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Lucas v. Hanson

Court of Chancery of Delaware, New Castle

December 19, 2014

Alan L. Lucas, et al.
v.
Alan Hanson, et al.

Submitted: October 29, 2014.

Dear Counsel and Parties:

Following the issuance of my final report dated July 1, 2014, which recommended that the Court dismiss the amended complaint without prejudice, the plaintiff, Alan L. Lucas, filed a second amended complaint ("the Second Amended Complaint"). Alan Hanson, Patty Hanson, and Marcella Hosch (the "Hanson and Hosch Defendants") have moved to dismiss the Second Amended Complaint on the basis that Mr. Lucas lacks standing to pursue this matter (the "Motion to Dismiss"). After the Motion to Dismiss was fully briefed, Mr. Lucas filed an "Application for Temporary Stay of Proceedings" (the "Motion to Stay") because he was exploring whether to retain counsel and because he understood that other parties might intervene in the case. For the reasons that follow, I recommend that the Court grant the Motion to Dismiss and deny the Motion to Stay.

BACKGROUND

The facts underlying the parties' dispute were summarized in my July 1, 2014 Final Report and need not be repeated in detail here. To briefly summarize, Covenant Investment Fund LP ("Covenant") is a Delaware limited partnership. In earlier complaints, Mr. Lucas alleged that Prosapia Capital Management LLC ("Prosapia Capital") is the general partner of Covenant and that Mr. Lucas is the operating manager of Prosapia Capital.[1] The defendants are or were limited partners of Covenant.[2]

In June 2011, Mr. Lucas was charged in Iowa with theft and ongoing criminal conduct associated with the expenditure and liquidation of Covenant's funds and assets.[3]Mr. Lucas was convicted on October 23, 2013 and was sentenced on March 14, 2014 to 25 years in prison.[4] In connection with the criminal proceedings, Iowa declared "that the entire amount [of] cash in [Covenant's] account was the property of the [named defendants] and that Lucas, as General Partner, should have distributed it to [the named defendants] and dissolved Covenant upon Lucas becoming General Partner."[5] As in his previous complaints, Mr. Lucas alleges in the Second Amended Complaint that the State of Iowa has seized Covenant's assets and intends to distribute those assets to the defendants.[6] Mr. Lucas seeks a number of declarations regarding his interpretation of Delaware law governing limited partnerships, [7] as well as an injunction prohibiting the defendants from receiving disbursement of Covenant's assets until the issues in this case have been resolved.[8]

I recommended that the Court grant the first amended complaint without prejudice on the basis that Mr. Lucas did not therein allege he was either a general partner or a limited partner of Covenant. In the Second Amended Complaint, Mr. Lucas alleges he is both a general and limited partner of Covenant, although his response to the Motion to Dismiss confirms that he is not pursuing a derivative action and is not relying on his alleged position as a limited partner to confer standing in this action.[9] In their Motion to Dismiss, the Hanson and Hosch defendants dispute Mr. Lucas's position as general partner of Covenant, pointing to filings with the Delaware Secretary of State that identified Prosapia Capital as Covenant's only general partner.[10]

On August 27, 2014, Mr. Lucas purported to file with the Delaware Secretary of State an Amendment to the Certificate of Limited Partnership that identified both Alan Lucas and Prosapia Capital as Covenant's general partners as of that date (the "Certificate of Amendment").[11] Mr. Lucas also contends that he became Covenant's general partner on May 18, 2010, attaching as evidence a one page document that he signed as Covenant's General Partner.[12] In their reply brief in support of the Motion to Dismiss, the Hanson and Hosch Defendants argue that the belated filing of the Certificate of Amendment was not sufficient to confer standing on Mr. Lucas as of the time the Second Amended Complaint was filed and therefore the motion to dismiss should be granted and this case dismissed with prejudice.

On October 24, 2014, Mr. Lucas filed the Motion to Stay, arguing that the Court should defer ruling on the Motion to Dismiss because Mr. Lucas was exploring whether to retain counsel and because either Prosapia Capital or Covenant had indicated they might move to intervene in this action. [13] To date, no counsel has entered an appearance on behalf of Mr. Lucas and no motion to intervene has been filed.

ANALYSIS

Pursuant to Rule 12(b)(6), this Court may grant a motion to dismiss for failure to state a claim if a complaint does not assert sufficient facts that, if proven, would entitle the plaintiff to relief The governing pleading standard in Delaware to survive a motion to dismiss is "reasonable „conceivability.'"[14] When considering such a motion, a court must

accept all well-pleaded factual allegations in the Complaint as true, accept even vague allegations in the Complaint as "well-pleaded" if they provide the defendant notice of the claim, draw all reasonable inferences in favor of the plaintiff, and deny the motion unless the plaintiff could not recover under any reasonably conceivable set of circumstances susceptible of proof.[15]

This "conceivability" standard asks whether there is a "possibility" of recovery.[16] If the well-pleaded factual allegations of the complaint would entitle the plaintiff to relief under a reasonably conceivable set of circumstances, the Court must deny the motion to dismiss.[17]

In the Second Amended Complaint, Mr. Lucas alleges he is a general partner of Covenant. He did not attach or incorporate by reference in his complaint any documents relating to his appointment as general partner. Only after the Hanson and Hosch defendants relied on the filings on record with the Delaware Secretary of State did Mr. Lucas (1) file the Certificate of Amendment and (2) provide additional factual allegations ...


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