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In Re Carvana Co. Stockholders Litigation
Citation: Not availableDocket: C.A. No 2020-0415-KSJM
Court: Court of Chancery of Delaware; October 3, 2022; Delaware; State Appellate Court
Original Court Document: View Document
Defendant Ernest Garcia II, co-founder and controlling shareholder of Carvana Co., faces allegations from a stockholder claiming he and his son, CEO Ernest Garcia III, breached fiduciary duties during a $600 million stock sale, where the Garcias selectively included themselves and excluded public stockholders. Garcia Senior's motion to dismiss for lack of personal jurisdiction was denied, as the court found he consented to jurisdiction by adopting a Delaware forum selection provision in Carvana's incorporation documents. His additional motion to dismiss under Court of Chancery Rule 12(b)(6) was also denied based on prior reasoning. Garcia Senior sought certification for an interlocutory appeal regarding the denial of his motions, invoking Supreme Court Rule 42, which outlines a two-step process for certification, emphasizing that such appeals should be exceptional. While the substantial-issue requirement for certification generally concerns merits-related decisions, Delaware courts have accepted appeals on significant non-merit issues as well. Multiple Delaware courts have ruled that denials of motions to dismiss for personal jurisdiction typically do not qualify as substantial issues, although the Delaware Supreme Court has previously granted interlocutory appeals on personal jurisdiction matters concerning non-resident fiduciaries. The Opinion evaluates personal jurisdiction over non-resident fiduciaries of Delaware entities, specifically controllers, and meets the substantial-issue threshold of Rule 42. The analysis then assesses whether substantial benefits outweigh the costs of an interlocutory appeal, with eight Rule 42 factors to consider. Garcia Senior relies on five factors. Factor (A) examines if the Opinion presents a novel legal question, but Garcia Senior's assertion that personal jurisdiction has not been previously established on similar facts overlooks the established principle of implicit consent, making this factor unsupportive of the Application. Factor (B) considers conflicts with trial court decisions. Garcia Senior claims the Opinion contradicts Delaware precedent regarding stock ownership and personal jurisdiction; however, the Opinion’s basis for jurisdiction goes beyond mere stockholder status, aligning with existing precedent. Factor (D) addresses whether the Opinion upholds the trial court’s jurisdiction. The Opinion confirms that personal jurisdiction over Garcia Senior is appropriate, satisfying this factor, although it is not decisive. Factor (G) evaluates if interlocutory appeal could terminate litigation. Garcia Senior argues that a reversal would conclude his involvement, but the presence of other defendants means litigation would continue regardless, diminishing the factor’s relevance to judicial efficiency. Factor (H) examines if interlocutory review serves justice. Garcia Senior claims it would save judicial resources and reduce discovery costs, yet fails to substantiate these claims. His involvement in the Direct Offering indicates he would likely face discovery regardless, making this factor unconvincing. Lastly, Rule 42(b)(iii) requires a demonstration that the benefits of review outweigh the costs. Garcia Senior contends that a reversal could simplify claims, but disputes would persist against others involved in the Direct Offering, potentially prolonging litigation. Consequently, Garcia Senior’s Application for Certification of Interlocutory Appeal is denied.