• Delaware Court of Chancery
  • D66379

DELAWARE COURT OF CHANCERY

Lucas v. Hanson, DeFAX Case No. D66379 (Del. Ch. July 1, 2014) LeGrow, M.C. (7 pages).

Plaintiff's failure to allege that he was a limited partner mandated dismissal of complaint seeking injunction to prevent disbursal of partnership funds to named defendants, for lack of standing. Recommendation that motions to dismiss amended complaint be granted, with leave to amend.

Covenant Investment Fund LP was a Delaware limited partnership. Prosapia Capital Management LLC was the general partner and a limited partner of Covenant. Prosapia Capital was a wholly-owned subsidiary of Prosapia Financial. Plaintiff Alan Lucas was the operating manager of both Prosapia Capital and Prosapia Financial and was a member of Prosapia Financial.

Lucas was convicted in an Iowa criminal court on charges of theft and ongoing criminal conduct associated with the expenditure and liquidation of Covanant's funds and assets. The Iowa court declared that cash in Covenant's account was the property of individuals who were either current limited partners of Covenant or limited partners who, in the past, received final distributions and withdrew from Covenant. That cash, the Iowa court declared, should have been distributed to those individuals when Prosapia Capital became Covenant's general partner.

After Lucas was convicted, but before he was sentenced, he filed an action in a Delaware court of chancery, seeking declaratory and injunctive relief. Lucas named as defendants a number of current and past limited partners of Covenant, none of whom were Delaware residents.

In his complaint he alleged "Iowa's attempt to force distributions of company assets is the regulation of the internal affairs of a Delaware entity with no ties to Iowa in violation of the commerce clause, due process clause and full faith and credit clause of the United States Constitution." Lucas maintained he sought only an injunction prohibiting the named defendants from receiving Covenant's funds as restitution, arguing that the only proper way for defendants to receive a distribution or disbursement from Covenant was to file derivative action in a Delaware court.

One group of defendants moved to dismiss for lack of standing for failure of Lucas to alleged he was a limited or general partner of Covenant. Another group of defendants moved to dismiss for lack of personal jurisdiction and for failure to state a claim. The master in chancery recommended the motions to dismiss be granted without prejudice.

Lucas argued that the absence of an allegation he was a limited partner of Covenant was merely an oversight. The magistrate responded that, on a motion to dismiss, she was not free to look outside the complaint for facts to support it. Nor was there any basis in court rules or precedent to constructively amend the complaint. The magistrate recommended dismissal with leave to amend, to allow Lucas to respond to defendants' arguments.

The magistrate noted that Lucas made no effort to satisfy any minimum contacts analysis. Lucas argued that the defendants expressly consented to jurisdiction, but he did not file with the court a copy of the partnership agreement, and therefore the magistrate could not determine whether the defendants consented to jurisdiction. The magistrate recommended Lucas be allowed to amend his pleading to establish a basis for the court to exercise jurisdiction.

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