Delaware Business Litigation Report

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

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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