Delaware Business Litigation Report

Chancery Finds Member Breached LLC Agreement in Unilaterally Dissolving the Company

VH5 Capital, LLC v. Jeremiah Rabe, C.A. No. 2020-0315-NAC (Del. Ch. June 30, 2023)
The at-issue LLC had two members – the defendant and the plaintiff, both of whom also constituted the company's board. The company never observed any corporate formalities, including never holding any meetings or appointing a third board member, as required by the company's LLC Agreement. After operating for mere months and never earning a profit or accumulating assets, the defendant unilaterally dissolved the company.

Following the dissolution, the plaintiff sued the defendant for, among other things, breach of the LLC Agreement, claiming that the defendant could not unilaterally dissolve the company and had failed to follow the contractual dissolution procedures. Post-trial, the Court found in the plaintiff's favor. The Court observed that Delaware is a pro-contractarian state. That the company had never followed various corporate formalities set out in the LLC Agreement did not itself override this policy and excuse compliance with the contractual dissolution procedures. Because the defendant had not followed those procedures or otherwise shown waiver or acquiescence specific to dissolution, he was liable for breaching the LLC Agreement.

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