In a recent letter opinion, Tratado de Libre Commercio v. Splitcast Technology, C.A. No. 2019-0014-JRS (Del. Ch. March 6), Vice Chancellor Joseph Slights addressed the issue of how to perfect service upon a dissolved limited liability company (LLC).  

The company, Splitcast Technology, LLC, was properly dissolved in 2015. In the complaint, plaintiffs sought to nullify the certificate of cancellation of the company, which had allegedly caused damages to them; to return assets to the company, so they could be used to satisfy the plaintiffs' claims; and to appoint a former member of the company as trustee for the company for the purpose of defending against the plaintiffs' claims.

Since the plaintiffs sought an order nullifying the company's certificate of cancellation and an order directing that the members return assets to the company so that it could satisfy obligations allegedly owing to the plaintiffs, the vice chancellor found that the dissolved entity was a necessary party to the litigation. In an earlier decision, In re Krafft-Murphy, C.A. No. 6049–VCP, (Del. Ch. Nov. 9, 2011), the court had previously determined that service of process could be made upon a defunct business corporation under Chancery Rule 4(d)(7) and Section 279 of the Delaware General Corporation Law, 8 Del. C. Section 279. (For more on the subsequent history of the Krafft case, see Klayman & Felger, “Reanimation of a Dissolved Delaware Corporation,” Delaware Business Court Insider, Jan. 15, 2014.) The vice chancellor found Krafft to be persuasive authority in the alternative entity context given the lack of any direct, on-point authority. Specifically, the vice chancellor found that Section 18-805 of the Delaware Limited Liability Company Act, which provides that the Court of Chancery may upon good cause shown appoint a trustee or receiver for an LLC whose certificate of formation has been cancelled, like Section 279 of the DGCL, authorizes service to be made on a dissolved limited liability company. However, Splitcast no longer had a registered agent or active senior officers upon whom personal service could be made. The question then became how to perfect such service.

The plaintiffs had sent notice of the suit by regular mail to attorneys for the former members of the dissolved company. The vice chancellor held that this was not adequate to perfect service of process on the dissolved LLC. He looked for guidance to the Krafft case, where the court had ordered the petitioners to publish notices in newspapers published in Delaware and Virginia, the residence of the dissolved corporation's former senior officers, and to provide additional written notice to the attorney associated with the dissolved corporation.

The vice chancellor found it necessary to invoke his authority under Chancery Rule 4(d)(7) to direct another or additional mode of service, because the company was fully dissolved and beyond the winding up period. Accordingly, he directed the plaintiffs to publish notice of the action in a widely circulated Delaware newspaper daily for two consecutive weeks, mail copies of the summons and complaint and the court's letter opinion by certified mail to the former senior officers of the company, at their last known addresses, and separately to their counsel, and file an affidavit of compliance with the court outlining the steps taken to comply with the court's directions and attaching the service documents as exhibits.

The former members of the LLC, who were also defendants in the action, argued that the plaintiffs' petition to appoint a trustee for the dissolved company was too late. The vice chancellor disagreed. He noted that Section 18-805 provides that on application of any creditor, member, or any other person showing good cause “at any time,” the Court of Chancery may appoint a trustee if it is necessary to settle the cancelled limited liability company's unfinished business. The fact that Splitcast had been dissolved for over three years did not matter, since the application could be filed “at any time.” Moreover, even if the court were inclined to be guided by the statutory winding-up period when assessing the timeliness of a petition to appoint a trustee, the Delaware LLC Act does not contain a three-year wind-up provision comparable to Section 278 of the DGCL, 8 Del. C. Section 278.

The vice chancellor reminded the plaintiffs that their petition could not be considered until service had been perfected upon the dissolved company. The vice chancellor also reminded the plaintiffs that Chancery Rule 150 prohibits a nonresident from serving as the sole receiver for a corporation, association or partnership. If plaintiffs' proposed trustee was a nonresident of Delaware, they would have to propose a member of the Delaware bar to serve as co-trustee with the proposed nonresident or explain to the court why Rule 150 should be waived.

Reviving a defunct corporation or LLC in order to pursue assets or defend claims presents many issues. There is not much jurisprudence regarding how to do it. In this case, the vice chancellor reached a pragmatic decision regarding how best to serve the entity with notice of suit. The court did not explain its rationale for requiring publication of notice in addition to certified letters to the last known addresses of the company's former senior officers. Presumably, the intent was simply to maximize the chances that someone would come forward to speak for the now defunct entity, although there was no discussion in the opinion of where the dissolved company did business or how many members it actually had. A key takeaway from the decision would appear to be the benefit in affirmatively raising the issue of the adequacy of the manner of service on a dissolved LLC at the outset of the litigation in order to ensure that it will satisfy the requirements of due process and the court.

Barry M. Klayman is a member in the commercial litigation group and the bankruptcy, insolvency and restructuring practice group at Cozen O'Connor. He regularly appears in Chancery Court.

Mark E. Felger is co-chair of the bankruptcy, insolvency and restructuring practice group at the firm.