Lucas v. Hanson, C.A. No. 9424-ML (July 1, 2014)

By Eric Feldman and Claire White

Lucas v. Hanson involves two procedural questions – standing and personal jurisdiction – with respect to the plaintiff’s claims for declaratory and injunction relief against the forced distribution of assets of a limited partnership, Covenant Investment Fund LP (“Covenant”), to its limited partners. Prosapia Capital Management LLC (“Prosapia Capital”) is the general partner and limited partner of Covenant, and a wholly owned subsidiary of Prosapia Financial LLC (“Prosapia Financial”). The plaintiff, Alan Lucas, is a member of Prosapia Financial and the manager of both Prosapia Capital and Prosapia Financial. The defendants are limited partners of Covenant, none of whom are residents of Delaware or involved in the management of Covenant. Following Mr. Lucas’ criminal conviction in Iowa for theft involving expenditures and the liquidation of Covenant’s funds and assets, the Iowa courts declared that the cash held in Covenant’s accounts was the property of its limited partners and should have been distributed to the defendants.

In response, Mr. Lucas filed the present action in the Delaware Court of Chancery seeking declaratory and injunctive relief, stating that the Iowa court’s forced distribution of assets constitutes the “regulation of the internal affairs of a Delaware entity with no ties to Iowa” in violation of the commerce clause and other constitutional provisions. Two groups of defendants filed motions to dismiss in response. The Hanson defendants moved to dismiss on the basis that Mr. Lucas lacked standing, as he made no allegation that he was a limited or general partner of Covenant. The Miller defendants moved to dismiss the complaint for lack of personal jurisdiction.

In response to the Hanson motion to dismiss, Mr. Lucas contended that his failure to assert his status as a limited partner of Covenant in his amended complaint was an oversight and he asked the Chancery Court to “constructively amend” the complaint to add such an allegation. The Chancery Court, however, refused to look outside the complaint or “constructively amend” the complaint to establish the plaintiff’s standing on a motion to dismiss, and dismissed the complaint (without prejudice to amend).

In response to the Miller motion to dismiss, the plaintiff argued that the non-resident defendants consented to Delaware jurisdiction by signing Covenant’s partnership agreement. Although the Chancery Court accepts that non-residents may expressly consent to the jurisdiction of the Delaware courts by virtue of contractual provisions in a limited partnership agreement, the complaint failed to include a copy of the relevant partnership agreement. As a result, the Court found that the plaintiff failed to establish sufficient “minimum contacts” to assert jurisdiction over the defendants under the Delaware long-arm statute, and granted the Miller defendants’ motion to dismiss (without prejudice).

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