Douglas Altabef v. Ilan Neugarten ( 2021 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
MORGAN T. ZURN LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
Date Submitted: November 10, 2021
Date Decided: December 15, 2021
David E. Wilks, Esquire Raymond J. DiCamillo, Esquire
Wilks Law LLC Richards, Layton & Finger, P.A.
4250 Lancaster Pike, Suite 200 920 N. King Street
Wilmington, DE 19805 Wilmington, DE 19801
William M. Lafferty, Esquire Daniel B. Rath, Esquire
Morris Nichols Arsht & Tunnell LLP Landis Rath & Cobb LLP
1201 N. Market Street, Suite 1600 919 Market Street, Suite 1800
Wilmington, DE 19801 Wilmington, DE 19899
Richard L. Renck, Esquire John Sensing, Esquire
Duane Morris LLP Potter Anderson & Corroon LLP
1201 N. Market Street, Suite 501 1313 N. Market St.
Wilmington, DE 19801 Wilmington, DE 19801
Samuel T. Hirzel, Esquire
Heyman Enerio Gattuso & Hirzel LLP
300 Delaware Ave., Suite 200
Wilmington, DE 19801
RE: Douglas Altabef, et al. v. Ilan Neugarten et al.,
Civil Action No. 2021-0117-MTZ
Douglas Altabef, et al. v. Ilan Neugarten et al.,
Civil Action No. 2021-0117-MTZ
December 15, 2021
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Dear Counsel:
This letter opinion resolves the remaining motions to dismiss that I did not
grant at oral argument on November 10, 2021.1 For the reasons set forth below, I
conclude that this Court lacks personal jurisdiction over Rainbow Medical Ltd.
(“Rainbow Medical”) and Fischer Behar Chen Well Orion & Co. (“Fisher Behar”).
Their motions to dismiss are granted.
I. BACKGROUND
On Rainbow Medical and Fischer Behar’s motions to dismiss (the “Motions”),
I draw the following facts from Plaintiffs’ amended complaint (the “Amended
Complaint”) and the documents integral to it.2 I limit my recital of the facts to those
necessary to resolve the pending Motions. In considering those Motions under Court
of Chancery Rule 12(b)(2), I “may consider the pleadings, affidavits, and any
1
Docket Item (“D.I.”) 139 [hereinafter “Hr’g Tr.”].
2
See D.I. 74 [hereinafter “Am. Compl.”]; D.I. 78. The capitalized term “Plaintiffs” refers
to all named plaintiffs.
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discovery of record.”3 I accept the facts in the Amended Complaint as true, and
draw all inferences in favor of Plaintiffs.4
A. Nano-Retina, Its Investors, And Its Financing
Nano-Retina, Inc. (“Nano-Retina” or the “Company”) is a Delaware
corporation with its principal place of business in Herzliya, Israel. 5 It develops
advanced nanotechnology devices intended to restore functional vision to blind
individuals.6 Rainbow Medical is an Israeli corporation with a principal place of
business in Herzliya, Israel.7 Rainbow Medical incorporated Nano-Retina in 2009;8
under an operational services support agreement (the “Operational Services
Agreement”), Rainbow Medical officers and employees provide management
services to Nano-Retina for a fee.9 Fischer Behar is Nano-Retina’s Israeli counsel,
and advised Nano-Retina regarding its response to Plaintiffs’ books and records
3
Sprint Nextel Corp. v. iPCS, Inc., 2008 WL 2737409, at *5 (Del. Ch. July 14, 2008)
(citing Ryan v. Gifford, 935 A.2d 258, 265 (Del. Ch. 2007)). In relating Plaintiffs’
arguments, I cite to briefing where it is unaccompanied by factual support.
4
Cornerstone Techs., LLC v. Conrad, 2003 WL 1787959, at *3 (Del. Ch. Mar. 31, 2003).
5
Am. Compl. ¶ 19.
6
Id. ¶ 3.
7
Id. ¶¶ 4, 24; D.I. 9 ¶¶ 2, 8; D.I. 41.
8
D.I. 117 at 9 [hereinafter “Ans. Br.”]; D.I. 106 Ex. 2, Nano-Retina Certificate of
Incorporation.
9
Am. Compl. ¶¶ 40, 77–78; Am. Compl. Ex. C; id. at Ex. A.
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demand and certain other transactions at issue.10 Fischer Behar also served as
counsel to Rainbow Medical.11
Nano-Retina has been financed through convertible loan agreements.12 In
2012, Plaintiffs invested in Nano-Retina via a convertible loan agreement; in 2014,
their debt converted to common stock.13 Rainbow Medical also invested in Nano-
Retina via convertible loan agreements, and is currently Nano-Retina’s controlling
stockholder.14 Plaintiffs assert several of Nano-Retina’s convertible loan
agreements had identical conversion terms, but have been inconsistently enforced.15
Specifically, Plaintiffs assert a 2014 loan between Nano-Retina and Carlyle KFT
(“Carlyle”) with Rainbow Medical as a signatory (the “Carlyle Loan”) was not
converted as it should have been under the agreement’s terms.16 Plaintiffs claim that
10
Am. Compl. ¶¶ 30–32, 101, 113, 123.
11
Id. ¶¶ 8, 30, 113.
12
Nano-Retina has entered into convertible loan agreements with Plaintiffs, defendants
Rainbow Medical, Carlyle KFT, and nonparties. Id. ¶¶ 5, 39, 41, 51–54, 60, 62, 66, 69; id.
Exs. D, E, F, G, H, I, J, K.
13
Am. Compl. ¶ 41; Am. Compl. Ex. D § 3.1.
14
See Am. Compl. ¶¶ 24, 44, 51–53, 60, 66; id. at 20–21.
15
Id. ¶¶ 125–29.
16
Id. ¶¶ 54, 58, 72–73, 146.
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other investments joined to that loan and its conversion terms were converted, and
that the disparate application of those terms is a breach of fiduciary duty.17
Plaintiffs also take issue with two events in Nano-Retina’s recent history. In
August 2020, Rainbow Medical and Carlyle presented a term sheet to Nano-Retina’s
board of directors for a proposed financing (the “Carlyle Financing”).18 The board
approved the Carlyle Financing in September 2020, but the proposal was withdrawn
in March 2021.19 In 2020, Tikcro Technologies Ltd. (“Tikcro”) “expressed serious
interest in exploring” a reverse merger with Nano-Retina (the “Tikcro Proposal”).20
The board rejected the Tikcro Proposal in October 2020.21
B. Plaintiffs Investigate And Litigation Ensues.
On November 23, 2020, Plaintiffs Douglas Altabef and Ardyn Halter (the
“220 Plaintiffs”) submitted a books and records demand, seeking seventeen
categories of documents for eleven purposes including investigating the Carlyle
17
Id. ¶¶ 58, 72–73, 103, 125, 128–29, 146; Ans. Br. 63; id. Ex. 2 at Interrogatory Answer
No. 28 (explaining three other lenders joined the Carlyle Loan according to its terms).
18
Am. Compl. ¶ 92.
19
Id. ¶ 97; D.I. 106 Ex. 1.
20
Am. Compl. ¶ 106; D.I. 117, Affidavit of Jeffrey Grossman Pursuant to 10 Del. C. § 3927
in Support of Plaintiffs’ Omnibus Answering Brief in Opposition to Defendants[’] Motion
to Dismiss ¶¶ 6–7.
21
Am. Compl. ¶¶ 109–11.
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Loan, the Carlyle Financing, and the Tikcro Proposal.22 On December 14, the 220
Plaintiffs filed a books and records action in this Court pursuant to 8 Del. C. § 220
(the “220 Action”).23 Represented by Delaware counsel, Nano-Retina produced
documents in response (the “220 Production”).24 Fischer Behar communicated with
the 220 Plaintiffs’ Delaware counsel “and took positions on Delaware law” to
facilitate Nano-Retina’s 220 Production.25
The 220 Plaintiffs requested an affidavit from Nano-Retina certifying the
completeness of the Company’s 220 Production.26 Defendant Yossi Cohen signed
the affidavit as “the Chief Financial Officer of Nano-Retina, Inc.,” and Fischer Behar
witnessed the affidavit.27 Cohen is Rainbow Medical’s CFO and provides CFO
services to Nano-Retina under the Operational Services Agreement, but is not
22
Complaint, Ex. A, Altabef v. Nano-Retina, Inc., C.A. No. 2020-1053-MTZ (Del. Ch.).
Citations to that docket are styled “220 Action D.I. —”. These filings can be considered
under D.R.E. 202(d)(1)(C).
23
Am. Compl. ¶ 10; 220 Action D.I. 1.
24
Am. Compl. ¶¶ 10, 31, 120; see also Ans. Br. Ex. 7, [hereinafter “Cohen Aff.”].
25
Am. Compl. ¶¶ 119–20.
26
Id. ¶ 121; Cohen Aff. ¶ 1.
27
Am. Compl. ¶¶ 122–23; Cohen Aff. ¶¶ 1–2.
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formally Nano-Retina’s CFO.28 Assured by the affidavit, the 220 Plaintiffs
dismissed the 220 Action on February 5, 2021.29
On February 9, Plaintiffs initiated this plenary action.30 Plaintiffs allege
Nano-Retina: (i) did not enforce the Carlyle Loan and other loans; (ii) wrongly
authorized payments under the Operational Services Agreement; (iii) wrongly
retained Fischer Behar; (iv) wrongly approved the now-withdrawn Carlyle
Financing; and (v) did not adequately consider the Tikcro Proposal.31 Rainbow
Medical, Carl Zeiss AG, Fischer Behar, and Carlyle moved to dismiss Plaintiffs’
initial complaint for lack of personal jurisdiction.32
28
Ans. Br. 30 n.8 (“In responding to Interrogatories, Mr. Cohen contends that he ‘provides
CFO services to Nano Retina as part of the Operational Services Support Agreement’ and
‘is not employed by Nano Retina.’” (quoting Ans. Br. Ex. 2 at Interrogatory Answer No.
42)); Am. Compl. Ex. C at Ex. A (“Subject to the terms and conditions of the Operational
Support Services Agreement, during the Operational Support Term the Company shall
receive from Rainbow the following services: . . . ii. financial services (provided mainly
by Rainbow’s CFO)[.]”); D.I. 84, Defendants Ilan Neugarten, Yossi Gross, Boaz Laor and
Yossi Cohen’s Answer to Verified Amended Complaint, ¶¶ 23, 26, 52, 122 (denying Cohen
is Nano-Retina’s CFO).
29
220 Action D.I. 6.
30
D.I. 1 [hereinafter “Compl.”].
31
Id. ¶ 9; see also Am. Compl. ¶ 9.
32
D.I. 55; D.I. 56; D.I. 59; D.I. 68; D.I. 71.
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On June 16, 2021, Plaintiffs filed an Amended Complaint, adding Carl Zeiss
Venture Beteilingungsgesellschaft mbH (“Carl Zeiss Venture”) as a defendant.33
Plaintiffs also added allegations accusing Cohen, Rainbow Medical, Fischer Behar,
Carlyle, and Ki Corporation Limited (“Ki”) of conspiracy to cover up the failure to
convert the Carlyle Loan withholding from the 220 Production, or destroying,
documents associated with the loans that joined the Carlyle Loan.34
Rainbow Medical, Carl Zeiss AG, Carl Zeiss Venture, Fischer Behar, Carlyle,
and Ki (collectively, the “Entity Defendants”) all moved to dismiss for lack of
personal jurisdiction.35 The parties briefed the Entity Defendants’ motions, and the
Court heard oral argument on November 10, 2021.36 I granted the motions by
Carlyle, Ki, Carl Zeiss AG, and Carl Zeiss Venture, and took Rainbow Medical and
Fischer Behar’s Motions under advisement. 37
33
See generally Am. Compl.
34
See Am. Compl. ¶¶ 125–29, 147, 191, 206.
35
D.I. 86; D.I. 87; D.I. 89; D.I. 90.
36
D.I. 106; D.I. 107; D.I. 108; D.I. 112; Ans. Br.; D.I. 123; D.I. 124; D.I. 125; D.I. 127;
D.I. 131; Hr’g Tr.
37
Hr’g Tr. 139–40.
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II. ANALYSIS
Courts can only adjudicate cases in which they have personal jurisdiction over
the parties.38 “Because a motion under Rule 12(b)(2) presents factual and legal
questions, a court cannot grant it ‘simply by accepting the well pleaded allegations
of the complaint as true, because the pleader has no obligation to plead facts that
show the amenability of the defendant to service of process.’”39 When a defendant
moves to dismiss under Rule 12(b)(2), the plaintiffs have the burden to show a prima
facie case of personal jurisdiction over a nonresident defendant by demonstrating
“specific facts,” and not “rely[ing] on mere conclusory assertions.”40 “While such a
showing is frequently made on the basis of documentary evidence and affidavits,
and sometimes deposition or live testimony, in appropriate circumstances, a plaintiff
also may make the necessary prima facie showing using only the facts alleged in the
complaint.”41
38
Genuine Parts Co. v. Cepec, 137 A.3d 123, 129 (Del. 2016).
39
Neurvana Med., LLC v. Balt USA, LLC, 2019 WL 4464268, at *2 (Del. Ch.
Sept. 18, 2019) (quoting Ruggiero v. FuturaGene, plc., 948 A.2d 1124, 1131 (Del. Ch.
2008)).
40
Mobile Diagnostic Gp. Hldgs., LLC v. Suer, 972 A.2d 799, 802 (Del. Ch. 2009) (citing
AeroGlobal Cap. Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 437 (Del. 2005), and
Hart Hldg. Co. v. Drexel Burnham Lambert Inc., 593 A.2d 535, 539 (Del. Ch. 1991), and
Sprint Nextel Corp. v. iPCS, Inc., 2008 WL 2737409, at *5 (Del. Ch. July 14, 2008)).
41
Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial Practice in the
Delaware Court of Chancery § 3.02 (2021) (internal quotation marks omitted) (quoting
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State courts can exercise personal jurisdiction over a nonresident entity
defendant by either general jurisdiction or specific jurisdiction.42 In both cases,
Delaware courts apply a two-prong analysis to determine whether plaintiffs have
satisfied their burden.43 First, courts consider whether the defendant has sufficient
contacts for jurisdiction in view of Delaware’s long-arm statute, 10 Del. C. § 3104.44
“Second, [courts] must ‘evaluate whether subjecting the nonresident to jurisdiction
in Delaware violates the Due Process Clause of the Fourteenth Amendment (the so-
called ‘minimum contacts’ requirement).’”45
A. This Court Does Not Have Personal Jurisdiction Over
Rainbow Medical.
Plaintiffs’ Amended Complaint includes a single paragraph explaining why
this Court has personal jurisdiction over Rainbow Medical:
Canadian Com. Workers Indus. Pension Plan v. Alden, 2006 WL 456786, at *11 n.93 (Del.
Ch. Feb. 22, 2006), and citing N. Am. Cath. Educ. Programming Found., Inc. v. Gheewalla,
2006 WL 2588971, at *6 n.63 (Del. Ch. Sept. 1, 2006), aff’d, 930 A.2d 92 (Del. 2007)).
42
Genuine Parts, 137 A.3d at 129–30.
43
Mobile Diagnostic, 972 A.2d at 802.
44
Id. at 803; Genuine Parts, 137 A.3d at 127 (noting that in the circumstance where
Delaware cannot exercise general jurisdiction over a foreign corporation, the analysis turns
to specific jurisdiction under the long-arm statute).
45
Mobile Diagnostic, 972 A.2d at 803 (quoting AeroGlobal, 871 A.2d at 438).
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Defendant Rainbow Medical is a company organized under the laws of
Israel. Rainbow Medical is the largest stockholder of Nano-Retina,
holds a majority of the seats on the Nano-Retina board, shares key
officers with the Company and, together with its sister organizations in
the Kirsh web of entities, Carlyle and Ki Corp., controls Nano-Retina.
Rainbow Medical filed Nano-Retina’s certificate of incorporation in
Delaware (likely with the assistance of Fischer Behar) and, according
to the Company’s financial statements, claims Nano-Retina as a
“subsidiary.” By virtue of the foregoing, Rainbow Medical is the
controlling stockholder of Nano-Retina and this Court can exercise
jurisdiction over Rainbow Medical under 10 Del. C. § 3104 and the
alter ego/conspiracy theory of jurisdiction.46
Plaintiffs go on to allege a conspiracy among several defendants, including
Rainbow Medical and Fischer Behar, to withhold documents in the 220 Production
as a means to cover up prior breaches of fiduciary duty.47 In briefing, Plaintiffs argue
the 220 Production is a Delaware act that supports specific jurisdiction.48 Plaintiffs
also contend Rainbow Medical is the alter ego of Nano-Retina, a Delaware
corporation, and therefore this Court can properly exercise personal jurisdiction over
it.49
Plaintiffs’ answering brief in opposition to the Entity Defendants’ motions
(the “Answering Brief”) developed additional theories. It introduces Rainbow
46
Am. Compl. ¶ 24.
47
Hr’g Tr. 38–39; Am. Compl. ¶¶ 125–29.
48
Ans. Br. 47, 49–50, 61, 71–72.
49
Id. 68–72.
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Medical’s incorporation of Nano-Retina as another Delaware act supporting
jurisdiction.50 Plaintiffs also argue for the first time in briefing that this Court has
general jurisdiction over Rainbow Medical, “a holding company whose business is
to form, incorporate, control and operate Delaware companies.”51 Each of Plaintiffs’
theories fails.
1. This Court Does Not Have General Jurisdiction Over
Rainbow Medical.
General jurisdiction “grants authority to a state’s courts to ‘assert[]
jurisdiction over a nonresident defendant on the basis of wholly unrelated contacts
with the forum.’”52 In Daimler AG v. Bauman, the United States Supreme Court
explained that courts can only exercise general jurisdiction over an entity defendant
if the entity has one of a “limited set of affiliations with [the] forum [to] render [the]
defendant amenable to all-purpose jurisdiction.”53 Three forms of affiliation subject
an entity defendant to general jurisdiction: (i) it is incorporated in the forum; (ii) it
has its principal place of business in the forum; or (iii) its forum contacts “are so
50
Ans. Br. 9, 37–42.
51
Id. ii, 36–46.
52
Genuine Parts, 137 A.3d at 129 (quoting Helicopteros Nacionales de Colombia, S.A. v.
Hall, 466 U.S. 408, 426 (1984) (Brennan, J., dissenting)).
53
571 U.S. 117, 137 (2014).
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continuous and systematic as to render [it] essentially at home” there.54 Rainbow
Medical is not incorporated in Delaware and does not have its principal place of
business here; it is an Israeli corporation that operates in Israel.55 Recognizing this,
Plaintiffs rely on the third Daimler theory to assert general jurisdiction on the
grounds that Rainbow Medical is effectively at home in Delaware.56
54
Id. at 139 (internal quotation marks omitted) (quoting Goodyear Dunlop Tires
Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)); iBio, Inc. v. Fraunhofer-
Gesellschaft zur Forderung der Angewandten Forschung E.V., 2018 WL 6493503, at *2
(Del. Ch. Dec. 10, 2018) (“State courts exercise general jurisdiction over a defendant
corporation when the corporation is incorporated in or has its principal place of business
in that state.” (citing Daimler, 571 U.S. at 137 and Genuine Parts, 137 A.3d at 135)); In re
Talc Prod. Liab. Litig., 2018 WL 4340012, at *5 (Del. Super. Sept. 10, 2018) (“The
‘paradigmatic’ forum for general jurisdiction is the place of incorporation or the principal
place of business.”).
55
Am. Compl. ¶ 24; D.I. 9 ¶¶ 2, 8; D.I. 41; D.I. 106 at 3.
56
In pressing general jurisdiction, Plaintiffs invoke 10 Del. C. § 3104(c)(4). Ans. Br. 37.
Indeed, that provision has been canonized as a general jurisdiction statute, and often
appears in the first step of Delaware’s two-step personal jurisdiction analysis. See, e.g.,
Boone v. Oy Partek Ab, 724 A.2d 1150, 1155 (Del. Super. 1997), aff’d, 707 A.2d 765 (Del.
1998); Metro. Life Ins. Co. v. Tremont Gp. Hldgs., Inc., 2012 WL 6632681, at *5 (Del. Ch.
Dec. 20, 2012); Comput. People, Inc. v. Best Int’l Gp., Inc., 1999 WL 288119, at *7 (Del.
Ch. Apr. 27, 1999); Red Sail Easter Ltd. P’rs, L.P. v. Radio City Music Hall Prods., Inc.,
1991 WL 129174, at *3 (Del. Ch. July 10, 1991); Ali v. Beechcraft Corp., 2014 WL
3706619, at *2 (Del. Super. June 30, 2014) (“Where a company solicits business to the
country as a whole, has made sales in Delaware deriving substantial revenue, and
conducted this activity for over a decade, section 3104(c)(4) is satisfied.”). Due process
limitations, like those established in Daimler, supersede and limit Section 3104’s language.
Rosado v. State Farm Mut. Auto. Ins. Co., 2020 WL 3887880, at *2 (Del. Super.
July 9, 2020) (“But the long arm statute is only as broad as the Due Process Clause will
allow it to be, and cases interpreting the constitutional reach of personal jurisdiction
supersede conflicting language in the long arm statute.” (citing Genuine Parts, 137 A.3d
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In Genuine Parts Co. v. Cepec, the Delaware Supreme Court examined
Daimler’s discussion of this third avenue to general jurisdiction, which highlighted
Perkins v. Benguet Consolidated Mining Co. as “the textbook case of general
jurisdiction appropriately exercised over a foreign corporation that has not consented
to suit in the forum.”57 The defendant in Perkins was a company incorporated under
the laws of the Philippines.58 “[The defendant] ceased its . . . operations during the
Japanese occupation of the Philippines in World War II; its president moved to Ohio,
where he kept an office, maintained the company’s files, and oversaw the company’s
activities.”59 The United States Supreme Court held the Ohio courts could exercise
general jurisdiction over the defendant without offending due process because Ohio
was the corporation’s principal, if temporary, place of business.60 This “exceptional
case” for exposing a foreign corporation to suit based on unrelated contacts requires
a foreign corporation’s “affiliations with the State [to be] so continuous and
123)). I therefore focus on Daimler’s “essentially at home” standard for minimum contacts
and due process.
57
Genuine Parts, 137 A.3d at 135 (internal quotation marks omitted) (citing Perkins v.
Benguet Consol. Mining Co., 342 U.S. 437 (1952) and quoting Daimler, 571 U.S. at 129).
58
Daimler, 571 U.S. at 129 (citing Perkins, 342 U.S. at 448).
59
Id.60
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systematic as to render [it] essentially at home in the forum State.”61 It is a high bar
that requires far more than doing business in the State.62 And from a practical
perspective, “[a] corporation that operates in many places can scarcely be deemed at
home in all of them.”63
In attempting to clear Daimler’s high bar, Plaintiffs argue Rainbow Medical
is at home in Delaware based on two Delaware cases that preceded Daimler.64
Plaintiffs argue that under these cases, Rainbow Medical is “at home” in Delaware
because it directly or indirectly incorporated seven Delaware entities over twelve
years.65 Plaintiffs assert “[t]he formation and operation of multiple Delaware
61
Genuine Parts, 137 A.3d at 135 (quoting Daimler, 571 U.S. at 139).
62
See id. at 130 (“That is, merely doing business in a state was a basis for general
jurisdiction there. But as we will later discuss, two recent decisions of the U.S. Supreme
Court [Goodyear and Daimler] established that that is no longer enough.”); Hedger v.
Medline Indus., Inc., 2017 WL 396770, at *6 (Del. Super. Jan. 27, 2017) (“The exercise of
general jurisdiction over a foreign corporation solely on the basis of ‘doing business,’
without more, is constitutionally insufficient to the point of being frivolous.”); In re
Asbestos Litig., 2016 WL 7404547, at *4 (Del. Super. Oct. 17, 2016) (rejecting the “doing
business tests,” and remarking “Plaintiffs underestimate how rigorous the [Daimler] test
actually is”).
63
Genuine Parts, 137 A.3d at 136 (quoting Daimler, 571 U.S. at 762 n.20).
64
Ans. Br. 37–38.
65
Id. 9.
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entities . . . is a recognized persistent course of conduct in Delaware sufficient to
support general jurisdiction.”66
In ALTECH Industries, Inc. v. Al Tech Specialty Steel Corp., the United States
District Court for the District of Delaware held that a defendant holding company
engaged in a “persistent course of conduct in Delaware” where the “vast majority of
[the defendant’s] 82 subsidiaries [were] Delaware corporations formed, merged, or
acquired under Delaware law” and the defendant, either personally or through an
agent, “utilized the benefits of the Delaware corporation law” through merging its
Delaware subsidiaries and filing various corporate documents in Delaware.67
Specifically, the defendant: (i) “incorporated at l[e]ast 35 subsidiaries in Delaware”
over the course of seven years, (ii) amended certificates of incorporation for “at least
5 others,” (iii) “regularly employ[ed] the Delaware corporation law to merge its
subsidiaries,” (iv) “through its agent, Corporation Trust Company, has filed and
recorded all documents in Delaware necessary to consummate the mergers,” and (v)
“retained Delaware counsel to examine and advise with respect to the Delaware take-
over statute.”68 The District Court found “[t]hese activities considered in their
66
Id. 37 (internal quotation marks omitted) (citing 10 Del. C. § 3104(c)(4)).
67
542 F. Supp. 53, 55–56 (D. Del. 1982).
68
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totality,” under the then-prevailing standard, “comprise[d] a persistent course of
conduct in Delaware [as] required by Section 3104(c)(4).”69
In Saltz v. Brantley Management Co., Ohio resident and “serial incorporator”
Robert Pinkas had a “decades long business” of forming nearly two dozen
companies in Delaware.70 Two of those entities, for which he served as a board
member, managed a series of private equity investment funds.71 “Pinkas has created
several of these investment funds, and he has made several payments to Delaware’s
Secretary of State and the CT Trust Corporation to create these entities and to keep
them alive.”72 The defendant propped up each fund with two newly-formed
Delaware limited partnerships, with a third Delaware entity serving as a general
partner.73 The Superior Court held the defendant’s decades-long scheme of forming
Delaware companies and using them “to manage his other Delaware companies’
69
Id. at 56; id. (“[T]he conduct and connection of GATX with Delaware is such that it
should reasonably have anticipated that it might have to defend in Delaware an action in
which it is charged with directing and controlling its subsidiary defendant Al Tech, a
Delaware corporation, with infringing plaintiff’s trade name.” (citing Worldwide
Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980))).
70
Saltz v. Brantley Mgmt. Co., 2011 WL 2535802, at *1 (Del. Super. May 31, 2011), aff’d
on other grounds, 36 A.3d 348 (Del. 2012).
71
Id. at *1, *4.
72
Id. at *1.
73
Id.
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investments and generate fees” was “a persistent course of conduct through which
the non-resident defendant create[d] a general presence in Delaware” that subjected
the defendant to the Court’s general personal jurisdiction.74
Plaintiffs make their “at home” argument for the first time in their Answering
Brief, accompanied by exhibits but not by any sworn affidavits.75 Plaintiffs have
failed to demonstrate Rainbow Medical is “effectively at home” in Delaware.
Rainbow Medical did not, as in Daimler’s paradigmatic example of Perkins,
effectively make a new home in a location other than its principal place of business.76
On the contrary, Rainbow Medical keeps an Israeli office and oversees its
investments and the activities of its portfolio companies from Israel.77 Rainbow
Medical’s Israeli personnel manage its investments under agreements like the
74
Id. at *3–4; see also id. at *4 (“After forming companies in Delaware for decades, which
includes making payments to the State and availing himself of its law and protections, [the
defendant] could have reasonably anticipated litigating here.”).
75
The only affidavit Plaintiffs submitted was the Affidavit of Jeffrey Grossman Pursuant
to 10 Del. C. § 3927 in support of Plaintiffs’ Answering Brief In Opposition to Defendants’
Motions to Dismiss regarding the details surrounding Tikcro’s interest in Nano-Retina and
Nano-Retina’s response. D.I. 171.
76
Daimler, 571 U.S. at 129 (citing Perkins, 342 U.S. at 448).
77
D.I. 9 ¶ 2 (listing Rainbow Medical’s office as 85 Medinat Hayehuidm St. Business Park,
G Building, 8th Floor, Herzliya Pituach, Israel); D.I. 41 (same); D.I. 106 Ex. 2, Nano-
Retina Certificate of Incorporation (listing Rainbow Medical’s address as “85 Medinat
Hayehuidm [S]treet, Herzliya, Israel”); Ans. Br. Ex. 9 (listing Rainbow Medical’s office
on its letterhead as Business Park, 85 Medinat Hayehuidm St., P.O. Box 4100, Herzliya
46766); id. Ex. 20 (same).
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Operational Services Agreement and the “Inter-Company Services Agreement,”
through which Rainbow Medical provides research, development, and operational
support services to Nano-Retina and other portfolio companies.78 Rainbow Medical
is at home in Israel, and so cannot be at home in Delaware.79
Focusing on ALTECH and Saltz, their constitutional analyses predate
Daimler’s narrower standard and recognition that the “essentially at home” theory
is for the “exceptional case.” Saltz asked only whether the defendant had
“purposefully established ‘minimum contacts,’” and ALTECH asked only if a
particular defendant “should reasonably have anticipated” defending a particular
action.80 Both metrics are more lax than the Daimler standard, which requires
nonresident defendants to have affiliations with a forum that are “so ‘continuous and
systematic’ as to render [the defendant] essentially at home in the forum State.”81
78
Compare Am. Compl. ¶¶ 38, 40 (stating Rainbow Medical entered into an Inter-
Company Services Agreement and the Operational Services Agreement with Nano-
Retina), with ALTECH, 542 F. Supp. at 54 (describing defendant GATX as “a holding
company with various subsidiaries”). See also Am. Compl. Exs. A, C.
79
Daimler, 571 U.S. at 139 n.20 (“A corporation that operates in many places can scarcely
be deemed at home in all of them. Otherwise, ‘at home’ would be synonymous with ‘doing
business’ tests framed before specific jurisdiction evolved in the United States.”).
80
Saltz, 2011 WL 2535802, at *4; ALTECH, 542 F. Supp. at 56.
81
Daimler, 571 U.S. at 138–39 & n.19 (citing Goodyear, 564 U.S. at 919); Genuine Parts,
137 A.3d at 135.
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Even assuming ALTECH and Saltz remain good law, Plaintiffs have failed to
show that Rainbow Medical resembles the defendants in those cases. When
evaluating general jurisdiction over a defendant with portfolio companies
incorporated in different fora, Delaware courts have considered the proportion of
entities in Delaware as compared to other jurisdictions.82 Plaintiffs point to seven of
Rainbow Medical’s portfolio companies.83 Two of those were incorporated before
Rainbow Medical existed, and so their incorporation cannot be attributed to Rainbow
Medical.84 The five Delaware entities Rainbow Medical formed represent a minority
82
See, e.g., ALTECH, 542 F. Supp. at 55–56 (finding general jurisdiction over GATX after
considering a totality of GATX’s business activities including that “[a] vast majority of its
82 subsidiaries are Delaware corporations formed, merged, or acquired under Delaware
law”); In re Talc Prod. Liab. Litig., 2018 WL 4340012, at *6 (Del. Super. Sept. 10, 2018)
(“Nor can the Court agree that Johnson & Johnson’s creation of other subsidiaries in
Delaware, unrelated to this lawsuit, somehow infects Johnson & Johnson and its non-
Delaware subsidiaries with general jurisdiction in Delaware. General jurisdiction is
heavily related to how the defendant has chosen to organize itself and where it has chosen
for its principal place of business. Other Defendants named in the caption chose to organize
in Delaware, JNJ did not.”). But see Saltz, 2011 WL 2535802, at *4 (“Pinkas points to his
overwhelming contacts with Ohio, but they are not a counterweight to his repeated contacts
with Delaware. After forming companies in Delaware for decades, which includes making
payments to the State and availing himself of its laws and protections, Pinkas could have
reasonably anticipated litigating here.”).
83
Ans. Br. 9, 39–46, 93.
84
Id. 9, 42–46. A demonstrative Rainbow Medical’s counsel used at oral argument, which
is not on the docket, supplements Plaintiffs’ chart of Rainbow Medical’s Delaware-based
portfolio companies on page nine of their Answering Brief by adding the dates that the
companies were dissolved or voided [hereinafter “Demonstrative 1”]. Hr’g Tr. 10–11.
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of Rainbow Medical’s investments, which are primarily in Israel.85 Two of these
Delaware entities were voided and dissolved in 2013 and 2015, respectively, thereby
leaving only three remaining channels of contact between Rainbow Medical and
Delaware.86 These three corporations stand in contrast to the investment fund
85
D.I. 126, Transmittal Declaration of Michael J. Slobom, Jr. in Support of Defendant
Rainbow Medical Ltd.’s Reply Brief in Support of Motion to Dismiss Verified Amended
Complaint, Ex. A (showing as of December 31, 2016, that two out of Rainbow Medical’s
then-twelve portfolio companies, Vascular Dynamics, Inc. and Nano-Retina, are entities it
incorporated in Delaware); Ans. Br. Ex. 9 (showing as of March 26, 2021, that two out of
Rainbow Medical’s eight portfolio companies, Vascular Dynamics, Inc. and Nano-Retina,
are entities it incorporated in Delaware); Id. Ex 8, Vascular Dynamics, Inc.’s Delaware
Certificate of Incorporation; Am. Compl. ¶ 19 (“Nominal Defendant Nano-Retina is a
Delaware corporation . . . .”).
Further, Rainbow Medical created these five Delaware entities thirteen, twelve, and
three years before Plaintiffs filed suit; that time period may be overly expansive to support
general jurisdiction today. “The Supreme Court still never has spoken on the issue of
determining the proper timeframe for the defendant’s contacts with the forum, although the
timeframe for the analysis in Helicopteros was seven years.” 4 Charles Alan Wright &
Arthur R. Miller, Federal Practice and Procedure § 1067.5 (4th ed. 2021) (formatting
added) (citing Helicopteros, 466 U.S. at 409–11); id. (“First, it must be determined whether
contacts sufficient for general jurisdiction must exist at the time the claim accrues, or at the
time the lawsuit is filed. After answering that, the court must determine how far back from
either the accrual or filing of the claim they will look; most courts use a ‘reasonable time’
standard yielding timeframes of roughly three to seven years.” (collecting sources)). But
see Comput. People, 1999 WL 288119, at *7 (“The difficulty, however, is that to establish
general jurisdiction under subsection (c)(4), the defendant must have current contacts with
the forum state.”); id. at *7 n.21 (emphasizing the present tense of the verbs in Section
3104(c)(4)).
86
Demonstrative 1. Cf. Saltz, 2011 WL 2535802, at *1, *4 (finding defendant engaged in
a persistent course of conduct in Delaware by, among other things, making “payments to
the Delaware Secretary of State” and “availing himself of [Delaware’s] laws and
protections”).
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scheme built on a scaffold of twenty-two Delaware entities in Saltz or the thirty-five
entities in ALTECH.87 Incorporating five discrete Delaware portfolio companies,
managed from Israel alongside other ventures in Israel, does not rise to the level of
a “persistent course of conduct” to render Rainbow Medical “essentially at home”
in Delaware.88
Rainbow Medical is not “an exceptional case” with “continuous and
systematic” Delaware affiliations that make it at home here, despite its foreign
incorporation and principal place of business.89 Plaintiffs have failed to show a
prima facie case of general jurisdiction.
87
Saltz, 2011 WL 2535802, at *1; ALTECH, 542 F. Supp. at 56.
88
See Saltz, 2011 WL 2535802, at *1, *4 (finding an individual Ohio-based defendant was
essentially “at home” for the purposes of general personal jurisdiction because he had
engaged in a “persistent course of conduct” in Delaware by forming “at least 22 companies
in Delaware[,] . . . serv[ing] on the boards of two of them,” and “using those companies to
manage his other Delaware companies’ investments and generate fees” in a decades’ long
investment fund scheme); Conn. Gen. Life Ins. Co. v. Pinkas, 2011 WL 5222796, at *3
(Del. Ch. Oct. 28, 2011) (distinguishing Saltz where an individual defendant participated
in the formation of only one Delaware entity but stating that had the defendant “taken a
more active role in forming multiple Delaware entities, the result of this analysis might be
different”).
89
Daimler, 571 U.S. at 139 & n.19 (citing Goodyear, 564 U.S. at 919 and Perkins, 342
U.S. at 448).
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2. This Court Does Not Have Specific Jurisdiction Over
Rainbow Medical.
Plaintiffs also assert this Court has specific jurisdiction over Rainbow
Medical. Plaintiffs argue Rainbow Medical was part of a conspiracy that affords
specific jurisdiction. Alternatively, Plaintiffs claim this Court can exercise specific
jurisdiction over Rainbow Medical under alter ego and ancillary jurisdiction
theories.
To establish jurisdiction via a conspiracy, Plaintiffs must make a factual
showing for each of the following five elements: (1) a conspiracy to defraud existed;
(2) the defendant was a member of that conspiracy; (3) a substantial act or substantial
effect in furtherance of the conspiracy occurred in Delaware; (4) the defendant knew
or had reason to know of the Delaware act or that the non-Delaware acts would have
an effect in Delaware; and (5) the act in, or effect on, Delaware was a direct and
foreseeable result of the conduct in furtherance of the conspiracy.90 A plaintiff
90
Istituto Bancario Italiano SpA v. Hunter Eng’g Co., 449 A.2d 210, 225 (Del. 1982)
(noting conspiracy jurisdiction is “a strict test” that applies if the plaintiff makes a “factual
showing” of required elements); Lacey v. Mota-Velasco, 2020 WL 5902590, at *6 (Del.
Ch. Oct. 6, 2020) (“Because the test runs the risk of expanding jurisdiction to encompass
defendants who would otherwise be beyond the reach of the forum, the test is construed
narrowly, requiring factual proof of each of the five elements.”); Hartsel v. Vanguard Gp.,
Inc., 2011 WL 2421003, at *10 (Del. Ch. June 15, 2011) (“Delaware courts construe this
test narrowly and require a plaintiff to assert specific facts, not conclusory allegations, as
to each element.”), aff’d, 38 A.3d 1254 (Del. 2012); Newspan, Inc. v. Hearthstone Funding
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properly alleges a conspiracy by asserting the existence of: “(1) two or more
persons; (2) an object to be accomplished; (3) a meeting of the minds between or
among such persons relating to the object or course of action; (4) one or more
unlawful acts; and (5) damages as a proximate result thereof.”91
Specific jurisdiction requires that the claim arise out of a Delaware act.92 A
conspiracy is not an independent jurisdictional hook: there must still be an
anchoring Delaware act.93 “[T]he ‘conspiracy theory’ merely provides a framework
with which to analyze a foreign defendant’s contacts with Delaware.”94
Corp., 1994 WL 198721, at *7 (Del. Ch. May 10, 1994) (“[A]ll of [the five elements] must
be satisfied before a Delaware court may exercise personal jurisdiction.”).
91
Lake Treasure Hldgs., Ltd. v. Foundry Hill GP LLC, 2013 WL 6184066, at *3 (Del. Ch.
Nov. 21, 2013) (internal quotation marks and citations omitted).
92
Boone, 724 A.2d at 1155 (“Specific jurisdiction is at issue when the plaintiff’s claims
arise out of acts or omissions that take place in Delaware.”); Ruggiero, 948 A.2d at 1133(“[T]he plaintiffs must show that the Individual Defendants engaged in some Delaware-
directed conduct outlined in 10 Del. C. § 3104 in order to obtain personal jurisdiction over
the Individual Defendants.”).
93
Istituto Bancario, 449 A.2d at 225 (“We therefore hold that a conspirator who is absent
from the forum state is subject to the jurisdiction of the court, assuming he is properly
served under state law, if the plaintiff can make a factual showing that: . . . (3) a substantial
act or substantial effect in furtherance of the conspiracy occurred in the forum state . . . .”);
see also LeCroy Corp. v. Hallberg, 2009 WL 3233149, at *6 (Del. Ch. Oct. 7, 2009)
(explaining “[Section] 3104(c)(3) of the Delaware long arm statute, [] requires a showing
of an act that ‘[c]auses tortious injury in the State by an act or omission in this State’”);
Hercules Inc. v. Leu Tr. & Banking (Bahamas) Ltd., 611 A.2d 476, 482 n.6 (Del. 1992)
(“We do not view the conspiracy as an independent jurisdictional basis, nor do we simply
attribute the acts of one conspirator to another for purposes to the due process analysis.”).
94
Hercules, 611 A.2d 476, 482 n.6.
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In order to harmonize the conspiracy theory of jurisdiction with the
United States Supreme Court’s restructuring of personal jurisdiction,
we must presume that the requirement that the conspiracy accomplish
a “substantial act or effect” in the forum correlates with the Supreme
Court’s mandate that the defendant engage in forum-related conduct
that is directly related to the specific claims at issue in the lawsuit.95
Delaware’s long-arm statute identifies several potential such acts:
As to a cause of action brought by any person arising from any of the
acts enumerated in this section, a court may exercise personal
jurisdiction over any nonresident, or a personal representative, who in
person or through an agent:
(1) Transacts any business or performs any character of work or service
in the State; [or]
...
(3) Causes tortious injury in the State by an act or omission in this
State[.]96
Section 3104(c)’s “arising from” language “requires that the defendant’s act set in
motion a series of events which form the basis for the cause of action before the
95
In re Talc Prod. Liab. Litig., 2018 WL 4340012, at *9.
96
10 Del. C. §§ 3104(c)(1), (3).
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court.”97 There must be a nexus between the conspiracy and the claim to allow this
Court to exercise personal jurisdiction over an out-of-state defendant.98
Plaintiffs point to two Delaware acts by Rainbow Medical to anchor their
conspiracy theory of personal jurisdiction: Nano-Retina’s incorporation, and the
220 Production. Rainbow Medical incorporated Nano-Retina in 2009, three years
before Plaintiffs invested and five years before they were stockholders.99
Incorporation may be a jurisdictionally significant act if it is part of a wrongful
scheme, but Plaintiffs do not allege that.100 There is no nexus between Nano-
Retina’s 2009 incorporation and any of Plaintiffs’ claims.
97
LVI Gp. Invs., LLC v. NCM Gp. Hldgs., LLC, 2017 WL 3912632, at *5 (Del. Ch.
Sept. 7, 2017) (internal quotation marks omitted) (quoting Microsoft Corp. v. Vadem, Ltd.,
2012 WL 1564155, at *7 (Del. Ch. Apr. 27, 2012)); see also Lone Pine Res., LP v. Dickey,
2021 WL 2311954, at *5 (Del. Ch. June 7, 2021); Microsoft Corp. v. Amphus, Inc., 2013
WL 5899003, at *11 (Del. Ch. Oct. 31, 2013) (“Section 3104 requires claims to ‘arise
from,’ not merely be ‘related to,’ conduct in Delaware.”).
98
Matthew v. Fläkt Woods Gp. SA, 56 A.3d 1023, 1024 (Del. 2012) (“Under the
‘conspiracy theory’ of personal jurisdiction, a plaintiff must allege facts from which one
can infer that a foreign defendant knew or should have known that the conspiracy would
have a Delaware nexus.”).
99
Demonstrative 1; Am. Compl. ¶ 41; Am. Compl. Ex. D; id. § 3.1; see also Hr’g Tr. 33.
100
10 Del. C. § 3104(c)(1); see, e.g., Vichi v. Koninklijke Philips Elecs. N.V., 2009 WL
4345724, at *8 (Del. Ch. Dec. 1, 2009) (“A single act of incorporation in Delaware, if done
as part of a wrongful scheme, will suffice to confer personal jurisdiction over the
nonresident defendants responsible for the scheme.”); Pinkas, 2011 WL 5222706, at *2
(“[F]ormation of a Delaware entity, without more, does not create a basis for jurisdiction
in Delaware.”); Lisa, S.A. v. Mayorga, 2009 WL, 1846308, at *6 (Del. Ch. Mar. 16, 2009)
(holding incorporation of Delaware entities was not a basis for jurisdiction where “[t]he
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Plaintiffs’ Answering Brief also asserted the deficient 220 Production was a
jurisdictionally significant act under Section 3104(c)(1).101 In considering this
argument, I first assume the 220 Production is, indeed, a Delaware act.102 I will also
assume for the purposes of this analysis only that the 220 Production was deficient
and should have included the missing loan documents.103 Even with these two
favorable assumptions, Nano-Retina’s 220 Production is not a jurisdictionally
significant act that can anchor conspiracy jurisdiction over Rainbow Medical.
First, Plaintiffs attempt to impute Nano-Retina’s 220 Production to its foreign
stockholder, Rainbow Medical. (Readers should recall that Nano-Retina is the
victim of the conspiracy, not a conspirator; Plaintiffs must impute Nano-Retina’s
220 Production to a conspirator in order for the 220 Production to anchor conspiracy
jurisdiction.) The Delaware long-arm statute extends personal jurisdiction over
nonresident defendants who take Delaware acts “through an agent.”104 Cohen signed
existence of the Delaware entities did not form an intrinsic part of the underlying alleged
fraud”), aff’d, 993 A.2d 1042 (Del. 2010).
101
Ans. Br. 57–60.
102
Rainbow Medical and Fischer Behar dispute whether responding to a books and records
demand is a Delaware act. Hr’g Tr. 50; compare D.I. 106 at 23–26 and D.I. 125 at 20–30,
with Ans. Br. 49–68. I need not resolve this today.
103
See Am. Compl. ¶¶ 127–29; Ans. Br. 62–65; but see Hr’g Tr. 19 (“[T]he loan
agreements were, in fact, disclosed in a document that was produced.”).
104
10 Del. C. § 3104(c); Hercules, 611 A.2d at 481–82.
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the affidavit of completeness the 220 Plaintiffs requested for Nano-Retina’s 220
Production.105 He was Rainbow Medical’s CFO, and provided financial services to
Nano-Retina under the Operational Services Agreement and signed the affidavit
indicating that role with Nano-Retina.106 Plaintiffs theorize Cohen signed the
affidavit as Rainbow Medical’s agent, not as Nano-Retina’s.107
While it is undisputed that Cohen wore two hats, “Delaware law respects
corporate separateness.”108 Action Cohen took facially on behalf of Nano-Retina, in
a contractually compensated role, is not automatically imputed to Rainbow Medical
merely because Cohen was also a Rainbow Medical officer.109 Plaintiffs have
105
Am. Compl. ¶ 122 (“That affidavit was provided by none other than Yossi Cohen,
Rainbow Medical’s Chief Financial Officer. As the CFO of Rainbow Medical, Mr. Cohen
is an agent of Rainbow Medical and any acts taken by Mr. Cohen are imputed to Rainbow
Medical and Rainbow Medical’s controller, Carlyle/Ki Cor[p].”).
106
Am. Compl. Ex. C § 2.1; id. at Ex. A (“Subject to the terms and conditions of the
Operational Support Services Agreement, during the Operational Support Term the
Company shall receive from Rainbow the following services: . . . ii. financial services
(provided mainly by Rainbow’s CFO)[.]”). Ans. Br. 30 n.8 (“In responding to
Interrogatories, Mr. Cohen contends that he ‘provides CFO services to Nano Retina as part
of the Operational Services Support Agreement’ and ‘is not employed by Nano Retina.’”
(quoting id. Ex. 2 at Interrogatory Answer No. 42)).
107
Ans. Br. 60.
108
NAMA Hldgs., LLC v. Related WMC LLC, 2014 WL 6436647, at *26 (Del. Ch.
Nov. 17, 2014).
109
See EBG Hldgs. LLC v. Vredezicht’s Gravenhage 109 B.V., 2008 WL 4057745, at *14
(Del. Ch. Sept. 2, 2008) (rejecting plaintiff’s argument that the Court should “imput[e] a
specific contractual obligation of an agent to a principal for purposes of establishing
personal jurisdiction over the principal”).
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offered nothing to substantiate their theory that Cohen was acting as Rainbow
Medical’s agent when he signed the Nano-Retina affidavit.110 Plaintiffs have not
met their burden in response to Rainbow Medical’s challenge; at this stage, Nano-
Retina’s 220 Production cannot be imputed to Rainbow Medical to anchor its
conspiracy against Nano-Retina.111
More fundamentally, Plaintiffs’ claims do not arise out of a conspiracy to
withhold documents, so that conspiracy cannot afford specific jurisdiction. While
the missing loan documents may be evidence relating to Plaintiffs’ claims, they are
not the “source” of Plaintiffs’ claims.112 Rather, the conspirators’ alleged wrongs
occurred before and inspired the 220 demand.113 After receiving the 220 Production
110
Mobile Diagnostic, 972 A.2d at 802 (citing Sprint Nextel, 2008 WL 2737409, at *5).
111
While it is possible that Plaintiffs might meet this burden in the future, jurisdictional
discovery is unwarranted because the alleged act is not the source of Plaintiffs’ claims.
Green Am. Recycling, LLC v. Clean Earth, Inc., 2021 WL 2211696, at *6 (Del. Super.
June 1, 2021).
112
See LVI, 2017 WL 3912632, at *5.
113
Compare Am. Comp. ¶¶ 136–84 (alleging breaches of fiduciary duties in Counts I–VII
for reasons other than the 220 Production), with id. ¶¶ 190–93 (asserting in Count IX that
Fischer Behar aided and abetted those wrongs via the 220 Production) and id. ¶¶ 202–06
(asserting civil conspiracy in Count XII as a result of a conspiracy to “conceal[] the proper
conversion of loans executed between Nano-Retina on the one hand and each of Carlyle
and Rainbow Medical on the other hand . . . . includ[ing] withholding or destroying loan
documents that contained similar terms but then certifying the collection and production in
Delaware of the Company’s documents”); compare Am. Comp. ¶ 9, with 220 Action D.I.
1, Ex. A at 3–6 (alleging eleven “serious concerns” that map on to the five categories of
actions alleged in the Amended Complaint).
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and affidavit of completeness, Plaintiffs dismissed the 220 Action and filed the
plenary action.114 Plaintiffs did not argue Nano-Retina’s 220 Production was
deficient as part of a conspiracy until their Amended Complaint, and did not assert
it anchored jurisdiction until their Answering Brief.115 On these facts, missing 220
documents do not serve as a jurisdictional hook for the very wrongs that inspired the
demand. This Court does not have personal jurisdiction over Rainbow Medical
under Section 3104 based on a conspiracy theory of personal jurisdiction.116
114
220 Action D.I. 6, Stipulation of Dismissal; see generally Compl.
115
Am. Compl. ¶¶ 125–29, 147, 191, 206; Ans. Br. 49–50.
116
Plaintiffs, in a conclusory manner, argue they have established conspiracy jurisdiction
because the harm alleged creates a substantial effect on Nano-Retina in a manner that
satisfies Section 3104(c)(3) and the third Istituto Bancario prong. Ans. Br. 49 (citing
Sample v. Morgan, 935 A.2d 1046, 1058 n.44 (Del. Ch. 2007)). Even if Plaintiffs alleged
a breach of fiduciary duty or harm to Nano-Retina’s internal affairs related to the 220
Production, so that the injury is deemed to have occurred in Delaware, “[l]iterally,
Delaware law requires both a tortious act within the State and an act or omission within
this State.” Ramada Inns, Inc. v. Drinkhall, 1984 WL 247023, at *2 (Del. Super.
May 17, 1984); accord Sample, 935 A.2d at 1048 (“Thus, the scheme not only involved an
act in Delaware, it also involved an injury in Delaware to the Delaware corporation.”).
“The dual reference to ‘within the State’ indicates that the draftsman intended that there be
two separate events, each within the State.” Ramada Inns, 1984 WL 247023, at *2).
“Alleging a tortious injury occurred in Delaware is not enough to satisfy [Section
3104](c)(3). Delaware law requires plaintiffs also to establish that the out-of-state
defendant committed an act or omission in Delaware.” Rotblut v. Terrapinn, Inc., 2016
WL 5539884, at *6 (Del. Super. Sept. 30, 2016); Hartsel, 2011 WL 2421003, at *14
(requiring “consistent with notions of due process, a factual showing that a tangible act or
omission actually took place in Delaware” even if plaintiffs prove a Delaware situs of
injury).
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Plaintiffs also assert this Court has specific jurisdiction over Rainbow Medical
because it is the alter ego of Nano-Retina. To prevail, Plaintiffs must show the
following:
(1) that the out-of-state defendant over whom jurisdiction is sought has
no real separate identity from a defendant over whom jurisdiction is
clear based on actual domicile or satisfaction of Delaware’s long-arm
statute; and (2) the existence of acts in Delaware which can be fairly
imputed to the out-of-state defendant and which satisfy the long-arm
statute and/or federal due process requirements.117
“It should be noted at the outset that persuading a Delaware Court to disregard the
[corporate] entity is a difficult task.”118 Doing so under an alter ego theory “requires
that the corporate structure cause fraud or similar injustice.”119 “Effectively, the
corporation must be a sham and exist for no other purpose than as a vehicle for
fraud.”120
The Amended Complaint falls well short of pleading the alter ego theory.
There are no allegations that support an inference that Rainbow Medical is a “sham”
117
HMG/Courtland Props. Inc. v. Gray, 729 A.2d 300, 308 (Del. Ch. Jan. 13, 1999).
118
Harco Nat. Ins. Co. v. Green Farms. Inc., 1989 WL 110537, at *4 (Del. Ch.
Sept. 19, 1989).
Outokumpu Eng’g Enters., Inc. v. Kvaerner EnviroPower, Inc., 685 A.2d 724, 729 (Del.
119
Super. 1996).
Wallace ex rel. Cencom Cable Income P’rs II, Inc., L.P. v. Wood, 752 A.2d 1175, 1184
120
(Del. Ch. 1999).
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or that it “exist[s] for no other purpose than as a vehicle for fraud.”121 To the
contrary, Plaintiffs describe Rainbow Medical as “an Israeli company that invests in
medical device companies, including Nano-Retina.”122 Rainbow Medical invests in
and supports several other companies separate and apart from
Nano-Retina, as described above.123 Plaintiffs’ limited allegation speculating that
“Nano-Retina was effectively functioning as the alter-ego of Rainbow Medical and
Carlyle” is not well pled.124 Plaintiffs argue in their Answering Brief that Rainbow
Medical is Nano-Retina’s alter ego because of their overlapping board members and
management personnel, and Rainbow Medical’s role “suppl[ying] Nano-Retina with
clinical, regulation and business development support.”125 This argument disregards
both Rainbow Medical’s contractual relationship with Nano-Retina and the entities’
presumptive corporate separateness.126 As explained, Rainbow Medical has actual
121
See id.122
Am. Compl. ¶ 4.
123
Id.; Ans. Br. 9.
124
Am. Compl. ¶ 76.
125
Ans. Br. 69–71.
126
Am. Compl. ¶¶ 9, 38, 40, 44, 50–54 (stating Rainbow Medical entered into several
convertible loan agreements, an Inter-Company Services Agreement, and the Operational
Services Agreement with Nano-Retina). Though not dispositive, Rainbow Medical and
Nano-Retina have separate principal places of business. See, e.g., EBG Hldgs., 2008 WL
4057745, at *13 (“[T]hey share offices, officers, and letterhead, and VG 109 is a wholly-
owned subsidiary of NIBC, which is managed by NIBC. In the absence of fraud and
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Israeli operations.127 Plaintiffs “must do more than plead that [Rainbow Medical] is
[Nano-Retina’s] alter ego . . . in conclusory fashion in order for the Court to
disregard their separate legal existence.”128
Plaintiffs dedicate one paragraph to their final argument that “the Court may
exercise ancillary jurisdiction and adjudicate all claims as a matter of fairness and
efficiency” “to the extent the Court determines that one of more of [Plaintiffs’]
claims is not directly tied to the jurisdictional act[.]”129 The Court may exercise its
discretionary ancillary jurisdiction over a nonresident defendant on a claim where it
would not have personal jurisdiction over that nonresident defendant, if that claim is
sufficiently related to a different claim against the nonresident defendant over which
the Court does have personal jurisdiction.130 Ancillary jurisdiction is inapplicable
inequity, however, these facts do not warrant disregarding the corporate form.”). Compare
Am. Compl. Ex. E (listing Nano-Retina’s “principal offices at 8 Maskit St., Herzliya,
Israel”), with D.I. 9 ¶ 2 (listing Rainbow Medical’s office as 85 Medinat Hayehuidm St.
Business Park, G Building, 8th Floor Herzliya Pituach Israel).
127
See, e.g., Am. Compl. ¶¶ 38, 40; Am. Compl. Exs. A, C.
128
See MicroStrategy Inc. v. Acacia Rsch. Corp., 2010 WL 5550455, at *11 (Del. Ch.
Dec. 30, 2010).
129
Ans. Br. 67 (citing Cap. Gp. Cos., Inc. v. Armour, 2004 WL 2521295, at *4 (Del. Ch.
Oct. 29, 2004)).
130
See, e.g., Cap. Gp., 2004 WL 2521295, at *4 (“The court may exercise its discretion to
litigate a claim for which personal jurisdiction would not otherwise exist where the claim
is brought along with other claims for which jurisdiction does exist that are sufficiently
related to that claim to warrant prosecution before a single tribunal.” (collecting cases)).
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here as this Court does not have personal jurisdiction over Rainbow Medical in any
capacity.
Because there is no statutory basis for specific jurisdiction over Rainbow
Medical, I need not reach the second question under the Due Process Clause of the
Fourteenth Amendment.131
Finally, I decline to order jurisdictional discovery. “Where the plaintiff’s
claim is not clearly frivolous, the . . . court should ordinarily allow discovery on
jurisdiction in order to aid the plaintiff in discharging that burden.” 132 “[I]f the
plaintiff identifies a non-frivolous nexus connecting the defendant to Delaware, a
court ‘should allow some discovery for the limited purpose of’ confirming that link.
But the word ‘non-frivolous’ is critical.”133 “If the proffered jurisdictional tie lacks
a legal or factual basis, jurisdictional discovery on it will be denied as futile.”134
131
See, e.g., Abajian v. Kennedy, 1992 WL 8794, at *9 (Del. Ch. Jan. 17, 1992) (declining
to decide “whether sustaining jurisdiction over [a defendant] would violate due process
requirements of the 14th Amendment” because the defendant was “not subject to personal
jurisdiction under Delaware’s long-arm statute”); see also LVI, 2017 WL 3912632, at *6
n.66 (same).
132
Hart Hldg., 593 A.2d at 539 (quoting Compagnie des Bauxites de Guinee v. L’Union
Atlantique S.A. D’Assurances, 723 F.2d 357, 362 (3rd Cir. 1983)).
133
Green Am. Recycling, 2021 WL 2211696, at *6 (collecting cases).
134
Id. (emphasis omitted); Hart Hldg., 593 A.2d at 539 (“Only where the facts alleged in
the complaint make any claim of personal jurisdiction over defendant frivolous, might the
trial court, in the exercise of its discretionary control over the discovery process, preclude
reasonable discovery in aid of establishing personal jurisdiction.”).
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Though uncommon, courts do require plaintiffs to attempt to make a prima facie
showing of personal jurisdiction when plaintiffs’ “assertion of personal jurisdiction
lacked the minimal level of plausibility needed to permit discovery to go forward.”135
Plaintiffs have not met this relatively light burden.136 The lack of facts in Plaintiffs’
complaint and Amended Complaint make any claim of personal jurisdiction over
Rainbow Medical frivolous and unworthy of jurisdictional discovery.
B. This Court Does Not Have Personal Jurisdiction Over
Fischer Behar.
Plaintiffs press their conspiracy jurisdictional theory for Fischer Behar as
well. Plaintiffs assert Fischer Behar’s role assisting Nano-Retina in its 220
Production, and witnessing its affidavit of completeness, are Delaware acts by
counsel in furtherance of a conspiracy.137 For the reasons I have explained, the 220
Production fails to anchor Plaintiffs’ alleged conspiracy in Delaware because it lacks
a nexus to Plaintiffs’ cause of action and does not form a source of the claim.138
135
Hart Hldg., 593 A.2d at 539–40.
136
Ross Hldg. & Mgmt. Co. v. Advance Realty Gp., LLC, 2010 WL 1838608, at *11–16
(Del. Ch. Apr. 28, 2010) (“[W]hen no evidentiary hearing has been held, the plaintiffs’
burden is a relatively light one i.e., they must only make a prima facie showing that the
exercise of personal jurisdiction is appropriate.” (internal quotation marks omitted)
(quoting Cornerstone, 2003 WL 1787959, at *3)).
137
Ans. Br. 59–60; Hr’g Tr. 51, 127–28.
138
LVI, 2017 WL 3912632, at *5 (internal quotation marks and emphasis omitted) (quoting
Sample, 935 A.2d at 1057 n.43); see also Chandler v. Ciccorico, 2003 WL 21040185, at
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Plaintiffs also allege Fischer Behar emailed with and wrote letters to Plaintiffs’
Delaware counsel regarding the 220 Production, but communications with Delaware
counsel, without more, are not jurisdictionally significant acts.139
Nor have Plaintiffs pled facts that support exercising personal jurisdiction
over counsel as part of a conspiracy. In Sample v. Morgan, a “highly unusual case,”
this Court exercised personal jurisdiction over counsel defendants who “directly
transacted business in Delaware for purposes of § 3104(c)(1)” because they
“engaged in concerted activity . . . to entrench and enrich the Top Managers at the
unfair expense of [the company] and its stockholders” by “prepar[ing] and sen[ding]
the Certificate Amendment to CSC in Delaware for filing with the Secretary of
State” as an element of the entrenchment scheme.140 This is far from that case:
*11 (Del. Ch. May 3, 2003) (explaining that the cause of action must have a “nexus to the
transaction of business that took place in the State”).
139
Wooding v. Yeager, 2010 WL 11712094, at *4 (D. Del. July 28, 2010) (“Contacts by
telephone, standing alone, are generally insufficient to justify an exercise of personal
jurisdiction consistent with due process.”); Agnes Carvel Estate v. Ross, 566 F.Supp.2d
342, 349 (D. Del. 2008) (finding no minimum contacts despite Ross’s phone calls to a
Delaware attorney); Comput. People, 1999 WL 288119, at *8 (“[A]s a general matter
telephone calls and an e-mail do not, in and of themselves, automatically constitute
‘transacting business’ within Delaware sufficient to invoke jurisdiction under
§ 3104(c)(1).” (collecting cases)).
140
See Sample, 935 A.2d at 1057–58 (finding counsel engaged in a Delaware act under
Section 3104(c)(1) through its “involvement . . . in arranging, either directly or through an
agent . . . the filing of a corporate instrument in Delaware that facilitated transactions under
challenge in litigation in this [C]ourt” (collecting cases)); id. at 1065 (“I reject the idea that
denying the moving defendants’ motion somehow will undermine the public policy of this
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Plaintiffs allege only that Fischer Behar advised on the 220 Production and
witnessed the affidavit of completeness. While Plaintiffs also allege Fischer Behar
advised Nano-Retina “[i]n connection with various transactions or proposed
transactions,” it has not alleged “acts or omissions in this State” to satisfy a finding
of conspiracy jurisdiction under Section 3104(c)(3).141
At bottom, Plaintiffs have failed to make a prima facie case that Fischer Behar
committed a Delaware act that formed the source of Plaintiffs’ claims.
Consequently, this Court cannot exercise personal jurisdiction over Fischer Behar
under Section 3104. I cannot exercise ancillary jurisdiction over Fischer Behar
because this Court does not have personal jurisdiction over Fischer Behar in any
capacity.142 As above, I need not determine whether exercising personal jurisdiction
over Fischer Behar would violate Due Process.143 And in the absence of “factual
allegations that suggest with reasonable particularity the possible existence of the
state, by causing law firms that provide advice to Delaware corporations to fear that they
will be regularly hauled into court here. This is a highly unusual case. In most fiduciary
duty cases, it will be exceedingly difficult for plaintiffs to state an aiding and abetting claim
against corporate counsel.” (emphasis added)).
141
Am. Compl. ¶¶ 30, 101, 113, 192; Ramada Inns, 1984 WL 247023, at *2; Rotblut, 2016
WL 5539884, at *6; Hartsel, 2011 WL 2421003, at *14; see also Sample, 935 A.2d at 1048(“Thus, the scheme not only involved an act in Delaware, it also involved an injury in
Delaware to the Delaware corporation.”).
142
Cap. Gp., 2004 WL 2521295, at *4.
143
LVI, 2017 WL 3912632, at *6 n.66; Abajian, 1992 WL 8794, at *9.
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requisite contacts” between Fischer Behar and Delaware, I find that jurisdictional
discovery is futile.144
III. CONCLUSION
The Motions are GRANTED. Plaintiffs and the defendants who answered
the Amended Complaint shall confer and submit a stipulated scheduling order and
discovery plan.
Sincerely,
/s/ Morgan T. Zurn
Vice Chancellor
144
Green Am. Recycling, 2021 WL 2211696, at *6; Hart Hldg., 593 A.2d at 539.