In re P3 Health Grp. Holdings, LLC
| Decision Date | 12 September 2022 |
| Docket Number | Consol. C.A. No. 2021-0518-JTL |
| Citation | 282 A.3d 1054 |
| Parties | IN RE P3 HEALTH GROUP HOLDINGS, LLC |
| Court | Court of Chancery of Delaware |
Bruce E. Jameson, Corinne Elise Amato, Eric J. Juray, Elizabeth Wang, PRICKETT, JONES & ELLIOTT, P.A., Wilmington, Delaware; Craig Carpenito, Richard H. Walker, Samuel C. Cortina, KING & SPALDING LLP, New York, New York; Counsel for Hudson Vegas Investment SPV, LLC.
William M. Lafferty, Kevin M. Coen, Ryan D. Stottmann, Sara Toscano, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Counsel for Jessica Puathasnanon and P3 Health Group Holdings, LLC.
Kevin R. Shannon, Christopher N. Kelly, Daniel M. Rusk IV, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Counsel for Chicago Pacific Founders Fund, L.P., CPF P3 Splitter, LLC, Greg Kazarian, Larry Leisure, Mary Tolan, and Sameer Mathur.
Elena C. Norman, Paul J. LoughmanLakshmi A. Muthu, Alberto E. Chávez, YOUNG CONAWAY STARGATT & TAYLOR LLP, Wilmington, Delaware; Counsel for Sherif W. Abdou, Amir Bacchus, Gary Garrett, Lorie Glisson, Taylor Leavitt, and Tom Price.
LASTER, V.C.
Jessica Puathasnanon served as the general counsel and chief legal officer of P3 Health Group Holdings, LLC, a Delaware limited liability company ("P3" or the "Company"). In this action, Hudson Vegas Investment SPV, LLC ("Hudson") has sued various defendants, including Puathasnanon. Hudson asserts that Puathasnanon breached the fiduciary duties she owed to the Company and its members in her capacity as an officer of the Company.
Puathasnanon contends that the court cannot exercise personal jurisdiction over her. She has moved for dismissal under Rule 12(b)(2).
A proper exercise of personal jurisdiction requires a valid means of serving the defendant, and the resulting exercise of jurisdiction must provide the defendant with the protections afforded by minimum standards of due process. Hudson argues that a valid means of service exists under the implied consent provision in the Delaware Limited Liability Company Act (the "LLC Act"), 6 Del. C. § 18-109(a), which establishes a mechanism for serving process on a manager of a limited liability company ("LLC"). Hudson argues that as a senior officer of a Delaware LLC who voluntarily assumed that role, Puathasnanon implicitly consented to jurisdiction in the Delaware courts and has sufficient contacts with Delaware to satisfy due process.
Section 18-109(a) classifies two categories of persons as managers. First, there are persons whom the governing LLC agreement formally names as managers (a "formal manager"). Second, there are persons who "participate[ ] materially in the management of the limited liability company," id. , regardless of whether the governing LLC agreement formally names them as managers (an "acting manager").
Puathasnanon was not a formal manager, but the pleading-stage record supports a reasonable inference that she was an acting manager. Under the plain language of the material participation requirement, a person qualifies as an acting manager if the person participates in the management of the entity in a significant way. The complaint supports a reasonable inference that by acting as the general counsel and chief legal officer of the Company, Puathasnanon participated materially in the management of the Company.
The exercise of personal jurisdiction over Puathasnanon comports with minimum standards of due process. Individuals who take positions as senior officers of Delaware entities do so with the understanding that personal jurisdiction exists in the Delaware courts to adjudicate disputes over compliance with their contractual or fiduciary obligations. For Delaware corporations, the consent-to-jurisdiction statute names the chief legal officer explicitly as a senior officer who consents to personal jurisdiction in Delaware. 10 Del. C. § 3114. An LLC is a primarily contractual entity whose internal governance can take many forms. The LLC Act therefore does not frame its consent-to-jurisdiction statute in terms of standard positions or titles. It rather speaks in terms of formal managers and acting managers. That usage is encompassing, not limiting. Just as the corporate consent-to-jurisdiction statute reaches C-suite executives, including the chief legal officer, the LLC Act's consent-to-jurisdiction statute reaches C-suite executives, including the chief legal officer.
Puathasnanon has suggested that despite her significant titles, she did not participate materially in the management of the Company. When arguing for her dismissal from this action, she claims to have functioned as a ministerial drone. It seems doubtful that Puathasnanon would make a similar claim on her resume or in an annual self-evaluation, but she has made it in this case.
At the pleading stage, the customary roles and responsibilities associated with Puathasnanon's titles provide a sufficient basis for the assertion of personal jurisdiction. In addition, the operative complaint supports an inference that Puathasnanon acted in a manner consistent with her roles and participated significantly in the management of the Company.
At a minimum, Hudson would be entitled to jurisdictional discovery to explore the extent of Puathasnanon's material participation. In some cases, it may make sense to have a separate phase of jurisdictional discovery to investigate a defendant's contacts with the forum state. Here, there is no need for a separate phase of jurisdictional discovery, because the existence of personal jurisdiction turns on Puathasnanon's involvement with the transaction at the heart of the case. Jurisdictional discovery therefore will overlap substantially with merits discovery.
The complaint accordingly supports a reasonable inference that personal jurisdiction exists over Puathasnanon. Her motion under Rule 12(b)(2) is denied.
The facts are drawn from the plaintiff's complaint and the documents it incorporates by reference. At this stage of the proceedings, the complaint's allegations are assumed to be true, and the plaintiff receives the benefit of all reasonable inferences.1
Before the events challenged in this litigation, P3 was a population health management company with operations in Nevada, Arizona, Florida, and Oregon. The Company sought to offer cost-effective long-term care for patient-members. It was a privately held entity controlled by the Chicago Pacific Founders Fund, L.P. ("Chicago Pacific"), a private equity fund.2
The Company's limited liability company agreement (the "LLC Agreement") created a manager-managed governance structure with a board of up to eleven managers (the "Board"). The LLC Agreement empowered the Board to manage the business and affairs of the Company, stating:
[T]he Board shall conduct, direct and exercise full control over all activities of the Company (including all decisions relating to the issuance of additional Equity Securities and the voting and sale of, and the exercise of other rights with respect to, the equity securities of its Subsidiaries), and (ii) the Board shall have the sole power to bind or take any action on behalf of the Company, or to exercise any rights and powers (including, without limitation, the rights and powers to take certain actions, give or withhold certain consents or approvals, or make certain determinations, opinions, judgments or other decisions) granted to the Company under this Agreement or any other agreement, instrument, or other document to which the Company is a party.
The LLC Agreement allocated the rights to appoint members of the Board as follows:
Chicago Pacific and Leavitt jointly held all of the Company's Class A Units, and the LLC Agreement designated their managers as the "Class A Managers." Ex. 1 § 5.2(a)(ii). Hudson alleges that Chicago Pacific and Leavitt worked together to control a majority of the Board and to exercise control over the Company. That is a reasonable inference to draw at this stage.
The LLC Agreement granted the Board the power to delegate authority to officers. Section 5.4 of the LLC Agreement stated:
The Board may (but need not), from time to time, designate and appoint one or more persons as an Officer of the Company. ... Any Officers so designated shall have only such authority and perform only such duties as the Board may, from time to time, delegate to them. The Board may assign titles to particular Officers and, unless the Board otherwise decides, if the title is one commonly used for officers of a business corporation formed (e.g. , chief executive officer, president, chief operating officer, chief financial officer), the assignment of such title shall constitute the delegation to such Officer of the authority and duties that are normally associated with that office ...
Through this arrangement, the LLC Agreement created a governance structure in which the role of the Company's officers closely resembled the officers of a corporation. The LLC Agreement emphasized the parallel by stating explicitly that the officers owed fiduciary duties to the Company and its members that were of "the type owed by the officers of a corporation to such corporation and its stockholders under the laws of the State of Delaware." Id. § 5.6(d).
In August 2020, the Company began exploring ways to access the public market. Dkt. 100 at 9. On September 1, several members of the Board participated in a Zoom meeting on that subject. PX 8 at ‘152. The meeting materials listed a potential combination with another...
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