Submitted Date: January 7, 2015
Richard L. Renck, Esquire Duane Morris LLP
Thomas W. Briggs, Jr., Esquire Matthew R. Clark, Esquire Morris, Nichols, Arsht & Tunnell LLP
John L. Reed, Esquire R. Craig Martin, Esquire DLA Piper LLP (US)
This letter opinion addresses a dispute over the scope of jurisdictional discovery. The Plaintiff relies primarily on Delaware's long-arm statute, and its "conspiracy theory" concepts, to support her contention that this Court has personal jurisdiction over the individual defendants. According to the Plaintiff, formation of Delaware entities was part of the scheme or effort to defraud her, thereby exposing the participants to application of the long-arm statute.
One side seemingly wants to use this opportunity to gain additional knowledge about the merits of the various claims. The other side comes close to arguing that there is no need for jurisdictional discovery because, well obviously, there is no personal jurisdiction. The answer, of course, lies in between. Finding the proper boundary line for jurisdictional discovery is the Court's current task.
Demonstrating that this Court has personal jurisdiction is a burden that a plaintiff must bear. The scope of discovery is tied to what the plaintiff must show. To establish personal jurisdiction pursuant to Delaware's long arm statute, a plaintiff must show that the statute applies and that exercising jurisdiction comports with due process. "[A] single transaction is sufficient to confer jurisdiction, " but that Delaware transaction must have a sufficient nexus to the basis for the claim. Participation in a conspiracy involving the formation of a Delaware entity can support personal jurisdiction. Establishing conspiracy jurisdiction involves a five-part test. The plaintiff must make a factual showing that: (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 act in Delaware or that acts outside of Delaware would have an effect in Delaware; and (5) the act in, or effect on, Delaware was a direct and foreseeable result of the conduct and furtherance of the conspiracy.
The allegedly wrongful events primarily took place in Ecuador. Three Delaware limited liability companies were established in 2008 (and one in 2009) at the behest of Defendants Johny Jacobo Czarninski Baier ("Johny") and Danny David Czarninski Baier ("Danny"). The formation of those entities is alleged to have been part of the conspiracy (or an individually-undertaken effort) to defraud the Plaintiff of her interests in assets located primarily in Ecuador. The events that occurred in Delaware, essentially the filing of entity formation documents, are narrow and, apparently, relatively undisputed. Yet, there is a broader dispute about the context in which the entities were formed, and the Istituto Bancario test, which is said to be applied strictly, ranges far in the factual field. Was there a fraudulent act? Was there a conspiracy to carry out the fraudulent act? When (or over what period of time) was the conspiracy carried on? Who were the "members" of the conspiracy? This listing certainly is not comprehensive, but it demonstrates how extensive jurisdictional discovery may sometimes necessarily be. In addition, the Plaintiff was not aware of, involved in, or even geographically close to (at least for the most part) the questioned conduct. In other words, to make the factual showing required to sustain inter-country personal jurisdiction, the factual inquiry may unavoidably be extensive. Conversely, the Plaintiff is only entitled to discovery on "the narrow issue of whether . . . Defendants are subject to personal jurisdiction in Delaware." It is in this context that the Court turns to the parties' debate about the information to which the Plaintiff is entitled.
The Plaintiff is entitled to discovery supporting her basic claim of fraudulent acts that occurred primarily in Ecuador. This is not a searching or detailed effort. Instead, all that is necessary is to develop the basic showing of wrongful conduct and who the participants (members of the alleged conspiracy) were. Then Plaintiff may follow the allegedly converted assets (or equity) and seek to learn how the formation of Delaware entities facilitated that scheme or otherwise played an integral role in the scheme. The actions of the Delaware entities (limited though they may be) are a proper topic. Transfers of the assets (or equity) to entities beyond Delaware should round out the range of discovery. What happened after those transfers were completed would not be material to the question of jurisdictional discovery, unless those actions somehow relate to Delaware.
Depositions of Johny and Danny will undoubtedly be a burden on all, if for no other reason than geography. The Court, however, can find no good reason to preclude their depositions. Plaintiff also wants to depose Defendant Taly Czarninski Shefi de Schwartz ("Taly"), Johny's daughter. In an effort to limit the discovery burden and because it may turn out that Taly's deposition is either unnecessary or, more specifically, duplicative, Taly's deposition will not be taken without a showing of need for that deposition after the depositions of Danny and Johny have been completed. If the discovery that the Plaintiff reasonably needs can be achieved through those two depositions, Taly's deposition can be avoided. If the parties on further consideration conclude that it would simply be more convenient to proceed with Taly's deposition, they are free to follow that course.
One concern is that Danny and Defendant Vistamar Investments LLC have not devoted much attention to Plaintiff's individual discovery requests. In fairness, however, Johny and the defendant entities associated with him have addressed several specific issues.
Discovery directed to certain Florida-named entities is appropriate if, as Plaintiff alleges, they own the Delaware limited liability companies that are identified with Johny. Ownership between the time the Delaware entities were formed and the time the Florida-named entities were formed is a reasonable topic for inquiry in order to ascertain the identity of potential participants in what Plaintiff characterizes as the conspiracy. Certain concerns identified by the Defendants can be addressed through confidential treatment.
As a general matter, the full inquiry into financial and tax records suggested by Plaintiff likely would not be appropriate, but Defendants have offered tax issues, and the derivative financial benefits, as the basis for establishing the Delaware entities. While discovery on these topics may turn out not to be helpful, Defendants cannot say that such information is both not relevant and the very basis for forming Delaware entities. Although an appropriate topic for discovery, the inquiry is not unlimited and certain constraints are required to avoid making the effort unduly burdensome and ...