Case Title: Garcia v. Franchi

Citation: 

Docket Number: 362, 2022

State: delaware

Court: Delaware Supreme Court

Date: 2022-10-19T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
ERNEST GARCIA II,  
 
Defendant Below, 
Appellant, 
 
v. 
 
ANTHONY FRANCHI, 
CONSTRUCTION INDUSTRY 
AND LABORERS JOINT PENSION 
TRUST FOR SOUTHERN 
NEVADA, ST. PAUL 
ELECTRICAL CONSTRUCTION 
PENSION PLAN, ST. PAUL 
ELECTRICAL CONSTRUCTION 
WORKERS SUPPLEMENTAL 
PENSION PLAN (2014 
RESTATEMENT), and 
RETIREMENT MEDICAL 
FUNDING PLAN FOR THE ST. 
PAUL ELECTRICAL WORKERS,  
 
Plaintiffs Below, 
Appellees,  
 
and 
 
CARVANA CO.,  
          
Nominal Defendant Below, 
Appellee.    
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§  No. 362, 2022 
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§  Court Below—Court of Chancery  
§  of the State of Delaware 
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§  C.A. No. 2020-0415 
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Submitted:    October 5, 2022 
 
 
 
 
   Decided:    October 19, 2022  
 
 
 
2 
 
Before SEITZ, Chief Justice; VALIHURA and VAUGHN, Justices. 
 
ORDER 
 
 
 
After consideration of the notice and supplemental notice of interlocutory 
appeal and the exhibits attached thereto, it appears to the Court that: 
(1) 
On behalf of Nominal Defendant Below-Appellee Carvana Co., 
Plaintiffs Below-Appellees Anthony Franchi, Construction Industry and Laborers 
Joint Pension Trust for Southern Nevada, St. Paul Electrical Pension Plan,  St. Paul 
Construction Workers Supplemental Pension Plan (2014 Restatement), and 
Retirement Medical Funding Plan for the St. Paul Electrical Workers filed a 
derivative action against Defendant Below-Appellee Ernest Garcia II (“Garcia 
Senior”) and Defendant Below Ernest Garcia III (“Garcia Junior”).  Garcia Senior 
was the owner of a majority of Carvana’s voting stock.  Garcia Junior was the CEO, 
President, and Chairman of Carvana.  Plaintiffs alleged that the Garcias breached 
their fiduciary duties in connection with a $600 million sale of Carvana’s common 
stock in 2020.   
(2) 
The Garcias and Carvana moved to dismiss for failure to plead demand 
futility and failure to state a claim.  Garcia Senior also moved to dismiss for lack of 
personal jurisdiction.  On June 30, 2022, the Court of Chancery denied Garcia 
Junior’s and Carvana’s motions. 
3 
 
(3) 
On August 31, 2022, the Court of Chancery denied Garcia Senior’s 
motion to dismiss (“the Opinion”).1  The court held that Garcia Senior implicitly 
consented to the exercise of personal jurisdiction by Delaware courts when he caused 
Carvana to adopt, by written consent in 2017, an amended and restated certificate of 
incorporation that included a forum provision designating Delaware courts as the 
exclusive forum for certain disputes, including any action asserting a breach of 
fiduciary duty owed by a Carvana stockholder.2  The court denied Garcia Senior’s 
demand futility and failure to state a claim arguments for the same reasons set forth 
in its June 30, 2022 decision.3 
(4) 
On September 12, 2022, Garcia Senior filed a timely application for 
certification of an interlocutory appeal on the personal jurisdiction issue.  Plaintiffs 
opposed the application.  On October 3, 2022, the Court of Chancery denied the 
application.4 
(5) 
In denying certification, the court first concluded that the Opinion 
resolved a substantial issue for purposes of Supreme Court Rule 42.5  The court next 
addressed the Rule 42(b)(iii) criteria Garcia Senior relied upon for certification.6 As 
to Rule 42(b)(iii)(A) (question of law resolved for first time in Delaware), the Court 
 
1 In re Carvana Co. S’holders Litig., 2022 WL 3923826 (Del. Ch. 31, 2022). 
2 Id. at *2-6. 
3 Id. at *7. 
4 In re Carvana Co. S’holders Litig, 2022 WL 4661841 (Del. Ch. Oct. 3, 2022). 
5 Id. at *1-2. 
6 Id. at *3. 
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of Chancery found that this factor weighed against certification because the Opinion 
applied settled law.7  The court also rejected Garcia Senior’s reliance on Rule 
42(b)(iii)(B) (conflicting trial court decisions on the question of law), which rested 
upon his  characterization of the Opinion as inconsistent with longstanding precedent 
that stock ownership in a Delaware company by itself is not enough to support a 
Delaware court’s exercise of personal jurisdiction.8   The court emphasized that it 
was Garcia Senior’s use of his majority voting control to cause Carvana to adopt a 
Delaware forum selection provision requiring stockholders to bring the type of 
claims at issue in Delaware courts that made him subject to personal jurisdiction in 
Delaware, not just his status as a majority stockholder.9  The court recognized that 
Rule 42(B)(iii)(D) (the interlocutory order sustained the controverted jurisdiction of 
the trial court) weighed in favor of certification, but found this was not dispositive.10   
(6) 
As to Rule 42(B)(iii)(G) (interlocutory review may terminate the 
litigation), the court agreed with Garcia Senior that interlocutory review could 
terminate the litigation as to him, but found that this factor weighed against 
certification because the litigation would nonetheless continue against Garcia 
Junior.11  The court rejected Garcia Senior’s contention that Rule 42(B)(iii)(H) 
 
7 Id. 
8 Id. 
9 Id. 
10 Id. 
11 Id. 
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(considerations of justice) weighed  in favor of certification, finding Garcia’s claim 
that the court’s interpretation of the forum provision would extend beyond 
controlling stockholders sued for breaching their fiduciary duties to all stockholders 
unpersuasive.12  Finally, the court concluded that the benefits of interlocutory review 
did not outweigh the probable costs given that the litigation would continue against 
Garcia Junior regardless of the outcome of Garcia Senior’s interlocutory appeal and 
additional delay was undesirable.13 
(7) 
Applications for interlocutory review are addressed to the sound 
discretion of the Court.14  In the exercise of our discretion and giving due weight to 
the trial court’s view, this Court has concluded that the application for interlocutory 
review does not meet the strict standards for certification under Supreme Court Rule 
42(b).  We agree with the Court of Chancery that the Rule 42(B)(iii) criteria, other 
than Rule 42(B)(iii)(D), do not weigh in favor of interlocutory review and that the 
potential benefits of interlocutory review do not outweigh the inefficiency, 
disruption, and probable costs caused by an interlocutory appeal. 
 
 
 
12 Id.  
13 Id. at *4. 
14 Supr. Ct. R. 42(d)(v). 
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NOW, THEREFORE, IT IS ORDERED that the interlocutory appeal is 
REFUSED.   
BY THE COURT: 
 
 
 
 
 
 
/s/ Karen L. Valihura 
 
 
 
 
 
 
 
 
 
Justice