300 W 22 Realty, LLC v. Strathmore Insurance Company

• Court: Superior Court of Delaware
• Decided: March 1, 2023
• Docket: N22C-03-147 MMJ CCLD
• Status: Published

Opinion

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

300 W 22 REALTY, LLC, ) ) Plaintiff, ) ) v. ) C.A. No. N22C-03-147 MMJ CCLD ) STRATHMORE INSURANCE ) COMPANY , ) ) Defendant.

Submitted: February 14, 2023 Decided: March 1, 2023

On Defendant’s Motion to Dismiss GRANTED

On Plaintiff’s Request for Jurisdictional Discovery DENIED

OPINION

Benjamin P. Chapple, Esq., Reed Smith LLP, Wilmington, DE, Nicholas M. Insua, Esq. (pro hac vice) (Argued), Princeton, NJ, Attorneys for Plaintiff 300 W 22 Realty, Inc.

Curtis J. Crowther, Esq., Robinson & Cole LLP, Wilmington, DE, Gregory P. Varga, Esq. (pro hac vice), Jonathan E. Small, Esq. (pro hac vice) (Argued), Robinson & Cole LLP, Hartford, CT, Attorneys for Defendant Strathmore Insurance Company

JOHNSTON, J. FACTUAL AND PROCEDURAL CONTEXT

This is a property insurance action. Plaintiff 300 W 22 Realty (“Plaintiff”)

owns and operates a hotel in New York, New York. Plaintiff is a Delaware limited

liability company (“LLC”). Defendant Strathmore Insurance Company

(“Defendant”) is an insurance company licensed to issue policies in Delaware.

Defendant is a New York corporation. Defendant has its principal place of

business in New York, New York. Plaintiff obtained insurance coverage from

Defendant for physical loss or damage to its property, along with coverage for

business interruption losses and expenses. Defendant issued the insurance policy

to Plaintiff in New York through a New York broker. Plaintiff alleges it suffered

losses from the COVID-19 pandemic that fall within the scope of its insurance

coverage.

On March 17, 2022, Plaintiff filed the instant action, seeking: (1) declaratory

judgment that Plaintiff is entitled to coverage; and (2) damages for breach of

contract. On June 22, 2022, Defendant filed its Motion to Dismiss under Delaware

Superior Court Civil Rule 12(b)(2), alleging this Court lacks personal jurisdiction.

The Court heard oral argument on December 19, 2022. Defendant submitted

supplemental authority on December 23, 2022. Plaintiff responded on January 18,

2023. On February 2, 2023, Defendant filed a Motion to Strike Portions of

2 Plaintiff’s January 18, 2023 Response to Supplemental Authority. On February

14, 2023, Plaintiff responded.

PERSONAL JURISDICTION STANDARD OF REVIEW

In Delaware, the Plaintiff has the burden to demonstrate a prima facie case

establishing personal jurisdiction.1 The Plaintiff “must plead specific facts and

cannot rely on mere conclusory assertions.”2 In deciding whether the Court has

personal jurisdiction over a nonresident defendant, the Court must engage in a two-

step analysis.3 First, the Court must determine whether Delaware’s long-arm

statute is applicable. Second, the Court must decide whether subjecting a

nonresident defendant to jurisdiction would violate due process.4

An exercise of specific jurisdiction requires that a “defendant’s suit-related

conduct…create[d] a substantial connection with the forum State.”5 Where the

Plaintiff fails to allege that the defendant’s “in-state activity . . . gave rise to the

episode-in-suit,” the defendant is not subject to specific jurisdiction.6

1 Techview Invs. Ltd. v. Amstar Poland Prop. Fund I, L.P., 2021 WL 3891573, at *6 (Del. Super.). 2 Mobile Diagnostics Grp. Holdings, LLC v. Suer, 972 A.2d 799, 802 (Del. Ch. 2009). 3 Matthew v. Woods Group, 56 A.3d 1023, 1027 (Del. 2012). 4 Id.; see also RE: Zuoli Li v. Xu-Nuo Pharma, Inc. & Yinglin Mark Xu, 2022 WL 17588101, at *3 (Del. Super.) (“[T]o assess whether personal jurisdiction exists over non-resident defendants, Delaware courts apply a two-step analysis, asking first whether there is a statutory basis for jurisdiction and then inquiring into whether the exercise of personal jurisdiction over the defendants would be consistent with due process.” (quoting BAM Int’l, LLC v. MSBA Gp., Inc., 2021 WL 5905878, at *5 (Del. Ch.))). 5 Walden v. Fiore, 571 U.S. 277, 284 (2014). 6 Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 923–24 (2011); see also Bristol-Myers Squibb Co. v. Sup. Ct. of Cal., 137 S. Ct. 1773, 1780 (2017) (“[S]pecific 3 ANALYSIS

Specific Jurisdiction Under the Delaware Long-Arm Statute

Delaware’s long-arm statute states:

As to a cause of action brought by any person arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any nonresident, or a personal representative, who in person or through an agent:

(1) Transacts any business or performs any character of work or service in the State;

(2) Contracts to supply services or things in this State;

(3) Causes tortious injury in the State by an act or omission in this State;

(4) Causes tortious injury in the State or outside of the State by an act or omission outside the State if the person regularly does or solicits business, engages in any other persistent course of conduct in the State or derives substantial revenue from services, or things used or consumed in the State;

(5) Has an interest in, uses or possesses real property in the State; or

(6) Contracts to insure or act as surety for, or on, any person, property, risk, contract, obligation or agreement located, executed or to be performed within the

jurisdiction is confined to adjudication of issues deriving from, or connected with, the very controversy that establishes jurisdiction.”); Walden, 571 U.S. at 283 (explaining that specific jurisdiction “depends on an affiliation between the forum and the underlying controversy (i.e., an activity or occurrence that takes place in the forum State and is therefore subject to the State’s regulation)”). 4 State at the time the contract is made, unless the parties otherwise provide in writing.7

The two applicable sections of the long-arm statute applicable in this case

are Sections 3104(c)(1) and (6).

Jurisdiction Under Section 3104(c)(1)

Plaintiff argues jurisdiction is proper under Section 3104(c)(1). Section

3104(c)(1) confers jurisdiction over a non-resident defendant if the non-resident

defendant “‘[t]ransacts any business’ in the State, so long as the claims in question

‘aris[e] from’ that transaction of business.”8 “[C]ontracting with or transacting

business with a Delaware corporation is insufficient to support personal

jurisdiction, absent facts . . . that, at a minimum, establish that the performance of

the contract/transaction took place in Delaware.”9

Plaintiff argues four reasons why Defendant should be subject to personal

jurisdiction in Delaware under Section 3104(c)(1): (1) Defendant is licensed to

7 10 Del. C. § 3104(c). 8 Yankees Ent. & Sports Network, LLC v. Hartford Fire Ins. Co., 2022 WL 6735556, at *4 (D. Del.) (quoting 10 Del. C. § 3104(c)(1)). 9 Id. at *5 (quoting Zausner Foods Corp. v. ECB USA, Inc., 2022 WL 609110, at *9 (D. Del.), report and recommendation adopted, 2022 WL 884235 (D. Del.)); see also Techview, 2021 WL 3891573, at *7 (stating, in reference to the constitutional standard for specific personal jurisdiction, that “[c]ontracting with an out-of-state party is insufficient to establish minimum contacts in the out-of-state party’s home forum” (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478 (1985)); Lenape Properties Mgmt., Inc. v. Prudential Ins. Co. of Am., 2022 WL 17826010, at *2 (Del. Super. Ct.) (stating, in reference to the constitutional standard for specific personal jurisdiction, that “[m]erely contracting with an entity incorporated in Delaware is not enough to support a finding of specific jurisdiction”).

5 issue insurance policies in Delaware and has conducted business in Delaware with

third parties; (2) Defendant contracted with a Delaware LLC for the specific

insurance agreement at issue in this case; (3) Defendant has voluntarily litigated in

Delaware in the past; and (4) the Plaintiff’s business interruption insurance claims

seek coverage for losses that flow to Delaware because Plaintiff is a Delaware

LLC.

The United States District Court for the District of Delaware addressed a

similar situation in Yankees Entertainment and Sports Network, LLC v. Hartford

Fire Insurance Company (“YES Network”).10 In that case, the plaintiff was a

Delaware LLC arguing for insurance coverage related to losses at seven properties

all outside of Delaware.11 The plaintiff in YES Network made the same arguments

Plaintiff makes in the instant case.12

The District Court found each argument unavailing, concluding that: (1)

issuing insurance policies to third parties formed under Delaware law did not

constitute “transacting business” under Section 3104(c)(1) because the cause of

action did not arise from contacts with the third parties;13 (2) contracting with a

Delaware LLC for an agreement negotiated and executed outside of Delaware does

10 2022 WL 6735556 (D. Del.). 11 Id. at *1. 12 Id. at *3–5. 13 Id. at *4. 6 not qualify as “transacting business” under Section 3104(c)(1);14 (3) voluntarily

litigating with third parties in Delaware is insufficient to constitute “transacting

business” under Section 3104(c)(1) when those previous suits fail “to demonstrate

any logical or causal relationship” to the instant case;15 and (4) a plaintiff cannot

rely on its own business losses to demonstrate that a defendant transacted business

in Delaware.16 In sum, the District Court explained:

[T]he Policy at issue was negotiated and executed out-of-state, the coverage it provides is tied to premises located outside of Delaware, and the Policy does not specify any other locations from which [the plaintiff] derives revenue. [The plaintiff] has not argued that any other meaningful connections between the Policy and the state of Delaware exist. Thus, I conclude that [the plaintiff] has not established that [the defendant] has “transacted business” in this state within the meaning of § 3104(c)(1).17

The YES Network analysis is applicable to the instant case. Plaintiff has

failed to establish that Defendant “transacted business” in Delaware within the

meaning of Section 3104(c)(1). Therefore, this Court cannot exercise jurisdiction

over Defendant under Section 3104(c)(1).

14 Id. at *5 (“[S]ubsection (c)(1) ‘requires some action by the defendant occurring in the State of Delaware.’ The bare fact that [YES Network] is a Delaware LLC is therefore insufficient to satisfy subsection (c)(1).” (quoting Fischer v. Hilton, 549 F. Supp. 389, 391 (D. Del. 1982))). 15 Id. at *4. 16 Id. at *5 (citing Walden v. Fiore, 571 U.S. 277, 285–86 (2014)). 17 Id. 7 Jurisdiction Under Section 3104(c)(6)

Plaintiff also contends this Court may exercise personal jurisdiction under

Section 3104(c)(6). Section 3104(c)(6) permits Delaware to exercise jurisdiction

over a company that “[c]ontracts to insure or act as surety for, or on, any person,

property, risk, contract, obligation or agreement:” (1) located within Delaware at

the time the contract was made; (2) executed within Delaware at the time the

contract was made; or (3) to be performed within Delaware at the time the contract

was made.18 Section 3104(a) makes clear that “[t]he term ‘person’ in this section

includes any natural person, association, partnership or corporation.”

Defendant argues that Section 3104(c)(6) does not grant jurisdiction to this

Court because the property being insured is in New York. Plaintiff contends

Section 3104(c)(6) does grant jurisdiction to this Court because Plaintiff is a

Delaware LLC “located in Delaware” under the statute.19

Plaintiff is a Delaware LLC, which makes Plaintiff a “person” located in

Delaware. However, Defendant did not insure Plaintiff. Rather, Defendant

insured Plaintiff’s property located in New York. Therefore, Defendant did not

contract to insure a “person . . . located within Delaware at the time the contract

18 10 Del. C. § 3104(c)(6). 19 Plaintiff failed to address this argument in its Answering Brief, though it did address the argument in its Response to Defendant’s Supplemental Authority. 8 was made.”20 Instead, Defendant contracted to insure property owned by a

Delaware LLC.

This case is distinguishable from Energy Transfer Equity, L.P. v. Twin City

Fire Ins. Co.,21 where this Court granted jurisdiction over an insurer under Section

3104(c)(6).22 In Energy Transfer, the insurance policies at issue were “policies

insuring the actions of officers and directors of Delaware corporate entities.”23 The

Court found that insuring the officers and directors of Delaware Corporate entities

qualified as “‘contracts to insure’ a person . . . located and/or to be performed in

Delaware at the time the Policies were issued.”24 The insurance was directly

insuring the Delaware entity’s corporate fiduciaries. Delaware has an interest in

the activities of corporate fiduciaries and the management of Delaware corporate

entities.

In contrast, the instant insurance policy is property insurance covering a

New York property owned by a Delaware LLC. The insurance is directly insuring

property located in New York, rather than an entity or person in which Delaware

20 10 Del. C. § 3104(c)(6). 21 2020 WL 5757343 (Del. Super.). 22 Id. at *5 (concluding Section 3104(c)(6) granted personal jurisdiction over an insurer because the insured was “located in Delaware” as an entity “organized and existing under the laws of the State of Delaware,” and the policies “insur[ed] the actions of officers and directors of Delaware corporate entities”). 23 Id. 24 Id. 9 has an interest. The fact that the real property is owned by a Delaware LLC is

tangential to the insurance coverage.

The Court finds Defendant did not contract to insure a “person . . . located

within Delaware at the time the contract was made” under Section 3104(c)(6).

Therefore, this Court may not exercise personal jurisdiction over Defendant under

Section 3104(c)(6). None of the other provisions in Section 3104(c) grant personal

jurisdiction to this Court. Because this Court cannot exercise personal jurisdiction

over Defendant under Delaware’s long-arm statute, it is not necessary to address

Defendant’s right to due process.25

Jurisdictional Discovery

“[A] court may allow limited discovery before resolving a motion to dismiss

for lack of personal jurisdiction.”26 “Faced with a challenge to personal

jurisdiction, plaintiffs are entitled to discovery if their assertion of jurisdiction is

minimally plausible.”27

Plaintiff argues that it is entitled to limited jurisdictional discovery to

determine Defendant’s knowledge of Plaintiff’s connection to Delaware. But even

if Plaintiff could establish that Defendant knew of Plaintiff’s connections to

25 YES Network, 2022 WL 6735556, at *6. 26 Tell v. Roman Cath. Bishops of Diocese of Allentown, 2010 WL 1691199, at *7 (Del. Super.). 27 Munoz v. Vazquez-Cifuentez, 2019 WL 669935, at *5 (Del. Super.); see also Toys “R” Us, Inc. v. Step Two, S.A., 318 F.3d 446, 456 (3d Cir. 2003) (“[C]ourts are to assist the plaintiff by allowing jurisdictional discovery unless the plaintiff's claim is ‘clearly frivolous.’”). 10 Delaware, this would not have any bearing on the analysis under Section

3104(c)(1) or 3104(c)(6). The instant case still would not sufficiently “arise from”

Defendant’s interactions with Delaware. Nor would the insurance directly cover a

person or entity in which Delaware has an interest.

Plaintiff also argues it is entitled to limited jurisdictional discovery to

determine Defendant’s connections to Delaware. Plaintiff suggests that discovery

would help it determine “whether [Defendant] has reinsurance for [Plaintiff]’s

claim that it purchased from any Delaware companies, real estate owned or leased

in the State, employees and agents in the State, premium income from Delaware,

non-premium income sources from Delaware, advertisements directed to

Delaware, and traffic on Strathmore’s website or apps originating from

Delaware.”28 However, none of these determinations would help establish this

Court’s personal jurisdiction under Section 3104(c)(1) or 3104(c)(6). The instant

case still would not sufficiently “arise from” Defendant’s interactions with

Delaware. Nor would the insurance directly cover a person or entity in which

Delaware has an interest.

The Court finds limited jurisdictional discovery is not warranted. Personal

jurisdiction is not “minimally plausible.” No information obtained in the requested

discovery would lead this Court to deny Defendant’s Motion to

28 Pl.’s Answering Br. at 20. 11 Dismiss.29 Therefore, the case must be dismissed under Delaware Superior Court

Civil Rule 12(b)(2).

CONCLUSION

The Court finds Plaintiff has failed to establish that Defendant “transacted

business” in Delaware within the meaning of Section 3104(c)(1). This Court also

may not exercise personal jurisdiction over Defendant under Section 3104(c)(6).

The Court finds limited jurisdictional discovery is not warranted. Therefore, the

Court hereby GRANTS Defendant’s Motion to Dismiss, and hereby DENIES

Plaintiff’s request for jurisdictional discovery.

Defendant’s Motion to Strike Portions of Plaintiff’s January 18, 2023

Response to Supplemental Authority is hereby DENIED AS MOOT.

IT IS SO ORDERED.

/s/ Mary M. Johnston Judge Mary M. Johnston

29 See YES Network, 2022 WL 6735556, at *5 n.2. 12