By Lene Powell, J.D.
A business executive who formed two Delaware companies for the purpose of acquiring a third company was subject to personal jurisdiction in Delaware. According to the Delaware Court of Chancery, an individual who causes the formation of a Delaware entity for the purpose of engaging in a transaction must expect to be subject to suit in Delaware for claims based on the resulting transaction (In re P3 Health Group Holdings LLC, October 14, 2022, Laster, T.).
Deal structure. P3 Health Group Holdings, LLC is a Delaware limited liability company engaged in the business of population healthcare management. In August 2020, P3 began exploring ways to go public. Defendant George Wasson, a business executive who conducts business through his family office, formed two Delaware entities to take P3 public: a Delaware corporation that went public as a special purpose acquisition company (SPAC), and a limited liability company and subsidiary of the SPAC. The merger closed in the form of a forward triangular merger between the target company and the LLC subsidiary of the SPAC.
P3 investor Hudson Vegas Investment SPV, LLC sued, asserting multiple claims including that Wasson intentionally and improperly interfered with Hudson’s rights under P3’s LLC agreement. Wasson moved to dismiss Count XI on the merits, and also contended he was not subject to personal jurisdiction in Delaware.
Personal jurisdiction found. The court found under a two-prong test that personal jurisdiction existed over Wasson.
First, the court found that the Delaware entities created by Wasson provided a valid means of serving him with a summons. Under the Delaware Long Arm Statute, a party may serve any person who directly or through an agent “transacts any business or performs any character of work or service in the State …” Wasson’s formation of two Delaware entities constituted “the transaction of business within the State of Delaware.” Each was sufficient independently to support the service of process on Wasson for purposes of a claim relating to the forward triangular merger among the target company, the LLC and the SPAC.
Second, the court found that the exercise of personal jurisdiction over Wasson comported with minimum standards of due process. The choice to form a Delaware entity creates a “significant contact” with the State. As the court observed, it has been the law for over forty years that an individual who causes the formation of a Delaware entity for the purpose of engaging in a transaction must expect to be subject to suit in Delaware for claims based on the resulting transaction.
Because Section 3104(c)(1) confers specific, not general, jurisdiction, there must be a nexus between the Delaware act and the conduct forming the basis of the suit. The court found that the allegations of the complaint support an inference that Wasson caused the LLC to be formed as a Delaware entity to engage in a transaction with P3, including that Wasson had been in discussions with P3 and P3 investors about a transaction when he caused the LLC to be formed. As a result, Wasson’s involvement went beyond mere ownership of stock in a Delaware corporation; he caused both the entities to be formed so they could engage in the merger at issue.
“Having caused the formation of two Delaware entities for the purpose of completing the merger, Wasson should have reasonably anticipated that his actions might result in the forum state exercising personal jurisdiction over him in order to adjudicate disputes arising from those actions,” wrote the court.
Motion to dismiss denied. Having found personal jurisdiction as to Wasson, the court denied the motion to dismiss.
The case is No. 2021-0518-JTL.