Judge Wallace Adopts Special Discovery Master’s Final Report and Recommendation Denying Plaintiffs’ Requests for Jurisdictional Discovery

October 24, 2017


In Otto Candies, LLC v. KPMG LLP, C.A. No. N16C-02-260 PRW CCLD, Judge Wallace adopted the special master’s Final Report and Recommendation and denied the plaintiffs’ exceptions. This resulted in a denial of the plaintiffs’ request for jurisdictional discovery.

In this case, the plaintiffs filed a negligent misrepresentation action against three KPMG entities: KPMG International, KPMG LLP (KPMG US), and KPMG Cardenas Dosal, S.C. (KPMG Mexico). The case arose from an audit involving Citigroup (a Delaware-incorporated bank), Banamex (Citigroup’s Mexican subsidiary), and Oceanografia. The plaintiffs alleged that the defendants created a joint venture, with KPMG International (a Swiss cooperative) as the head of the venture and KPMG US and KPMG Mexico as the subsidiaries. The plaintiffs further alleged that KPMG US (a Delaware limited liability partnership) exerted extreme influence and control over KPMG International, such that KPMG International was the alter ego of KPMG US. Under the plaintiffs’ theory, there was Delaware personal jurisdiction over all of the defendants in light of KPMG US’s Delaware incorporation and its control over KPMG International.

KPMG International and KPMG Mexico moved to dismiss for lack of personal jurisdiction. In connection with this motion, the plaintiffs served jurisdictional discovery requests. The defendants moved for protective orders and argued that the motion to dismiss should be decided without such discovery. The plaintiffs responded that their requests were appropriate. The Court issued an order granting in part and denying in part the defendants’ request for protective orders. The defendants were required to respond to the plaintiffs’ requests concerning the foreign entities’ role in the Banamex audit. A special master was appointed to rule on the defendants’ objections to such requests.

In considering the defendants’ objections, the special master determined that the plaintiffs’ joint venture theory could be used as an attempt to establish personal jurisdiction, but that the plaintiffs would still need to satisfy Delaware’s long-arm statute and establish minimum contacts with the forum. Furthermore, the special master interpreted the Court’s order on the defendants’ request for protective orders narrowly and limited the scope of permissible discovery to the topic of the Banamex audit. Because the parties’ filings revealed that no work on the Banamex audit occurred in Delaware, the special master found that no additional discovery should be permitted to support the plaintiffs’ joint venture theory. Judge Wallace adopted this analysis in whole.

Analysis: This decision demonstrates the limits the Court will place on a plaintiff’s ability to obtain jurisdictional discovery. Consistent with other decisions, the Court recognized that the plaintiffs may not use “the benefit of jurisdictional discovery so they can fish for a possible basis for this court’s jurisdiction.” Reid v. Siniscalchi, L.L.C., 2011 WL 378795, at *4 (Del. Ch. Jan. 31, 2011).

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