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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 64 posts in LLC Agreements.
This decision holds that a creditor lacks standing to bring breach of fiduciary duty claims arising out of the management of an LLC. Of course, creditors are better served by drafting the loan documents to protect their rights.
This decision explains how a provision in an LLC agreement waiving fiduciary duties is to be applied in the context of conflicted transactions. It is a good summary of Delaware law on that issue.
It also has an instructive summary of the law governing contract interpretation, albeit under New York law.
Under the famous Zapata decision, a board of directors may take control of a derivative case, provided it meets the test set out in that opinion. But may such a board, or the managers in an LLC, delegate that authority to a non-member? This decision says that delegation is not appropriate for an LLC with a management structure similar to a corporation or in an LLC that limits the delegation authority of it member-managers.
This is an interesting decision because it explains what direct claims are available to investors in an LLC. More ›
This decision may answer the question of whether an LLC Agreement’s bar of dissolution without a member’s consent trumps the statutory remedy of court-ordered dissolution when the entity’s purpose cannot be achieved any longer. It concludes that dissolution is proper under the facts presented where the objecting member really had no good reason to object.
In this precedent-setting decision, the Court upholds the right of an assignee of an LLC interest to petition for its dissolution. The LLC Act itself limits a dissolution petition to managers or members, but drawing on precedent upholding the broad powers of a court of equity, the Court holds that an equitable remedy exists that permits an assignee to also seek dissolution.
A repeat issue with using the LLC form of entity is trying to figure out what the LLC agreement means. This decision is another example of the Court sorting through conflicting interpretations that must have surprised at least one of the parties. As such it is a useful, if limited by its facts, primer on proper interpretation.
This decision explains the Amendment-By-Merger Exception that is found in alternative entity agreements. The purpose of the Exception is to be sure that a merger agreement that has the affect of amending the operating agreement gets the same vote, including class votes, that an equivalent amendment to the operating agreement would require under the terms of the operating agreement. Such clauses try to prevent a merger agreement from being used, as is done for corporations, to amend the basic deal set out in the parties' agreement.
The decision also has an interesting discussion of what constitutes an amendment to an operating agreement, a point that is not always clear.
The language of an LLC agreement is all important in determining what it permits. This decision illustrates that point by holding that, under the LLC agreement involved, a 90% owner cannot remove the LLC manager. This seems counterintuitive. But that is the lesson of LLC law - you get what you agree to even if it is odd.
In this case, the defendant quit his employment, lied to his co-owners about why and then set up a competing business. However, the LLC agreement did not have any limitation on competing with it. As a result, while the court was quick to condemn the lie, it held that competing was permitted. This is an example of how people in business together often feel there are some unwritten ethical rules that a court will enforce even if they are not part of the parties' agreement. At least in the area of competition, that is just not so. You need to get it in writing to enforce an obligation to not compete after some one leaves your employment. Of course, this does not mean that there are no fiduciary or other duties that may require a course of conduct not spelled out in writing. Hence, this decision should not be read too broadly
As this decision affirms, it is possible to waive the right to a judicial dissolution in an LLC agreement. However, the decision also notes that the Court may use its equitable powers to remedy an abuse of power. This possible "escape valve" may be hard to invoke given the respect the Delaware Courts have for the right to contract away one's rights in an LLC agreement.
This decision holds that language in an LLC agreement that mirrors the indemnification language of the Delaware Corporation law will be interpreted the same way to mandate indemnification to a prevailing manager.