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Showing 93 posts in LLC Agreements.

Chancery Denies Books and Records Request From Indirect LLC Interest Holder That Assigned its Rights Prior to the Demand and the Action

Posted In Books and Records, Chancery, LLC Agreements

SolarReserve CSP Holdings, LLC v. Tonopah Solar Energy, LLC, C.A. 2020-0064-JRS (Del. Ch. Jul. 24, 2020)
Describing the case as deja vu, the Court of Chancery dismissed Plaintiff’s second attempt to enforce alleged rights related to Defendant/Company. See SolarReserve CSP Holdings, LLC v.  Tonopah Solar Energy, LLC, C.A. 2019-0791-JRS (Del.  Ch. Mar. 18, 2020) (“SolarReserve I”). The Company was formed to develop a solar power plant in Nevada, but the plan never came to fruition. More ›

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Chancery Dismisses Complaint Challenging Dilution for Lack of Standing and Failure to State a Claim

Hindlin v Gottwald, C.A. No. 2019-0586-JRS (Del. Ch. July 22, 2020)

The plaintiff, a minority investor (“Plaintiff”) in a Delaware limited liability company, Core Nutrition, LLC (the “Company”), brought an action for breach of fiduciary duties and certain provisions of the Company’s LLC agreement (the “LLC Agreement”). The defendants in the action were three individual members of the Company’s board of managers (“Defendants”). Defendants moved to dismiss Plaintiff’s complaint under, inter alia, Court of Chancery Rule 12(b)(6) for failure to state a claim, and 6 Del. C. §§ 18-1001–03 for lack of standing. More ›

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Chancery Interprets Contractual Language Permitting Asset Sale

Posted In Chancery, LLC Agreements

AM Gen. Holdings LLC v. The Renco Grp., Inc., C.A. No. 7639-VCS (Del. Ch. June 26, 2020)

Under fundamental contract interpretation principles, the Court of Chancery will interpret a contract to give effect to specific over general contract language, and to avoid interpretations that render contractual language as surplusage. More ›

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Corporate Opportunity Doctrine Waiver Does Not By Itself Also Constitute a Waiver of Default Fiduciary Duties under an LLC Agreement

Posted In Fiduciary Duty, LLC Agreements

77 Charters, Inc. v. Gould, C.A. No. 2019-0127-JRS (Del. Ch. May 18, 2020)

The Court of Chancery held that a waiver of the corporate opportunity doctrine did not by itself constitute a waiver of default fiduciary duties under an LLC agreement. 

Plaintiff 77 Charters, Inc. held non-preferred ownership interests in a joint venture. Defendant Jonathan Gould indirectly held similar non-preferred interests and managed the joint venture’s managing member. Subsequently, Gould indirectly purchased an owner’s preferred interests, and revised the joint venture’s waterfall repayment structure to provide a guaranteed, higher rate of return for preferred interests, at the expense of the residual, non-preferred interests, and reduced the standard of care for the Gould managing member. After 77 Charters filed a books and records demand and settled a related action, Gould sold the joint venture at a price that returned no funds to 77 Charters as a residual owner of non-preferred interests. 77 Charters filed contract and tort claims, and defendants moved to dismiss. More ›

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LLC May Not Reverse Decision to Enter into Contractual Call Option Buyout Process with Members

Posted In Breach of Contract, LLC Agreements

Walsh v. White House Post Productions, LLC, C.A. No. 2019-0419-KSJM (Del. Ch. Mar. 25, 2020).  

Parties to LLC agreements often provide for buyout provisions upon specified events, such as when a member ceases to be an employee. The provisions set forth a process by which the parties agree up front to a price to acquire the departing member’s interest. In this case, the Court prohibited an LLC from withdrawing from a contractually agreed-upon process to buy its members’ shares once the LLC initiated the process. More ›

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Chancery Enforces LLC Agreement Arbitration Clause and Finds that Member’s Resignation Did Not Prevent Enforcement

Posted In Arbitration, LLC Agreements

360 Campaign Consulting, LLC v. Diversity Communication, LLC, C.A. No. 2019-0807-MTZ (Del. Ch. Mar. 20, 2020).

Following a dispute between the two members of a Delaware LLC, Plaintiff filed an eleven (11) count complaint against the Defendant former member, the LLC, its manager and others. Defendant moved to dismiss for lack of subject matter jurisdiction based on an arbitration provision in the LLC Agreement. The Court’s threshold question was whether it (as opposed to an arbitrator) had jurisdiction to decide whether the dispute was arbitrable, an issue otherwise known as substantive arbitrability.  More ›

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Chancery Denies Non-Member, Non-Manager’s Bid for Equitable Dissolution of LLC

Posted In Dissolution, LLC Agreements

SolarReserve CSP Holdings, LLC v.  Tonopah Solar Energy, LLC, C.A. 2019-0791-JRS (Del. Ch. Mar. 18, 2020).

While the Court of Chancery has recognized the concept of equitable standing to seek judicial dissolution, this case shows that equity is not a tool to rewrite the plain language of an operating agreement or to help a party regain the rights it bargained away. More ›

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Chancery Allows Fiduciary Duty Claims to Proceed against Minority Members Who Blocked Financings in Order to Bankrupt Company and Facilitate Unfair Asset Purchase

Posted In Controlling Stockholder, Fiduciary Duty, LLC Agreements

Skye Mineral Investors, LLC v. DXS Capital (U.S.) Ltd., C.A. No. 2018-0059-JRS (Del. Ch. Feb. 24, 2020) (Slights, V.C.).

Where parties to an LLC agreement do not unambiguously disclaim fiduciary duties, then Delaware law provides by default that managers owe traditional fiduciary duties to the entity and its members. The corporate law principles relating to fiduciary duties of controlling shareholders also apply, including that a minority member who exercises actual control may owe fiduciary duties. In this decision, the Court held that plaintiffs, the majority members of an LLC, adequately alleged that minority members exercised contractual blocking rights in a manner that gave them actual control over financing decisions and then used that control to implement in bad faith a scheme to enable the minority members to acquire the LLC’s assets on the cheap. With those allegations, the Court sustained a non-exculpated claim against the minority members for direct and derivative contract- and fiduciary-based claims. More ›

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Chancery Rejects Challenge to Financing Made Open to All Investors, Reasons the LLC Operating Agreement Allows Self-Interested Conduct, so any Claims Must Assert Bad Faith

Posted In Controlling Stockholder, Fiduciary Duty, LLC Agreements

MKE Holdings Ltd. v. Schwartz, C.A. No. 2018-0729-SG (Del. Ch. Jan. 29, 2020).

Verdesian Life Sciences, LLC is an agricultural company focused upon rolling up various companies with proprietary plant health technologies. All members of the Board of Managers of Verdesian were appointed by Paine Schwartz Partners, LLC (“Paine”), a private equity firm that owned over seventy percent of the Class A Units of the company. Paine also benefited from a management agreement that entitled it to receive certain management fees tied to acquisitions. The LLC Operating Agreement required the Managers to perform their duties in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of Verdesian. However, the Operating Agreement also allowed Managers and Members to “consider only such interests and factors as such Manager or Member desires, including its, his or her own interests” when facing discretionary decisions. The Court of Chancery concluded that the Operating Agreement “directs the Managers to operate in good faith and with ordinary care and effectively exculpates Managers for conflicted, negligent and other detrimental decisions … so long as taken in good faith.” More ›

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Chancery Rejects Challenge to Delaware as Proper Venue in Books and Records Action

Posted In Forum Selection Provisions, LLC Agreements

Stanco v. Rallye Motors Holding, LLC, C.A. No. 2019-0751-SG (Del. Ch. Dec. 23, 2019). 

Delaware courts generally respect contractual forum selection provisions. When it comes to Delaware LLCs, however, the Delaware statute expressly precludes a non-managing member from waiving its right to a Delaware forum for proceedings involving the LLC’s internal affairs.  6 Del. C. § 18-109(d). And, in general, any waiver of rights must encompass knowledge of the right and clearly expressed intent to relinquish it. This case discusses the interplay between these rules. More ›

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Chancery Refuses to Reform Operating Agreement to Impose Class Voting Requirements Not Contained in the Plain Language of the Agreement

Posted In LLC Agreements

JJS, Ltd. v. Steelpoint CP Holdings, LLC, C.A. No. 2019-0072-KSJM (Del. Ch. Oct. 11, 2019).

The Court of Chancery held that plaintiff common unitholders of an LLC failed to state a claim for breach of the operating agreement and failed to adequately plead reformation in connection with their challenge to an asset sale that resulted in the senior preferred unitholder receiving the entirety of the sale consideration.  Applying fundamental tenets of contract interpretation, the Court reasoned that the plain language of the operating agreement only required a majority vote of the combined total of preferred and common unit holders, and not a majority vote of each separate class of preferred and common unitholders, to approve the asset sale.  The Court also rejected the plaintiffs’ claim for reformation to impose a separate voting class requirement that was contained in a term sheet that preceded the operating agreement, but was ultimately omitted from the final operating agreement.  In analyzing the reformation claim, the Court relied upon West Willow-Bay Court, LLC v. Robino-Bay Court Plaza, LLC, 2009 WL 3247992 (Del. Ch. Oct. 6, 2009), in which the plaintiffs unsuccessfully sought reformation based upon a unilateral mistake that a contract amendment did not comport with a prior memorandum of understanding.  The Court found that the common unitholders reformation claim was insufficient for the same reasons relied upon by the Court in West Willow-Bay: (i) the term sheet was not binding; (ii) even a cursory review of the voting provision in the operating agreement would have put the plaintiffs on notice that it differed from the term sheet; and (iii) it was not apparent that the voting provision in the operating agreement was unacceptable to the plaintiffs.  Accordingly, the Court dismissed both the plaintiffs’ claim for breach of the operating agreement and their alternative claim for reformation.        

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Chancery Blocks Natural Gas IPO

Posted In LLC Agreements

Williams Field Services Group, LLC v. Caiman Energy, C.A. No. 2019-0350-JTL (Del. Ch. Sept. 25, 2019).

This case again illustrates the contractual nature of Delaware alternative entities and the important interpretive role the courts perform construing alternative entity agreements when internal governance disputes arise. The case arose out of the parties’ competing requests for declaratory judgment regarding Caiman Energy II, LLC’s (“Caiman”) limited liability agreement (“LLC Agreement”). The Defendants, including Caiman and EnCap Capital Management (“EnCap”), argued that the provisions of the LLC Agreement grant EnCap plenary power with respect to a Qualified IPO, including the ability to change the definition of a Qualified IPO and to modify the procedures the contracting parties would otherwise have to take relating to a Qualified IPO. EnCap asserted that it could implement an Up-C IPO using its authority to effect a Qualified IPO. An Up-C IPO refers to a transaction whereby a limited liability company (“LLC”), which is taxed as a pass-through entity, performs an IPO through a holding company that has an interest in the LLC. Plaintiff Williams Field Services Group, LLC (“Williams”) contended that the Encap proposed Up-C IPO was inconsistent with the terms of the LLC Agreement.  More ›

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Chancery Construes LLC Agreement as Imposing Only the Managerial Duty to Act in Good Faith and Dismisses Claims for Failure to Plead Bad Faith

Posted In Chancery, Fiduciary Duty, LLC Agreements

MKE Holdings v. Schwartz, C.A. No. 2018-0729-SG (Del. Ch. Sept. 26, 2019).

Under Delaware law, the managers of a limited liability company owe the entity and its members the traditional common law fiduciary duties of care and loyalty.  But parties may eliminate or modify those duties under the LLC’s operating agreement and impose contractual duties instead.  When they do so, Delaware courts will analyze any challenged conduct of the manager against those contractual duties.  Here, the Court of Chancery found the managers’ contractual duty to be a narrow one: act with a good faith belief that their conduct was in or not opposed to the LLC’s best interests. More ›

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Court of Chancery Finds Agreements Unenforceable for Lack of Assent, Dismisses Remaining Claims for Lack of Personal Jurisdiction

Posted In Breach of Contract, Jurisdiction, LLC Agreements

Eagle Force Holdings, LLC v. Campbell, C.A. No. 10803-VCMR (Del. Ch. Aug. 29, 2019).

Parties to a contract must provide evidence of an overt manifestation of assent for a contract to be enforceable under Delaware law. Upon remand from the Delaware Supreme Court, the Court of Chancery found such assent to be lacking and dismissed the remaining claims for lack of personal jurisdiction. More ›

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Chancery Finds Unauthorized Transfer of LLC Interest Void and Denies Transferee Inspection Rights

Posted In Books and Records, LLC Agreements

Absalom Absalom Trust v. Saint Gervais LLC, C.A. No. 2018-0452-TMR (Del. Ch. June 27, 2019).

Plaintiff was assigned a membership interest in the defendant, a Delaware limited liability company, and sought to exercise books and records inspection rights.  But the LLC’s operating agreement circumscribed its members’ ability to transfer their interests, stating that any disposition without prior written consent of all members was “null and void,” and otherwise authorized only members to inspect books and records.  According to the Court of Chancery, because the transferor never received prior written consent for the transfer to plaintiff, the transfer was void under the LLC agreement, plaintiff was not a member of the LLC, and plaintiff had no right to inspect the LLC’s books and records.  In addition, the Court relied on the Delaware Supreme Court’s decision in CompoSecure, L.L.C. v. CardUX, LLC to find that the plaintiff could not rely on equitable theories to validate the transfer.  According to the Court, equity can only validate voidable acts, not void acts.  And the LLC agreement’s plain language in this case rendered the attempted transfer void, even if it would have been only voidable under common law.

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