Delaware Business Litigation Report

Court of Chancery Affirms Application of Delaware Law to LLC

Facchina v. Malley, C.A. No. 783-N, 2006 WL 2328228 (Del. Ch. Aug. 1, 2006). In this case the Court of Chancery has again affirmed that Delaware law applies to the internal affairs of a Delaware LLC. The LLC was the result of a merger of a California corporation into a Delaware LLC. The California entity had a stockholders' agreement that the defendants wanted to enforce. The Court rejected their arguments because the California entity had ceased to exist in the merger. This is an example of what happens when little care is taken to prepare the operating agreements of a LLC. It seems apparent that based on the original stockholders' agreement, there was an intent to restrict the rights of the majority owners in running the entity. However, they lost that right when they merged their corporation into the LLC and failed to adopt an operating agreement for their LLC that mirrored their stockholders' agreement. Ignoring formalities is not a good idea. Share