15, 2012. The Loan Agreements are dated from February 2, 2013 through September 1, 2014. 1 See Am. Compl. Ex. B. 14Td. '5 See Am. Compl. ff 77, 80. The Loan Agreements are dated from February 2, 2013 through September 1, 2014. GSM checks were returned for insufficient funds in early 2016. 6 Td. at $f 30-32. "7 Td. at 449. 18 Td. at ] 50. 9 Id at 951. 20 Am. Compl. 40. 2014, to provide global or limited international facilities and resale services.?! As a result, US Mobile LLC, not GSM, became the MVNO.” Yu also alleges, on information and belief, that Khattak caused GSM to purchase cellular phones and transfer them to US Mobile LLC without consideration.” D. GSM’s Default According to the Amended Complaint, GSM paid Yu the required monthly interest payments under the Loan Agreements until early 2016, when GSM’s interest check for January 2016 was returned for insufficient funds and the interest check for February 2016 was returned twice for insufficient funds.4 Because GSM was in default, Yu made a demand for full payment of the debt under the Loan Agreements on February 17, 2016,> to which GSM allegedly responded, “given the current state of the business, GSM is not able to repay or service the loan.”? Yu alleges GSM provided him with a GSM income statement dated December 4, 2015 which showed a net loss of $812,257, and a GSM balance sheet dated January 31, 2016 which showed total assets of $112,730,27 and total 2 Id. at ]58. 22 Id. at 4] 60-64. 23 Td. at ]68. Yu does not allege when this transfer occurred. 24 Td. at 99.77, 80. 25 Am. Compl. §{ 81-82. 26 Id. at 487. liabilities of $4,403,083.35.27” Yu also alleges GSM told him that if he filed suit against GSM, GSM would file for bankruptcy.” E. Yu Files Suit On May 3, 2016, Yu filed a complaint against the Defendants in the Court of Chancery for breach of contract, fraudulent inducement, equitable fraud, fraudulent transfer, unjust enrichment, and sought to pierce the corporate veils of GSM and US Mobile under an alter ego theory of liability against Khattak.”” Yu also sought “equitable rescission” of the Loan Agreements, “reformation,” a “constructive trust” voiding the transfers from GSM to US Mobile, and an “equitable accounting.”3° Yu filed an amended complaint in Chancery on July 26, 2016.*! The Court of Chancery dismissed the suit for lack of subject matter jurisdiction on July 7, 2017.52 According to the Vice Chancellor, the “[allegations] suggest that a monetary judgment is Yu’s best remedy to collect the debt he is owed...” and “{aJssuming Yu succeeds on the merits of his claims, he can obtain that remedy against GSM under the Loan Agreements or against US Mobile LLC as the 9933, transferee of a fraudulent transfer. 27 Id. at 86. 28 Id. at (88. 29 See Yu v. GSM Nation, LLC, 2017 WL 2889515, at *2 (Del. Ch. July 7, 2017). 30Id. 31 Td. 2 Id. at *1. 33 Id. at *4-5, Yu transferred his amended complaint from Chancery to this Court on July 20, 2017.34 Once in Superior Court, he amended his complaint to strike the equitable claims.** The Verified Amended Complaint (“Amended Complaint”) was filed on October 26, 2017.° On November 13, shortly thereafter, the Defendants moved to dismiss. Il]. PARTIES’ CONTENTIONS Count I of Yu’s Amended Complaint alleges a claim for breach of contract against GSM for failure to repay the loans.*’ Count II alleges a claim for fraudulent inducement against GSM and Khattak in connection with the Loan Agreements based on GSM’s and Khattak’s alleged representations that the MVNO would be developed within GSM.** Count III alleges a claim for fraudulent transfer of the loan monies against GSM, Khattak, US Mobile LLC, and US Mobile Inc.2? Count IV alleges a claim for unjust enrichment against GSM, 34 Hereinafter, “Original Complaint.” 35 Yu struck from his Amended Complaint claims for equitable rescission, reformation, constructive trust, equitable accounting, and piercing the corporate veil. See Am. Compl. Ex. 1 (Redline). 36 On October 4, 2017, the Court gave Yu 20 days to amend his Original Complaint by striking the equitable causes of action (i.¢., constructive trust, equitable rescission, pierce the corporate veil). See Transcript for Mot. to Stay Hearing Dated October 4, 2017, 30:12-20. 37 Am. Compl. ff 90-101. GSM does not seek to dismiss the breach of contract claim against it. See Defendant GSM Nation, LLC’s Opening Br. in Support of Mot. Dismiss the Am. Compl. (“GSM Opening Br.”) at 1 (Trans. ID 61421763) (D.I. 24). 38 Am. Compl. §¥f 102-11. 9 Id. at Ff 112-36. Khattak, US Mobile LLC, and US Mobile Inc.,“° and Count V alleges a claim for tortious interference against Khattak, US Mobile LLC, and US Mobile Inc.*! Khattak argues the Amended Complaint should be dismissed for lack of personal jurisdiction, failure to state a claim generally, and failure to plead the fraud claims with sufficient particularity.” He further contends that even if the Court has personal jurisdiction over him, Yu’s fraudulent inducement claim should be dismissed because Yu does not allege any representations made by Khattak,"* the alleged misrepresentations are statements of future performance that are not actionable,“* and the fraudulent inducement claim constitutes an impermissible bootstrap to the breach of contract claim.*° With regard to Yu’s fraudulent transfer claim, Khattak argues he is not the transferor or transferee, and because Yu fails to “allege any specific transfer of assets from GSM to US Mobile LLC,” the Amended Complaint fails to meet the particularity standard under Superior Court Civil Rule 9(b).4° With regard to the unjust enrichment claim, Khattak argues Yu lacks standing as a creditor to complain about the manner in which the loan funds were used, and even if that were not the case the breach of contract claim supplants 40 Id, at {9] 137-58. 4 Id, at FY 159-66. #2 See Super. Ct. Civ. R. 12(b)(6), 9(b). 43 Khattak Opening Br. at 21. 44 Td. at 23. 45 Id. at 24, 46 Td. at 26-27. the unjust enrichment claim.‘ Finally, Khattak argues that the tortious interference claim is time-barred by the statute of limitations and the “affiliate exception” precludes personal liability of directors of a contracting corporation for tortious interference.*® GSM argues dismissal is warranted because Yu fails to state a claim generally and fails to plead the fraud claims with sufficient particularity.” With regard to the fraudulent inducement claim, GSM argues that Yu fails to plead any actionable false statements, GSM’s knowledge of the misconduct, its intent to induce Yu’s action, and Yu’s reliance on the misrepresentations.*? GSM also asserts that because the fraudulent inducement claim is impermissibly bootstrapped to, and shares identically pled damages with, Yu’s breach of contract claim — it cannot survive.*! Second, GSM maintains that the fraudulent transfer claim against it fails under the particularity pleading standard.** With regard to Yu’s unjust enrichment claim, GSM maintains it must be dismissed because a contract governs the relationship between GSM and Yu, and the appropriate recovery is based in law.* 47 Id. at 30-31. 48 Khattak Opening Br. at 32-33. 49 See Super. Ct. Civ. R. 12(b)(6), 9(b). 5° GSM Opening Br. at 6, 8-10. 5! Jd. at 9-11. % Td, at 12-13; Super. Ct. Civ. R. 9(b). 53 GSM Opening Br. at 14-15. 10 US Mobile Inc. argues that it should be dismissed because it was merged into US Mobile LLC and, therefore, “any surviving claims [against US Mobile 9954 Inc.] would remain against US Mobile LLC. US Mobile LLC argues that it should be dismissed because neither the fraudulent transfer claim, unjust enrichment claim, nor tortious interference claim state a claim against US Mobile LLC. US Mobile LLC maintains that Yu’s fraudulent transfer claim fails to allege the purported transfers were related to GSM’s insolvency, and fails to allege any assets were transferred from GSM to US Mobile LLC.*> US Mobile LLC also maintains that the unjust enrichment claim is unable to survive its Motion because the Amended Complaint lacks allegations of a relationship between Yu and US Mobile LLC.°° Finally, US Mobile LLC contends that Yu’s tortious interference claim against it should be dismissed because it is based entirely on conclusory allegations.*” IV. STANDARD OF REVIEW On a motion to dismiss for failure to state a claim upon which relief can be granted,** the Court must read the complaint generously, accept all well-pled allegations contained therein as true, and draw all reasonable inferences in the light 54 US Mobile Opening Br. at 7. After the merger, US Mobile LLC was the surviving entity and US Mobile Inc. ceased to exist. 55 Id. at 8. 56 Id. at 15. One of the elements of unjust enrichment is a relation between the enrichment and impoverishment. 57 Id. at 19. 58 See Super. Ct. Civ. R. 12(b)(6). 11 most favorable to the non-moving party.’ A complaint is well-pled if it puts the opposing party on notice of the claim being brought against it. “Dismissal is inappropriate unless the ‘plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.””*' Allegations that are merely conclusory and lacking factual basis will not survive a motion to dismiss. A plaintiff alleging actual fraud must plead the circumstances constituting the fraud with particularity. The underlying purpose of Rule 9(b) is to ensure that a defendant is put on sufficient notice so that it may defend itself against a plaintiff's allegations.“ To satisfy this purpose, it is usually necessary to allege “the time, place and contents of the false representations,” while “[mlalice, intent 9965, knowledge, and other condition of mind of a person may be averred generally. 5° In re Gen. Motors (Hughes) S'holder Litig., 897 A.2d 162, 168 (Del. 2006); Lagrone v. Am. Mortell Corp., 2008 WL 4152677, at *4 (Del. Super. Sept. 4, 2008). © Tagrone, 2008 WL 4152677, at *4 (citing Precision Air v. Standard Chlorine of Del., 654 A.2d 403, 406 (Del. 1995)). 6\ In re Gen. Motors (Hughes) S‘holder Litig., 897 A.2d at 168 (quoting Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002)). See also Cent. Mortgage Co. v. Morgan Stanley Mortgage Capital Holdings LLC, 27 A.3d 531, 535 (Del. 2011). ® Brevet Capital Special Opportunities Fund, LP v. Fourth Third, LLC, 2011 WL 3452821, at *6 (Del. Super. Aug. 5, 2011). Super. Ct. Civ. R. 9(b); see Ki-Poong Lee v. So, 2016 WL 6806247, at *3 (Del. Super. Nov. 17, 2016) (“Claims for actual fraudulent transfer brought under § 1304(a)(1) must meet the heightened pleading standard of Superior Court Civil Rule 9(b).”). ° WP Devon Assocs. v. Hartstrings, LLC, 2012 WL 3060513, at *4 (Del. Super. July 26, 2012) (citing Chesapeake & Potomac Tel. Co. v. Chesapeake Utils. Corp., 436 A.2d 314, 338 (Del. 1981)). 65 ITW Global Inv. Inc. v. American Industrial Partners Capital Fund IV, L.P., 2015 WL 3970908, at *5 (Del. Super. June 24, 2015); but see Seiden v. Kaneko, 2015 WL 7289338, at *12 12 However, the “particularity requirement must be applied in light of the facts of the case and less particularity is required when the facts lie more in the knowledge of 9966 the opposing party than of the pleading party. When, prior to discovery, a non-resident defendant challenges personal jurisdiction under Superior Court Civil Rule 12(b)(2), the plaintiff bears the burden of establishing a prima facie case that the Court has personal jurisdiction over the non-resident defendant, and “the record is construed in the light most favorable to the plaintiff.”*’ A prima facie case requires the “production of enough evidence to allow the fact-trier to infer the fact at issue and rule in the party’s favor.”®* In the case of a non-resident defendant, Delaware courts apply a two-step personal jurisdiction analysis. First, the Court assesses whether there is a statutory basis for personal jurisdiction.” Second, the Court determines whether the exercise of (Del. Ch. Nov. 2, 2015) (citing Crafimatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 645 (3d Cir. 1989) (“Courts must be sensitive to the fact that application of Rule 9(b) prior to discovery ‘may permit sophisticated defrauders to successfully conceal the details of their fraud.””). 6 H-M Wexford LLC v. Encorp, LLC, 832 A.2d 129, 146 (Del. Ch. May 27, 2003) (acknowledging the precedent of applying the particularity requirement in light of the facts of the case and less particularity is required when the facts lie more in the knowledge of the opposing party.) (citing Carello v. PricewaterhouseCoopers, 2002 WL 1454111, at *8 (Del. Super. July 3, 2002); see also Phillips v. Delaware Power & Light Co., 194 A.2d 690, 697 (Del. Super. Oct. 1, 1963). 67 Wright v. American Home Products Corp., 768 A.2d 518, 526 (Del. Super. Apr. 20, 2000); Aeroglobal Capital Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 437 (Del. 2005); Cornerstone Tech., LLC v. Conrad, 2003 WL 1787959, at *3 (Del. Ch. Mar. 31, 2003). 68 Danny David Czarninski Baier v. Upper New York Inv. Co., LLC, et al., 2018 WL 1791996, at *5 (Del. Ch. Apr. 16, 2018) (citing Prima facie case, Black's Law Dictionary (10th ed. 2014)). © Id. at *8; Aeroglobal Capital Mgmt., 871 A.2d at 437; Mktg. Prod. Mgmt. LLC v. HealthandBeautyDirect.com, Inc., 2004 WL 249581, at *1 (Del. Super. Jan. 28, 2004) 13 personal jurisdiction over the non-resident defendant comports with the Due Process Clause of the Fourteenth Amendment to the United States Constitution (the “minimum contacts” requirement).”? In assessing whether this Court can exercise personal jurisdiction in a motion to dismiss under Superior Court Civil Rule 12(b)(2), the burden of establishing a defendant’s amenability to suit is not merely restricted to the allegations contained in the complaint.”’ Rather, extra- pleading material may be used to supplement the complaint and establish jurisdiction.” All allegations of fact concerning personal jurisdiction are presumed true unless contradicted by affidavit.” V. DISCUSSION A. US Mobile Inc. is Improperly Named as a Defendant Because it No Longer Exists Yu alleges US Mobile Inc. was merged into US Mobile LLC.” Defendant US Mobile Inc. argues it should be dismissed because as a result of that merger, it no longer exists as a corporate entity separate from US Mobile LLC.” Yu agrees that US Mobile Inc. no longer exists separate from US Mobile LLC, but argues (Delaware’s long-arm statute, 10 De/. C. § 3104, is to be construed to the maximum extent possible, consistent with due process). 70 Td. 1! Hart Holding Co. Inc. v. Drexel Burnham Lambert Inc., 593 A.2d 535, 538-39 (Del. Ch. Feb. 13, 1991). 2 Id. ® See Haisfield v. Cruver, 1994 WL 497868, at *5 (Del. Ch. Aug. 25, 1994). ™ Am. Compl. ¥ 8. 75 US Mobile Opening Br. at 5. 14 that US Mobile Inc. should not be dismissed because he “has a right to understand and discover the details behind” the merger.” Mergers of corporations into limited liability companies are governed by 8 Del. C. § 264. Pursuant to 8 Del. C. § 259, which is incorporated in § 264(e),’’ the entity that merges into the surviving entity must cease to exist.’ Where a corporation is dissolved by an absolute repeal of its charter or by any other legal mode, it no longer exists for any purpose, unless there is some statutory provision continuing its existence, and it cannot sue or be sued.” US Mobile Inc. was merged into US Mobile LLC, the surviving entity, on July 1, 2015.8° Because US Mobile Inc. did not survive the merger, its liabilities 76 P].’s Br. in Opp’n to Def. US Mobile’s Mot. Dismiss (“PI.’s Answering Br. to US Mobile”) at 6 (Trans. ID 61501509) (D.I. 38). 7 See 8 Del. C. § 264(e): Sections 251(d)-(f), 255(c) (second sentence) and (d)-(f), 259-261 and 328 of this title shall, insofar as they are applicable, apply to mergers or consolidations between corporations and limited liability companies. 78 g Del. C. § 259(a): When any merger...shall have become effective...all debts, liabilities and duties of the respective constituent corporations shall thenceforth attach to said surviving or resulting corporation, and may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by it. 79 Harned v. Beacon Hill Real Estate Co., 84 A. 229, 230 (Del. 1912). 80 See US Mobile Opening Br. at 3, 56; Certificate of Merger, US Mobile Opening Br. Ex. 4. 15 are attached to US Mobile LLC (hereinafter, “US Mobile”).5' US Mobile Inc.’s Motion to Dismiss is GRANTED. B. Personal Jurisdiction Over Khattak Yu argues the Court has personal jurisdiction over Khattak because he is the alter ego of GSM and US Mobile,® transacts and solicits business in Delaware,®? was a director of US Mobile Inc.,°* and manages GSM, which was involved in a fraudulent scheme.®* Khattak argues he cannot be subject to jurisdiction in Delaware for liability on contracts he never negotiated and did not sign, and exercising jurisdiction over him would not comport with due process.** 1. Alter Ego Theory of Jurisdiction The Amended Complaint asserts Khattak is subject to personal liability under an alter ego or veil piercing theory, which is an equitable claim.*’ The alter ego theory of jurisdiction is based on the premise that the contacts of a Delaware entity may be attributed to another person if the Delaware entity is the mere alter 81 See 8 Del. C. § 259(a). US Mobile Inc. argues that claims against it must be brought against US Mobile LLC because its liabilities are attached to US Mobile LLC. See US Mobile Opening Br. at 6. 82 Am. Compl. § 10. 83 See 10 Del. C. § 3104. 84 Am. Compl. § 10; see 10 Del. C. § 3114. 85 See 6 Del. C. § 18-109. 86 Def. Khattak’s Reply Br. in Support of Mot. Dismiss (“Khattak Reply Br.”) at 1 (Trans. ID 61554299) (D.L. 45). 87 Am. Compl. { 10; see Sonne v. Sacks, 314 A.2d 194, 197 (Del. 1973). 16 ego of such other perso 88 The theory permits courts to ignore corporate boundaries where fraud or inequity in the use of the corporate form is found.*° This practice is termed “piercing the corporate veil.” Because the Delaware Court of Chancery has sole subject matter jurisdiction over actions to “pierce the corporate veil,”? this Court cannot properly exercise personal jurisdiction over Khattak under an alter ego theory.?! 2. 10 Del. C. § 3104, Delaware Long-Arm Statute Yu contends that personal jurisdiction over Khattak is proper under the Delaware long-arm statute, 10 Del. C. § 3104, because Khattak formed US Mobile for the purpose of fraudulently transferring assets from GSM to an entity that did not owe a debt to Yu.” The long-arm statute contemplates any non-resident who commits certain acts or causes certain injuries in Delaware is subject to Delaware’s jurisdiction.” The long-arm statute states, in pertinent part: (c)...a [Delaware] court may exercise personal jurisdiction over any nonresident...who in person or through an agent: 88 Mktg. Prod. Mgmt., 2004 WL 249581, at *3 (citing Fitzgerald v. Cantor, 1998 WL 842316 at *2 (Del. Ch. Nov. 10, 1998). 89 Td. 90 Sonne, 314 A.2d at 197 (“[P]iercing the corporate veil may be done only in the Court of Chancery....”). 9! See id. This Court lacks jurisdiction to “pierce the corporate veil.” % Pl.’s Br. in Opp’n to Def. Khattak’s Mot. Dismiss (“Pl.’s Answering Br. to Khattak”) at 6 (Trans. ID 61501485) (D.I. 37). %3 Czarninski Baier, 2018 WL 1791996, at *8. 17 (1) Transacts any business of performs any character of work or service in the State....* “In order for this Court to exercise jurisdiction under 10 Del. C. § 3104(c)(1), ‘some act must actually occur in Delaware.””®> Mere ownership of stock in a Delaware corporation is insufficient to establish jurisdiction over a majority shareholder.°*® However, an act of incorporation is sufficient to confer personal jurisdiction under 10 Del. C. § 3104(c)(1) if incorporation was for the purpose of executing an agreement central to the litigation and there are significant contacts between the defendant, the State of Delaware, and the litigation.” Papendick, an in rem action involving the attachment of a parent-foreign corporation’s stock interest in a wholly owned Delaware subsidiary,” included a claim for breach of contract. The parent-foreign corporation had formed a Delaware subsidiary for the purpose of executing a contract that was allegedly breached.!° The Delaware Supreme Court concluded that the parent-foreign 5410 Del. C. § 3104. °5 Mobile Diagnostic Grp. Holdings, LLC v. Suer, 972 A.2d 799, 804 (Del. Ch. Mar. 24, 2009) (citing Kelly v. McKesson HBOC, Inc., 2002 WL 88939, at *17 (Del. Super. Jan. 17, 2002)). % Shaffer v. Heitner, 433 U.S. 186, 212 (1977). 57 Cf, Papendick v. Bosch, 410 A.2d 148, 152 (Del. 1979) (holding that the act of incorporating a subsidiary in Delaware to be the vehicle for channeling purchase money and stock in an acquisition is sufficient to exercise personal jurisdiction over its non-resident incorporator); Vichi v. Koninklijke Philips Elec. N.V.,2009 WL 4345724, at *2, *6 (Del. Ch. Dec. 1, 2009) (holding a single act of incorporation in Delaware, if integral to the transaction between the parties and done as part of a wrongful scheme, will suffice to exercise personal jurisdiction over the non- resident defendant responsible for the scheme). °8 Papendick, 410 A.2d at 149. 9 Id. at 148. 100 7d. at 149-50. 18 corporation, by forming a Delaware subsidiary for the purpose of implementing a contract, implicitly consented to personal jurisdiction in an action brought against it and its Delaware subsidiary for breach of that contract.'°' As noted by the Delaware Supreme Court in Papendick, “[t]he decision of the foreign-parent corporation to maintain a direct and continuing connection between Delaware and itself, as the owner of a Delaware subsidiary, was found to be a ‘minimum contact’ 99102 of paramount importance in the specific jurisdictional analysis of Papendick.... Yu does not allege that Khattak signed the Loan Agreements in Delaware, participated in negotiations in Delaware, or organized US Mobile to implement a transaction between the parties (e.g., to use the entity as a vehicle to execute the Loan Agreements).'°> Had the well-pled facts alleged that Khattak formed US Mobile LLC for the purpose of accepting Yu’s loan money directly and developing an MVNO, personal jurisdiction over Khattak under Delaware’s long-arm statute might exist.!°* Because these facts are not pled, however, 10 Del. C. § 3104(c)(1) does not authorize service on Khattak. 10l 7d. at 152. 102 See Sternberg v. O'Neil, 550 A.2d 1105, 1120 (Del. 1988) (explaining the Delaware Supreme Court's decision in Papendick). '03 Yu alleges breach of contract against GSM only. See Am. Compl. § 91. 104 GSM pre-dates the Loan Agreements, so it would be US Mobile’s formation as central issue. 19 10 Del. C. § 3104(c)(4) addresses a situation in which a defendant is generally affiliated with the forum jurisdiction.' That is, 10 Del. C. § 3104(c)(4) is applicable when a defendant has contacts with this State that are so extensive and continuing that it is fair and consistent with State policy to require that he appear here and defend a claim, even when that claim arose outside of this State and caused injury outside of this State.'°° Based on the facts as pled, Khattak’s minimal contacts with Delaware are insufficient to allow service under 10 Del. C. § 3104(c)(4). Yu fails to allege facts establishing Khattak engaged in a “persistent course of conduct in the State,” or that Khattak “derives substantial revenue from services, or things used or consumed in the State.”!°’ As Khattak correctly notes, mere formation of a Delaware entity is not sufficient to establish general jurisdiction under 10 Del. C. § 3104(c)(4).!°8 Based on the facts as pled, there is no basis to authorize service upon Khattak under 10 Del. C. § 3104. 105 Red Sail Easter Ltd. Partners, L.P. v. Radio City Music Hall Productions, Inc., 1991 WL 129174, at *3 (Del. Ch. July 10, 1991). 106 See Sternberg, 550 A.2d at 1117. 107 See 10 Del. C. § 3104(c)(4). 108 Khattak Opening Br. at 16 (citing Red Sail, 1991 WL 129174, at *3). 20 3. 10 Del. C. § 3114, Implied Consent Statute for Non-Resident Directors of Delaware Corporations Yu also asserts the Court has personal jurisdiction over Khattak pursuant to 10 Del. C. § 3114, which provides for the service of process on non-resident directors: in all civil actions or proceedings brought in this State, by or on behalf of, or against such corporation, in which such director, trustee or member is a necessary or proper party, or in any action or proceeding against such director, trustee or member for violation of a duty in such capacity....!0 The Court has exercised personal jurisdiction over a non-resident director under 10 Del. C. § 3114 when the non-resident director “used his position as director of a Delaware corporation to commit fraud,” making him a necessary or proper party.''!® Khattak notes that Yu has not alleged any misconduct by Khattak Wt In response, Yu argues that in his capacity as a director of US Mobile Inc. Khattak “availed himself of certain duties under Delaware law because he formed and acted as a director and officer of... US Mobile (all entities),” and therefore Yu is entitled to discovery on the US Mobile Inc./US Mobile LLC merger.''? At this stage, it is the well-pled allegations in the Amended Complaint on which the Court must focus, and Yu alleges GSM and Khattak transferred resources and assets for 109 10 Del. C. § 3114. "0 See id.; see Tsang Mun Ting v. Silver Dragon Resources, Inc., 2015 WL 3551871, at *4 (Del. Super. June 3, 2015), affirmed by Hazout, 134 A.3d 274 (Del. 2016). ‘| Khattak Opening Br. at 16. ‘2 P].’s Answering Br. to Khattak at 10. 21 inadequate exchange,!!? and US Mobile was a transferee, through and separate from Khattak.''* Under the facts as pled, service is not authorized on Khattak under 10 Del. C. § 3114. 4 6 Del. C. § 18-109, Implied Consent Statute for Non-Resident Managers of Delaware Limited Liability Companies Finally, Yu asserts that personal jurisdiction over Khattak is proper under 6 Del. C. § 18-109(a) because Khattak is a manager of GSM and US Mobile.!'5 Because jurisdictional discovery has not been completed, the Court gives Yu the benefit of the doubt and holds him to the lower burden of establishing a prima facie case for this Court’s exercise of jurisdiction over Khattak.'!® The Court looks to instructive Delaware Supreme Court cases addressing the exercise of personal jurisdiction over non-resident directors of Delaware corporations in non-breach of fiduciary duty claims, such as fraud claims that are sufficiently related to and “predicated on the same nucleus of facts” as a fiduciary duty claim.!!7 In Tsang Mun Ting v. Silver Dragon Resources, Inc., the Court 13 Am. Compl. { 135. "4 7g. at 4117-18. 'S The Court notes that Khattak twice represents US Mobile LLC is a Connecticut LLC. Khattak Opening Br. at 9, 16. If that were true, Delaware’s limited. liability company implied consent statute would not apply. However, Yu filed a District of Columbia Superior Court affidavit with his Amended Complaint, signed by Khattak, that declares Khattak “formed a new Delaware LLC, US Mobile, LLC, with its principal office in Connecticut.” Am. Compl. Ex. A J 14 (emphasis added). "6 Cf Czarninski Baier, 2018 WL 1791996, at *5. "7 10 Del. C. § 3114 is substantially similar to 6 Del. C. § 18-109. In light of the scarcity of cases construing § 18-109, most of which predate the Delaware Supreme Court’s Hazout decision that broadened its interpretation, the Court looks to the cases construing § 3114. Cf 22 found personal jurisdiction over a non-resident director with no State contacts because he was “a necessary or proper party” to the action.''® The Court held there must “be a close nexus between the claims involving the corporation which made it a party to the suit, and the conduct of the non-resident fiduciary.”'!? Thus, “only claims that involve conduct by the non-resident fiduciary using his corporate power will make him a necessary or proper party.”'?° Although no fiduciary duty claims were alleged, this Court held, and the Delaware Supreme Court affirmed, that jurisdiction over the non-resident director was proper under 10 Del. C. § 3114 because it was clear to the Court that the alleged misconduct would be adverse to 121 the non-resident director’s fiduciary duties. The Court’s decision in Tsang Mun Ting makes clear the breadth of 10 Del. C. § 3114. There, a group of investors negotiated to acquire operating control of Silver Dragon Resources, Inc. (“Silver Dragon”) by appointing a new slate of Assist Stock Mgmt. LLC v. Rosheim, 753 A.2d 974, 979 n. 19 (Del. Ch. Feb. 3, 2000); Tsang Mun Ting, 2015 WL 3551871, at *4 (citing Canadian Commercial Workers Indus. Pension Plan v. Alden, 2006 WL 456786, at *11 (Del. Ch. Feb. 22, 2006) (citing Hovde Acquisition, LLC v. Thomas, 2002 WL 1271681, at *4 n.16 (Del. Ch. June 5, 2002); Infinity Investors Ltd. v. Takefman, 2000 WL 130622, at *6 (Del. Ch. Jan. 28, 2000))), affirmed by Hazout, 134 A.3d 274 (Del. 2016) (rejecting a long line of decisions that had significantly limited the circumstances in which Delaware courts could exercise personal jurisdiction over non-resident directors and officers of Delaware corporations under the implied consent statute). 118 10 Del. C. § 3114(a), (b); Hazout, 134 A.3d at 289. "19 Hazout, 134 A.3d at 289. 120 Id. 21 Tsang Mun Ting, 2015 WL 3551871, at *4. Although such an action looks similar to a derivative action, which must be brought in the Court of Chancery by a shareholder on behalf of the entity, the Court emphasizes that Ting did not sue as a shareholder of Silver Dragon and the Delaware Supreme Court affirmed this Court’s decision in Hazout, 134 A.3d 274. 23 directors in exchange for making loans to Silver Dragon totaling over three million dollars.'?? One of the creditors, Tsang Mun Ting (“Ting”), made a wire transfer to Silver Dragon in the amount of $1,014,140 in reliance upon representations that 123 The deal was the executed documents would be delivered the following day. never completed because one of Silver Dragon’s existing directors refused to execute the agreement, and thereafter the defendants refused to return Ting’s loan.'*4 Accordingly, Ting brought suit against Hazout, a Canadian resident who was a director and officer of Silver Dragon, and others, for unjust enrichment, fraud, and fraudulent transfer.'*° Hazout moved to dismiss the complaint against him, arguing that 10 Del. C. § 3114 did not permit jurisdiction over him because the complaint did not allege a breach of fiduciary duty.'”° Ting alleged that Hazout acted in his corporate capacity as a Silver Dragon director and officer to commit fraud by transferring approximately $750,000 of Ting’s Silver Dragon loan to a creditor of Silver Dragon that Hazout owned.'?” The Court held, “[i]f proven, that conduct would be in contradiction to [Hazout’s] obligations as a director of a 122 Td. at *1. '23 Td. Ting was not a shareholder of Silver Dragon. 124 Td. 125 Id. 126 Hazout, 134 A.3d at 277. "7 Tsang Mun Ting, 2015 WL 3551871, at *4. 24 Delaware corporation and traditional notions of justice and fair play require the 29128 Court to hold Hazout accountable for misusing his position. a. Statutory Basis to Authorize Service Section 18-109(a) is an implied consent statute applicable only to a manager of a limited liability company, which is defined as either a manager fixed under the operative limited liability company agreement or a “person who participates materially in the management of the limited liability company.”!”° 6 Del. C. § 18- 109(a) states, in pertinent part: A manager...of a limited liability company may be served with process...in all civil actions...brought in the State of Delaware 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...whether or not the manager... a manager...at the time suit is commenced. A manager's...serving as such constitutes such person's consent to the appointment of the registered agent of the limited liability company...as such person's agent upon whom service of process may be made as provided in this section. Such service as a manager...shall signify the consent of such manager...that any process when so served shall be of the same legal force and validity as if served upon such manager...within the State of Delaware and such appointment of the registered agent...shall be irrevocable.'*° An action “involves or relates to the business of a limited liability company” if: 128 Ta. '29 Vichi, 2009 WL 4345724, at *7; 6 Del. C. § 18-109(a). '30 6 Del. C. § 18-109(a) (emphasis added). 25 (1) the allegations against [the manager] focus centrally on his “rights, duties and obligations” as a manager of a Delaware limited liability company; (2) the resolution of this matter is “inextricably bound up in Delaware law;” and (3) Delaware has a strong interest in providing a forum for disputes relating to the ability of managers of a limited liability company formed under its law to properly discharge their respective managerial 131 functions. First, the claims at issue focus on Khattak’s rights, duties, and obligations as manager of GSM. The claims arise from Khattak allegedly misusing his position as manager of GSM to commit fraudulent transfers by moving Yu’s GSM loan money to an entity incorporated and controlled by Khattak.'3? If proven, such conduct would be in contradiction to Khattak’s obligations as manager of GSM, a 133 Delaware limited liability company. Second, the resolution of this matter is inextricably bound up in Delaware law. The alleged fraudulent transfers were facilitated through the formation, conversion, and merger of several Delaware entities.'*4 The question of whether 135 GSM’s assets were wrongfully transferred will be determined by Delaware law. '31 Assist, 753 A.2d at 981 (citing Hana Ranch, Inc. v. Lent, 424 A.2d 28, 30 (Del. Ch. Dec. 19, 1980), overruled on other grounds by Hazout, 134 A.3d 274; Armstrong v. Pomerance, 423 A.2d 174 (Del. 1980)). 132 See Am. Compl. {ff 10, 114. '33 Of Tsang Mun Ting, 2015 WL 3551871, at *4. 134 Am. Compl. J 113. '35 See 6 Del. C. § 1304(a)(2). 26 Third, Delaware has a strong interest in providing a forum for the resolution of disputes regarding the internal affairs of limited liability companies formed under its laws.'°° The wrongs Yu alleges are not tort or contract claims unrelated to the internal affairs of a Delaware limited liability company; rather, these claims involve the alleged misuse of Khattak’s position as a manager of a Delaware limited liability company to commit fraud. Construing the well-pled allegations in the Amended Complaint in the light most favorable to the Plaintiff, Yu has established a prima facie case that: (1) the allegations against Khattak, a non-resident defendant-manager, focus centrally on Khattak’s rights, duties, and obligations as a manager of a Delaware limited liability company; (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.'*” Thus, the suit involves or relates to the business of GSM, a necessary predicate to jurisdiction under 6 Del. C. § 18-109. In light of the General Assembly’s decision to write 6 Del. C. § 18-109 more broadly than 10 86 Cf Cornerstone, 2003 WL 1787959, at *13 (“[T]his state has a strong interest in resolving disputes regarding the internal affairs of LLCs formed under its laws.”); Assist, 753 A.2d at 981 (“Delaware has a strong interest in providing a forum for disputes relating to the ability of managers of an LLC formed under its law to properly discharge their respective managerial functions.”). ‘37 See Republic Bus. Credit, LLC v. Metro Design USA, LLC, 2016 WL 3640349, at *9 (Del. Super. June 29, 2016); ef: Hazout, 134 A.3d at 285. 27 Del. C. § 3114,'°8 this conclusion is consistent with the Delaware Supreme Court’s exercise of personal jurisdiction over non-resident directors of Delaware 139 corporations in non-breach of fiduciary duty claims. Therefore, the Court concludes that service of process is authorized under 6 Del. C. § 18-109(a). b. Due Process Having determined that service is statutorily authorized, the Court must next determine whether exercising personal jurisdiction over Khattak is consistent with the Due Process Clause of the Fourteenth Amendment to the United States Constitution.'4° “The constitutional standard for determining whether a state may 4 exercise judicial power over a person is fairness and substantial justice. International Shoe, World-Wide Volkswagen, and their progeny require a specific 138 Compare 6 Del. C. § 18-109 with 10 Del. C. § 3114; see Assist, 753 A.2d at 981 (holding that a dispute about