METRO STORAGE INTERNATIONAL LLC, a Delaware limited liability company, METRO STORAGE LATAM LLC, a Delaware limited liability company, MSI MANAGER LLC, a Delaware limited liability company, LATAM MANAGER LLC, a Delaware limited liability company, MATTHEW M. NAGEL, AS TRUSTEE OF THE MATTHEW M. NAGEL REVOCABLE TRUST DATED JULY 27, 2001, AS AMENDED, and K. BLAIR NAGEL, AS TRUSTEE OF THE K. BLAIR NAGEL REVOCABLE TRUST DATED JULY 30, 2003, AS AMENDED, Plaintiffs,
JAMES A. HARRON, Defendant.
Submitted: May 7, 2019
C. McBride, Emily V. Burton, Lauren Dunkle Fortunato, YOUNG
CONAWAY STARGATT & TAYLOR, LLP., Wilmington, Delaware;
Harold C. Hirschman, Leah R. Bruno, Jacqueline A. Giannini,
DENTONS US, LLP, Chicago, Illinois; Counsel for Plaintiffs.
Chaney Hall, Kasey H. DeSantis, FOX ROTHSCHILD LLP,
Wilmington, Delaware; Jeffrey L. Widman, FOX ROTHSCHILD LLP,
Chicago, Illinois; Counsel for Defendant.
James Harron served as president of plaintiffs Metro Storage
International LLC ("International") and Metro
Storage LATAM LLC ("LATAM"; together, the
"Companies"). After Harron resigned, his former
employers discovered that he had been pursuing personal
business ventures on the side. The Companies filed suit,
joined by the other plaintiffs. They contend that Harron
violated the Companies' LLC agreements, breached his
fiduciary duties, and violated the Stored Communications Act.
They also seek declarations that Harron defaulted on loans he
moved to dismiss the complaint for lack of personal
jurisdiction. The exercise of personal jurisdiction requires
a valid means of serving process. The plaintiffs argue that
they properly served Harron under the implied consent
provision in the Delaware Limited Liability Company Act (the
"LLC Act"), 6 Del. C. § 18-109(a),
which establishes a mechanism for serving process on a
manager of an LLC.
purposes of service, Section 18-109(a) defines the term
"manager" as encompassing two categories of
persons: first, a person formally named as a manager pursuant
to the governing LLC agreement; and second, a person not
formally named as a manager pursuant to the governing LLC
agreement but who nevertheless "participates materially
in the management of the limited liability company." 6
Del. C. § 18-109(a). This decision refers to
the first category as a "formal manager" and the
second category as an "acting manager."
Companies were manager-managed LLCs, and their LLC agreements
vested authority over their business and affairs in formal
managers. Harron was not a formal manager, but he was an
acting manager. The record supports a reasonable inference
that Harron participated materially in the Companies'
management. As president, he managed their day-to-day
operations. That conduct satisfies the plain language of the
argues that a greater showing is required. He asserts that to
qualify as an acting manager, the person must have occupied a
"control or decision-making role." He argues that
any time an LLC agreement vests authority in a formal
manager, another person cannot occupy a control or
decision-making role, because the formal manager has that
role. He further argues that when a person participates in
management as an agent for another, the person's actions
as an agent cannot support acting-manager status.
on these theories, Harron argues that the plaintiffs cannot
serve him under Section 18-109(a). He contends that even
though he served as president of the Companies and, in that
capacity, managed their day-to-day operations, he never held
a control or decision-making role because the LLC agreements
designated formal managers, and he was merely their agent.
decision analyzes the precedent on which Harron relies and
traces the lines of reasoning to their origins. In each case,
the archaeological effort uncovers a weak foundation, which
subsequent decisions have built upon without shoring up. In
each case, Harron's theories conflict with the LLC Act or
with jurisdictional doctrines. This decision therefore
rejects Harron's arguments.
exercise of personal jurisdiction also must comply with the
Due Process Clause of the Constitution of the United States.
Harron has sufficient contacts with the State of Delaware to
render this court's exercise of personal jurisdiction
constitutionally permissible. Harron's motion to dismiss
for lack of personal jurisdiction is denied.
facts are drawn from the plaintiffs' complaint and the
documents it incorporates by reference. Citations to exhibits
("Ex. -") refer to documents attached to the
complaint. When considering a Rule 12(b)(2) motion, a court
may consider affidavits relating to the jurisdictional
issues, and this decision takes into account the affidavits
that the parties submitted. At this stage of the proceedings,
the complaint's allegations are assumed to be true, and
the plaintiffs receive the benefit of all reasonable
Metro and Harron
Metro Storage LLC ("Metro") is one of the largest
privately owned operators of self-storage facilities. Two
brothers own Metro: plaintiff Matt Nagel, who serves as its
chairman, and plaintiff Blair Nagel, who serves as its chief
executive officer. The Nagel brothers are parties to this
action solely as trustees of their respective trusts, which
own member interests in the Companies. For simplicity, this
decision refers to the Nagels using their first names.
2011, Harron approached Matt about developing self-storage
facilities in Brazil. Matt liked the idea, and Harron began
working with Metro to develop it. Later, the concept
broadened to include pursuing opportunities throughout Latin
took the lead in working with counsel and accountants to
establish the necessary entities. He formulated the business
objectives and strategy, and he negotiated a joint venture
with a Brazilian company.
October 10, 2012, Harron, Matt, and Blair executed the LLC
agreement for International (the "International
Agreement"). It established a manager-managed governance
structure for International and designated MSI Manager LLC as
the formal manger. Matt and Blair owned and controlled MSI
LLC Act requires when establishing a manager-managed
governance structure, the International Agreement contained a
provision specifically empowering MSI Manager to manage the
entity. Section 10.1 of the International Agreement stated:
Except as hereinafter expressly provided the Manager shall
have exclusive authority to manage the operations and affairs
of the Company and to make all decisions regarding the
business of the Company, and the Members (as Members) shall
have no right to vote upon or otherwise make any decisions
relating to the operation of the Company except as may be
otherwise expressly provided in this Agreement. The Manager
shall have all the rights and powers of Manager
[sic] as provided in the Act and as otherwise
provided by law, subject to the express limits set forth
herein. Any action taken by the Manager shall constitute the
act of and serve to bind the Company; provided that the
Manager agrees not to cause the Company to take any Unanimous
Approval Action other than requiring Capital Contributions
unless such Unanimous Approval Action shall have been
approved by the Principals and, during the first two years
after the date hereof, the Executive.
customary when establishing a manager-managed governance
structure, the International Agreement contained a reciprocal
provision confirming that the members did not have the
ability to participate in management. Section 10.5 of the
International Agreement stated:
Except as may be otherwise expressly provided herein, the
Members shall not participate in the management or control of
the Company's business or transact any business for the
Company, nor shall they have the power to act for or bind the
Company, all such powers being vested solely and exclusively
in the Manager.
this structure, MSI Manager had the exclusive authority to
manage International, and MSI Manager's actions would
constitute the acts of and bind International, except that
MSI Manager could not unilaterally take what Section 10.1
identified as "Unanimous Approval Actions." Those
actions required the prior approval of "the
Principals," defined as Matt and Blair, and (for the
first two years) the "Executive," defined as
Harron. In Section 10.3, the International Agreement
identified nineteen "Unanimous Approval Actions."
They generally reflected major actions that International
might take, such as dissolving or merging, terminating or
replacing the manager, admitting a new member, or amending
the agreement. But several of the Unanimous Approval Actions
involved decisions that could be expected to arise with some
frequency for an entity planning to develop self-storage
facilities, such as
(iii) borrowing money or guaranteeing the debt of any other
(iv) encumbering any of the Company's assets; . . . [or]
(vi) directly or indirectly acquiring any real property or
entering into any binding agreement to directly or indirectly
acquire any real property.
first two years of International's existence, Harron had
a veto over these and other Unanimous Approval Actions.
International Agreement authorized the Company to have
officers. Section 10.7 stated:
The Company may have officers (each an "Officer")
to exercise such power and perform such duties as shall be
determined from time to time by the Manager. The Officers may
include a Chairman, a Chief Executive Officer, a President, a
Chief Operating Officer, a Secretary a [sic]
Treasurer and one or more Vice Presidents, Executive Vice
Presidents, Assistant Secretaries and Assistant Treasurers. .
. . The Officers, to the extent of their powers set forth in
this Agreement or otherwise vested in them by action of the
Manager not inconsistent with this Agreement, are agents of
the Company for the purpose of the Company's business and
the actions of the Officers taken in accordance with such
powers shall bind the Company. However, no Officer shall
execute any agreement by or on behalf of the Company, or any
Metro International Entity, relating to (i) the acquisition
or disposition of real property, (ii) the borrowing of money
or any guarantees relating to the borrowing of money, or
(iii) any other matter pursuant to which the Company, or any
Metro International Entity would be expected to expend or
receive $25, 000 or more unless in any such case the
applicable action shall have been approved in writing by the
International Agreement designated Matt as Chairman, Blair as
CEO, and Harron as President.
Section 10.7 recognized that "the actions of the
Officers taken in accordance with [their] powers shall bind
the Company." But Section 10.7 contained three
exceptions when an officer could not act without the written
approval of MSI Manager: (i) acquiring real property, (ii)
borrowing money or providing a guarantee, or (iii) any other
matter involving more than $25, 000. The first two exceptions
also qualify as Unanimous Approval Actions that Harron could
veto during the first two years of International's
Harron Runs International.
president, Harron ran International's day-to-day
operations. His responsibilities included screening
opportunities, negotiating joint venture agreements,
coordinating meetings with third parties, analyzing whether
to make capital calls, overseeing joint venture staff,
interacting with joint venture partners, and monitoring the
company's performance. He was quite literally the face of
the business, and International's website identified him
as the point of contact for any potential investor or
business partner. Harron's resume represents that he
"led all elements of international investment."
MSI Manager formally had authority to manage International,
its principals, Matt and Blair, were not directly involved in
International's day-to-day operations. Harron only sought
approval from Matt and Blair for major decisions, such as
borrowing money or entering into joint venture agreements. By
seeking these approvals, Harron complied with the last
sentence of Section 10.7 of the International Agreement,
which limited his authority as president to acquire or
dispose of real property, to borrow money or provide
guarantees, or to commit International or its affiliates to
spend or receive $25, 000 or more.
International Agreement implied that International would be
the vehicle through which Metro's principals would pursue
all of their international operations. But in 2017, Matt,
Blair, and Harron formed a separate entity-LATAM-to pursue
opportunities in Latin America outside of Brazil.
internal affairs are governed by a limited liability company
agreement dated March 28, 2017 (the "LATAM
Agreement"). The terms of the LATAM Agreement and the
governance structure it created largely track the
the International Agreement, the LATAM Agreement established
a manager-managed governance structure, and it designated
LATAM Manager LLC as the formal manager. Like MSI Manager,
LATAM Manager was owned and controlled by Matt and
As in the International Agreement, the LATAM Agreement (i)
empowered the manager to manage LATAM, (ii) prohibited
members from participating in management, and (iii)
identified a list of Unanimous Approval Actions that required
unanimous approval from Matt, Blair, and Harron. The LATAM
Agreement also authorized LATAM Manager to appoint officers
and empower them to act on behalf of the Company, subject to
the same limitations found in the International Agreement.
Like the International Agreement, the LATAM Agreement
designated Matt as Chairman, Blair as CEO, and Harron as
President. As with International, Harron ran LATAM's
day-to-day operations. Among other things, he led the
creation of a joint venture with Central America's
leading operator of self-storage facilities.
2018, Harron resigned from Metro and its affiliates. After
Harron's departure, Matt and Blair uncovered evidence
that Harron had been pursuing personal projects and
investments in the storage industry while working for Metro
and its affiliates. In December 2018, the plaintiffs filed
this lawsuit against Harron.
complaint in this action contains seven counts:
• Counts I and II contend that Harron breached the
International and LATAM Agreements by misusing the
Companies' confidential information to conduct business
with third parties for his own personal benefit.
• Count III contends that Harron breached his fiduciary
duties as an officer of the Companies by pursuing business
opportunities for his own personal benefit.
• Count IV asserts that Harron violated the Stored
Communications Act by using Metro's email servers and
computer systems for unauthorized purposes and by attempting
to delete emails and files from his Metro accounts before his
• Counts V and VI seek declaratory judgments that the
Companies have the right to repurchase Harron's member
interests at no cost because of Harron's breaches of the
International and LATAM Agreements.
• Count VII seeks a declaration that Harron defaulted on
loans he received from the Companies to meet capital calls
and that he must repay the amounts due after the Companies
repurchase his member interests.
moved to dismiss the complaint under Rule 12(b)(2) for lack
of personal jurisdiction. "When a defendant moves to
dismiss a complaint pursuant to Court of Chancery Rule
12(b)(2), the plaintiff bears the burden of showing a basis
for the court's exercise of jurisdiction over the
defendant." Ryan v. Gifford, 935 A.2d 258, 265
(Del. Ch. 2007).
Delaware law, the exercise of personal jurisdiction has two
requirements. Matthew v. Fläkt Woods Gp. SA, 56
A.3d 1023, 1027 (Del. 2012). First, the plaintiff must
identify a method of serving process. Second, the defendant
must have certain minimum contacts with Delaware such that
the exercise of personal jurisdiction "does not offend
traditional notions of fair play and substantial
justice." Id. (quoting Int'l Shoe Co.
v. Washington, 326 U.S. 310, 316 (1945)).
Service of Process
their method of serving process, the plaintiffs rely on
Section 18-109(a) of the LLC Act. In relevant part, it
A manager . . . may be served with process in the manner
prescribed in this section in all civil actions or
proceedings brought in the State of Delaware involving or
relating to the business of the limited liability company or
a violation by the manager . . . of a duty to the limited
liability company or any member of the limited liability
company, whether or not the manager . . . is a manager . . .
at the time suit is commenced.
A manager's . . . serving as such constitutes such
person's consent to the appointment of the registered
agent of the limited liability company (or, if there is none,
the Secretary of State) as such person's agent upon whom
service of process may be made as provided in this section.
6 Del. C. § 18-109(a) (formatting added).
other entity statutes that authorize service of process on
members of the governing body of an entity or its officers,
Section 18-109(a) only provides a basis for specific
jurisdiction, not general jurisdiction. See Total Hldgs.
USA, Inc. v. Curran Composites, Inc., 999 A.2d 873, 885
n.39 (Del. Ch. 2009). The claim against the manager must
therefore "involv[e] or relat[e] to the business of the
limited liability company or a violation by the manager . . .
of a duty to the limited liability company or any member of
the limited liability company." 6 Del. C.
§ 18-109(a). Harron does not dispute that dimension of
18-109(a) defines the term "manager" to encompass
both formal managers and acting managers. It states:
As used in this subsection (a) and in subsections (b), (c)
and (d) of this section, the term "manager" refers
(i) to a person who is a manager as defined in §
18-101(10) of this title and
(ii) to a person, whether or not a member of a limited
liability company, who, although not a manager as defined in
§ 18-101(10) of this title, participates materially in
the management of the limited liability company;
provided however, that the power to elect or otherwise select
or to participate in the election or selection of a person to
be a manager as defined in § 18-101(10) of this title
shall not, by itself, constitute participation in the
management of the limited liability company.
6 Del. C. § 18-109(a) (formatting added);
accord id. § 18-110(c) (using same definition).
The two-part manager definition in Section 18-109(a)
reference Section 18-101(10), which defines a
"manager" as "a person who is named as a
manager of a limited liability company in, or designated as a
manager of a limited liability company pursuant to, a limited
liability company agreement or similar ...