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Perry v. Neupert

Court of Chancery of Delaware

December 6, 2017

LILLY LEA PERRY, Plaintiff,
v.
DIETER WALTER NEUPERT and CÔTE D'AZUR ESTATE CORPORATION, Defendants. CÔTE D'AZUR ESTATE CORPORATION, Counterclaim Plaintiff,
v.
LILLY LEA PERRY, Counterclaim Defendant.

          Date Submitted: November 29, 2017

          Jeremy D. Anderson, FISH & RICHARDSON P.C., Wilmington, Delaware; Attorney for Lilly Lea Perry.

          Douglas D. Hermann, James H. S. Levine, PEPPER HAMILTON LLP; Attorneys for Dieter Walter Neupert and Côte d'Azur Estate Corporation.

          MEMORANDUM OPINION

          LASTER, V.C.

         The parties dispute who owns the equity of defendant Côte D'Azur Estate Corporation (the "Company"). The parties also dispute whether defendant Dieter Walter Neupert had authority to convert the Company from a limited liability company to a corporation, as he did by causing the filing of a certificate of conversion with the Delaware Secretary of State on June 30, 2016.

         Plaintiff Lilly Lea Perry contends that her husband, Israel Igo Perry, owned all of the Company's equity when he died in 2015, such that she now owns all of its equity as his sole heir. She claims that Neupert lacked authority to convert the Company into a corporation. The Company and Neupert contend that, in 2013, before he died, Israel[1]transferred all of the equity to a private Liechtenstein foundation (the "Foundation"), which still owns it today.[2] They claim that the Foundation executed an unlimited power of attorney in favor of Neupert, which gave him the requisite authority to file the certificate of conversion.

         Lilly has moved to join the Foundation as an involuntary counterclaim plaintiff pursuant to Court of Chancery Rule 19. This decision holds that the Foundation is a party which should be joined for a just resolution of the dispute. Nevertheless, because it appears that the Foundation can be served under the Delaware Long-Arm Statute, it is not necessary, at this stage, for the court to consider adding the Foundation as an involuntary counterclaim plaintiff.[3] Lilly shall add the Foundation to the case as an additional relief defendant by serving it with process under the Long-Arm Statute. Once served, the Foundation may raise any defenses that it believes it possesses. In addition, if Lilly wishes to seek to have the Foundation realigned as a counterclaim plaintiff, she may file a suitable motion.

         At this point, the court need not reach the question of whether to add the Foundation as an involuntary plaintiff under the last sentence of Rule 19(a). The relevant language only permits the court to add an absent party as an involuntary plaintiff "in a proper case, " which is a term of art under the rule.[4] Determining that a proceeding is "a proper case" carries significance, because "[i]t is generally agreed that [the involuntary plaintiff provision of Rule 19(a)], derived from Independent Wireless Tel. Co. v. Radio Corp. of Am., 269 U.S. 59 (1926), permits involuntary joinder as a plaintiff of a party over whom there is otherwise no personal jurisdiction, and further means that the party so joined will be bound by res judicata."[5] If the Foundation, after being served, refuses to appear and successfully contests jurisdiction, then the question of adding the Foundation as an involuntary plaintiff under Rule 19(a) will become ripe.

         I. FACTUAL BACKGROUND

         The facts are drawn from the pleadings, the documents that the pleadings incorporate by reference, and the documents that the parties submitted in connection with the Rule 19 motion. This is a procedural decision, and the court has not yet conducted an evidentiary hearing. The descriptions of the factual background in this decision therefore does not represent a set of factual findings, but rather how the record appears at this preliminary stage.

         A. Lilly's Claim To Own All Of The Company's Equity

         Israel died on March 18, 2015.[6] Lilly is Israel's surviving spouse.[7] At the time of his death, he was a non-domiciled resident of the United Kingdom, where proceedings involving his estate are pending.[8] Lilly contends that she is the sole beneficiary of Israel's estate.[9]

         The parties agree that, during his lifetime, Israel accumulated significant wealth. One of his assets was a villa in the south of France called La Treille (the "Villa").[10] Lilly values the property at approximately 25 million.[11]

         To hold title to the Villa, Israel caused the Company to be formed on May 1, 2001.[12] It was a single-member Delaware limited liability company, and Israel served as the sole member of the LLC.[13] Lilly contends that, until the events giving rise to this litigation, she believed that this state of affairs had persisted until Israel's death. In other words, when Israel died, the Company was still an LLC, and Israel was still the sole member of the Company. The operating agreement for the Company did not provide for it to dissolve upon the death of its sole member.[14] Consequently, upon his death, Israel's membership interest in the Company became an asset of his estate.

         Lilly contends that, as Israel's sole heir, she became the sole owner of the membership interest. In this litigation, the defendants have rejected Lilly's contention as "inexplicable" and "confusing at best."[15] Yet, in email correspondence, Neupert embraced precisely this theory when he authorized a French attorney to represent to the French taxation authorities that Lilly immediately gained title to the Company's equity upon Israel's death.[16] The apparent source of the defendants' current confusion is that the shares initially became the property of Israel's estate and, because the estate remains in probate, Lilly has not yet received title. Moreover, her claim is junior to any debts owed by the estate.[17] To my mind, Lilly's resulting claim is neither inexplicable nor confusing. At best, she is taking the same position that Neupert did. At worst, she is claiming an equitable interest as Israel's heir.

         B. Lilly's Dispute With Neupert

         Neupert was one of Israel's long-time business associates.[18] He is a Swiss attorney and is the senior partner at Neupert Vuille Partners, a law firm based in Zurich, Switzerland.[19] In an affidavit dated February 23, 2017, which Neupert filed in the probate proceedings and which the defendants submitted here, Neupert described himself as "an advocate specializing in aviation, banking, tax and cross-jurisdictional corporate law in Switzerland."[20]

         Lilly alleges that, shortly after Israel's death, Neupert approached her about a plan to rent out the Villa. She alleges that Neupert provided her with a written consent that would have appointed Neupert as a manager of the Company so that he could carry out the plan.[21] The record contains an email from Neupert attaching a written consent by which Lilly, as sole member of the Company, would appoint Neupert as a manager.[22]

         Lilly did not sign the consent. Lilly contends that, after she refused, Neupert embarked on a scheme to take control of the Company. To accomplish this, on June 30, 2016, Neupert caused a certificate of conversion to be filed with the Delaware Secretary of State that converted the Company from an LLC into a corporation.[23] The certificate listed Neupert as the President of the Company.[24] Neupert also caused a new certificate of incorporation to be filed for the Company that authorized the issuance of up to 10, 000 shares of common stock.[25]

         Lilly alleges that, after converting the Company into a corporation and taking control of it by purporting to be its President, Neupert registered the Company in France as a leasing company, consistent with his original scheme to rent out the Villa.[26] Lilly found out about Neupert's actions after her tax lawyers called and asked why she had registered the Company in France, given the tax liabilities that action would trigger.[27]

         Lilly contends that Neupert had no authority to file the certificate of conversion and that, under the Company's operating agreement, only the sole member could act on behalf of the Company.[28] Lilly contends that Neupert had no authority to act on behalf of Israel's estate.[29] Although Israel had named Neupert as the executor of his estate, Lilly challenged his appointment in the probate proceedings. To date, Neupert has never been appointed to that role.[30]

         Lilly promptly filed suit in this court. Her complaint contains five counts:

• Count I asserts a claim for fraud against Neupert.
• Count II asserts a claim against Neupert for violations of the Delaware Uniform Deceptive Trade Practices Act.
• Count III asserts a claim against Neupert for tortious interference with Lilly's rights under the Company's operating agreement.
• Count IV asserts a claim against Neupert for conversion.
• Count V asserts a claim against Neupert for unjust enrichment.

         Lilly named the Company as a defendant so that the court could grant her the relief she seeks, including an order invalidating the conversion of the Company from an LLC into a corporation.[31]

         C. The Defendants' Contentions

         Neupert answered the Complaint and raised affirmative defenses. In his only non-conclusory affirmative defense, he asserts that "[t]he Complaint fails, in whole or in part, because Plaintiff was not a member of [the Company], is not a stockholder of [the Company], and lacks standing to bring her claims."[32]

         The Company joined in Neupert's answer to the Complaint and his affirmative defenses. The Company also asserted a counterclaim seeking a declaration that Lilly was neither a member of the Company nor a stockholder post-conversion.[33] The counterclaim alleges that, on May 1, 2013, before his death and while the Company remained an LLC, Israel assigned the sole member interest in the Company to the Foundation.[34] The Company alleges that, by operation of law, the Foundation became a member of the Company through the assignment.[35]

         To evidence the transfer, both the Company and Neupert rely on a single-page document, titled "Deed of Assignment, " ostensibly dated May 1, 2013. The document has a signature line for Israel and a signature line for an individual named Dieter Naeff to sign on behalf of the Foundation. Illegible signatures appear above the lines. Neither signature is notarized or attested in any way.

         In its entirety, the Deed of Assignment states:

The Undersigned, Israel I. Perry, born 23 April 1942, Israeli Passport No. 10922443 herewith assigns the entire share capital of the following companies
1. Greetnwin.com Inc, Delaware/USA
2. Solid Virgin Islands Ltd, BVI
3. Cote d'Azur Estate LLC, Delaware/USA
4. The Heritage Collection
as well as
all of the pieces of art listed in the ARTLID List (pending approval by SOCA of the items contained in their Chattel List) to the [Foundation]
a foundation according to Liechtenstein Law

         The assignee herewith accepts the aforementioned assignments.[36]Neupert averred in the probate proceedings that the Deed of Assignment validly transferred the sole member interest of the Company to the Foundation as of May 1, 2013.[37]

         D. The Current Dispute

         Lilly filed an answer to the counterclaim in which she denied the validity of the Deed of Assignment. In addition to other affirmative defenses, she asserted that the counterclaim should be dismissed for failure to join a necessary party. On August 31, 2017, Lilly moved, pursuant to Rule 19, to join the Foundation as an involuntary counterclaim plaintiff or, in the alternative, to dismiss the Company's counterclaim and affirmative defenses for failure to join a necessary party.

         E. Evidence Of Fraud

         Both sides submitted documents in support of their positions on the Rule 19 motion. Of particular importance, Lilly submitted what appear to be emails from Neupert and representatives of the Foundation that directly contradict the positions that Neupert and the Company have taken before this court.

         To recapitulate, Neupert and the Company have asserted that the following facts are true:

• The Foundation has been the only owner of the equity of the Company since May 1, 2013.[38]
• Because the Foundation had been the owner of the equity of the Company since May 1, 2013, it was impossible to the point of "inexplicable" that Lilly could inherit the equity of the Company under Israel's will.[39]
• Because of the transfer, Lilly cannot prove that she has any ownership interest in the Company, whether direct or indirect, beneficial or otherwise, except to the extent that Lilly is one of the beneficiaries of the Foundation itself.[40]

         Contrary to the defendants' assertions, the record at this preliminary stage indicates that, until disputes arose, Neupert, the Company, and representatives of the Foundation (i) described the Deed of Assignment as unsigned and ineffective, (ii) maintained that Israel was the sole owner of the equity in the Company until his death, (iii) recognized that Lilly stood to inherit the equity as Israel's heir, and (iv) treated Lilly as the sole member of the Company.

         My impression, at this preliminary stage, is that the Foundation is an estate planning vehicle that Israel and Neupert established with the assistance of Lopag Trust ("Lopag"). In his affidavit in the probate proceeding, Neupert described Lopag as follows:

Lopag is a commercial trust company set up in 1989 and registered on the Liechtenstein commercial register. I was one of the founding members of Lopag and was until 18 November 2016 a member of its Board of Trustees. At one time I also had a small shareholding in the company, but I disposed of that interest at the same time as retiring from the Board, so as to avoid any accusation of impropriety . . . .[41]

         Although the record on this point remains incomplete, a document that the defendants submitted from 2013 identifies the three members of the governing board of the Foundation as Dominick Naeff, Markus Giger, and Louis Oehri.[42] Naeff and Oehri appear to be principals of Lopag. [43] As noted, Naeff purported to sign the Deed of Assignment on behalf of the Foundation.[44]

         The emails that Lilly has submitted indicate that, after Israel's death, Naeff did not view the Deed of Assignment as effective, nor did he think the Foundation owned any equity in the Company. In an email dated March 27, 2015, sent two weeks after Israel's death, a lawyer for Tamar Perry, Lilly's and Israel's daughter, asked Naeff about the Deed of Assignment, copying Neupert.[45] The subject of the email is direct and to the point: "[H]erewith is an assignment of Cote d Azure and Greetnwin - pls check."[46] Naeff emailed back the next day, copying Neupert and stating:

This assignment is known to us, but it was never executed as far as we are aware. And I'm glad about it with respect to Cote d Azure since reporting obligations in France (relevant due to the Villa in France) became very strict in the meantime and we have to plan the transfer into THE LIZA TRUST carefully now. Who can inform us about the actual shareholders/directors of Cote d Azure?[47]

         This email indicates that, as of March 2015, two weeks after Israel's death, the Foundation representative who purportedly executed the Deed of Assignment did not think it was valid or that the Foundation owned any equity in the Company.

         Later that year, in December 2015, Naeff reiterated his belief about the ownership of the Company in an email exchange with Tamar. He again copied Neupert.[48] The exchange concerned operational details of the Villa, including replacing employees there. Naeff made clear that the action had to be authorized by Israel's estate, because the estate owned the equity in the Company: "La Treille is held by Cote d'Azur Real Estate and [as] such part of the estate. We are neither shareholders nor directors, so we can only act based on goodwill of the involved."[49] As Naeff apparently saw it, the Foundation did not own the equity of the Company; it was part of Israel's estate. If the Deed of Assignment had been valid and the Foundation had owned all of the Company's equity since 2013, then Naeff's response could not have been true.

         The emails that Lilly has submitted also indicate that, after Israel's death, Neupert did not view the Deed of Assignment as effective, nor did he think the Foundation owned the equity of the Company. Rather, he thought that Israel owned the equity when he died and that it was part of the estate, which was subject to probate in the United Kingdom. In an email dated August 12, 2015, sent three months after Israel's death, an individual named Danny Cohen contacted Neupert and Naeff regarding a question Lilly had asked about "payments for safekeeping of the villa."[50] Neupert responded, copying Naeff and Tamar:

Thanks Danny - while approving the contents of your mail we should not forget that formally all agreements concerning the Villa should be concluded by the owner, ie. Cote d'Azur Real Estate LLC, Delaware
How far are we with retrieving the company documents and who should contact the French Tax Advisers concerning the disclosure of the new beneficial owners?
Formally the late Mr. Perry had declared to be the sole shareholder of the company, so - from a legal point of view - the shares in the Company fall under the UK Probate . . . (with my being responsible to declare all the assets as executor).[51]

         As Neupert apparently understood matters, the Foundation did not acquire all of the Company's equity in 2013. Instead, Israel was the "sole shareholder" when he died, so "from a legal point of view, " the shares became part of Israel's estate. If the Deed of Assignment had been valid, Neupert's statements could not have been true.

         Three months later, in November 2015, Neupert sent a series of emails in which he reiterated his belief that Israel had continued to own all of the Company's equity and his expectation that it would pass to Lilly through the probate process. In an email dated November 23, 2015, Tamar's lawyer asked Neupert whether he had access to Israel's bank accounts.[52] Neupert responded as follows:

[A]s I indicated to Tami we first have to apply for probate and in this application we will have to list all personal assets of IIP (all bank accounts whether in the UK or worldwide as well as all the shares held by IIP, for instance the Cote d'Azur Real Estate LLC)[.]
Then we can sort out the financial relations between the Estate of IIP and the Structure[.][53]

         Two days later, Neupert dictated an email to Tamar, copying Naeff, Yadlin, and Duggan:

As your mother [Lilly] is still - until she has signed an Agreement renouncing some or all of her claims - the only heir to the UK assets of your father (including bank accounts and shares in companies held personally by your father), I have to answer her questions regarding the Will and the assets. The assets certainly include the shares in Cote d'Azur Real Estate LL.C. [sic].[54]

         Both emails indicate that, as of November 2015, Neupert believed that Israel owned all of the equity of the Company when he died and that it would pass to Lilly in the probate proceeding. If the Deed of Assignment had been valid, these statements could not have been true.

         Neupert appears to have continued to hold the same beliefs in March 2016, when he communicated with an attorney who was representing Israel's estate and the Company before the French tax authorities in proceedings regarding the Villa. In an email dated March 29, 2016, Neupert provided the attorney with the following information:

• You might know that the U.S. has no such thing as a commercial registry - we are trying therefore to get a Certificate of Incumbency which would show that I am the legitimate Director of the company now (as Executor of the Last Will of Mr Perry).
• As this will take another few weeks, at present I could offer you a confirmation letter to the effect, that I, as Executor of the Last Will, can certify that Mr Perry was the owner of Cote d'Azur LLC from the incorporation until his death. If this would be helpful, maybe you can send me a draft in French which would satisfy the tax inspector.[55]

         If the Deed of Assignment was valid, such that Israel did not own the shares when he died, then Neupert was proposing to give false information to the French tax inspector.

         After the French attorney responded with questions, Neupert dictated and sent a response through his secretary on March 30, 2016. He copied Naeff and Tamar. In the email, Neupert stated the following:

• May I first of all point out that I have been involved in French/Spanish real estate investments for 40 years, that I have lectured on tax implications of cross border real estate investments and that I have won the first landmark case concerning the 3% flat tax at the Cour de Cassation back in 1983.
• So what I can offer for the time being, is a confirmation of the ownership of Mr. Perry in my capacity as Director of Cote d'Azure Estate LLC (I do not have to mention that Mr Perry has passed away because I hope to have the Certificate of Incumbency when the French tax inspector or inspectrice will be asking for it[)].
• I assume that you need an actual power of attorney by the Director of the company?
• Regarding the 3% declaration, I would be very cautious to make a false declaration concerning the ownership as of January 1, 2016 (I had a nasty experience in another case). I would say that as the ownership of the LLC was undetermined on Jan 1st 2016, it is actually still correct to mention that Mr Perry (or his estate) was the owner at the time. We can search for a possible position of the French Tax Authorities on this very specific case, but I would be surprised to find any. In any event, saying that Mrs Perry was the owner on Jan 1st 2016 is also probably a wrong statement, wouldn't it?
Summing up, I would suggest that you prepare a French declaration I can sign as Director and at the same time, I think you need a new power of attorney (it looks funny if I sign a Certificate as a Director and you are still using a PoA from a deceased person).[56]

         Neupert's statements in this email are consistent with a belief that Israel owned the equity of the Company at his death such that the equity became part of his estate. They are inconsistent with the Foundation having owned the equity since 2013.

         After receiving Neupert's response, the tax lawyer asked additional questions. At this point, Neupert shifted away from treating the shares as owned by the estate to embrace precisely the same position regarding ownership that Lilly has advanced in this proceeding:

I told you that according to the Last Will of Mr Perry, his widow, Mrs Lilly Perry, is the sole heir to the LLC shares, so automatically upon the death she becomes the new owner (without any further legal action). In my opinion it would be a bad idea to say the estate is the owner, because then the tax office will immediately ask who the other family members might be in the hope of getting 40% inheritance tax from the daughters.[57]

         If the Deed of Assignment was valid, then Neupert's description of Lilly's ownership position would have been false, and he would have been proposing to provide false information to the French tax authorities.

         Tax counsel appears to have been concerned about making these representations to the French government. Tax counsel subsequently asked for confirmation that "Cote d'Azur LLC was not contributed to the trust constituted by Mr Perry (to our knowledge this is not the case)."[58] In an email dated May 4, 2016, Neupert formally authorized tax counsel to "declare Lilly Perry as [the] only shareholder of the Cote d'Azur LLC by inheritance from her late husband Israel Perry according to his Last Will."[59] He also promised tax counsel that he would "be able to send you (within the next few weeks) a declaration signed by me as CEO of the LLC that Israel Perry was indeed the owner of the shares until his Death on 18 March 2015-you already have my confirmation as Executor of the Last Will."[60]

         During his email exchanges with tax counsel, Neupert made reference to "further papers from Delaware."[61] Neupert later received "from Delaware" a document that could be provided to the French tax authorities to confirm that Neupert was authorized to speak on behalf of the Company.[62] The document was titled "Written Consent of Members of Cote D'Azue [sic] Estate LLC, " was dated "as of March 30, 2016, " would have appointed Neupert as a manager of the Company, and identified "Lilly Perry" as the sole member of the Company.[63] The plan to have Lilly execute a member consent as the sole member of the Company "as of March 30, 2016" is inconsistent with the concept that Israel transferred his equity to the Foundation three years earlier.

         Lilly alleges that she refused to sign the written consent. Consistent with her account, it is only at this point that Neupert and the representatives of the Foundation appear to have started treating the Foundation as the owner of the equity. The record contains an "unlimited power of attorney" that a Foundation representative executed on May 2, 2016 (the signature is illegible).[64] It granted Neupert the power to perform "all legal acts" including

Extrajudicial representation; representation before all courts of law, administrative authorities, and arbitral tribunals; entry into agreements as to jurisdiction, including venue and arbitration agreements; filing appeals; issuing disclaimers; entering into settlements; acknowledging and withdrawing civil actions; executions of judgment and agreed settlements; receiving and issuing securities, payments, and other objects of litigation; instituting and conducting debt collection procedures, including the filing of creditor recovery actions; representation in inheritance matters, public registrations and recordings, and land ...

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