Chancery Denies Books and Records Request From Indirect LLC Interest Holder That Assigned its Rights Prior to the Demand and the Action
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.
In SolarReserve I, Plaintiff sought equitable dissolution of the Company, but the Court dismissed Plaintiff’s claims because it concluded that Plaintiff could not invoke the Court’s equitable powers to regain dissolution rights it had knowingly bargained away in exchange for financing. A more thorough discussion of SolarReserve I can be found here.
In this action, Plaintiff sought to inspect the Company’s books and records pursuant to the Company’s LLC agreement (“Agreement”). Here, too, however, the Court found that Plaintiff had bargained away the rights in question.
In December 2019 (during the pendency of SolarReserve I), Plaintiff assigned all of its “right title and interest in and to all actions, claims, choses in action, and lawsuits of any nature whatsoever . . . against” the Company to a creditor of Plaintiff’s parent. Thus, by the time that Plaintiff demanded records in January 2020 or instituted its second case in February 2020, Plaintiff was no longer the real party in interest, and its claims were subject to dismissal under Court of Chancery Rule 17. Moreover, Plaintiff could not use Court of Chancery Rule 25 to substitute the creditor as the party-plaintiff, because the transfer of interest occurred prior to the action, and Rule 25 applies to transfers during the pendency of litigation. Permitting substitution also would conflict with the Agreement, which expressly extended contractual inspection rights to the assignees of other investors, but did not expressly extend Plaintiff’s inspection rights to Plaintiff’s assignees. Accordingly, the Court dismissed this case.Share