Background
Joel D. Tillman and Jenny R. Wiley, members of Tillman Enterprises, LLC, brought derivative claims against the LLC’s sole manager, Warner B. Tillman, and its accountant, George Lucas. The family-owned Delaware LLC was capitalized with proceeds from the sale of a bottled-water business, and Warner and each of his four children held 20% interests. Its operating agreement required 85% member approval for specified major decisions, including loans exceeding $1 million.
The plaintiffs alleged that Warner caused the LLC to make unauthorized, self-interested loans to himself and entities he controlled, including HS&WT, LLC, and later reduced the interest rates on HS&WT’s notes. They also alleged that Lucas aided and abetted Warner’s breaches and made negligent misrepresentations. The plaintiffs sought equitable dissolution. Lucas moved to dismiss for lack of personal jurisdiction; both defendants sought dismissal for failure to state a claim.
The Court’s Holding
Vice Chancellor Fioravanti granted both motions to dismiss. Lucas had not waived his personal-jurisdiction defense despite filing errors in the early motion practice: he corrected the Rule 12 citation before the plaintiffs’ answering brief and hearing, and the plaintiffs showed no prejudice. The court nevertheless lacked personal jurisdiction over Lucas because the plaintiffs identified no Delaware-directed act or substantial Delaware effect that could support conspiracy jurisdiction. The LLC’s Delaware status and the fact that its internal affairs were governed by Delaware law were insufficient.
The claims against Warner were barred by laches. Delaware’s analogous three-year limitations period applied to the fiduciary-duty, contract, and unjust-enrichment claims. The challenged lending, interest-rate, and collection decisions were discrete acts, not one continuing wrong, and the latest alleged challenged transaction occurred in 2016. The court held that the 2016 financial statements put plaintiffs on inquiry notice: they showed more than $7.7 million in net notes receivable but only about $49,000 in annual interest income, a disparity requiring investigation. Fraudulent concealment and equitable tolling therefore did not save the claims.
Key Takeaways
- A Delaware entity’s formation or internal-affairs status alone does not establish personal jurisdiction over an out-of-state alleged conspirator.
- Discrete self-interested transactions do not become a continuing wrong merely because they involve the same fiduciary or leave debt outstanding.
- Financial-statement red flags can trigger inquiry notice and end tolling even if plaintiffs have not yet obtained every document needed to prove their claims.
Why It Matters
The decision underscores the need for LLC members to act promptly when financial reports reveal suspicious lending or accounting disparities. Once inquiry notice arises, members must investigate through available contractual or statutory information rights rather than wait for fuller confirmation.
It also reinforces that conspiracy-based jurisdiction requires an identifiable Delaware-directed act or effect, not simply alleged misconduct involving a Delaware LLC.