Delaware Business Litigation Report

Court of Chancery Finds LLC Member Had Standing To Bring Derivative Claims On Behalf Of LLC, But That Her Claims Were Subject To Arbitration

Ishimaru v. Fung, C.A. No. 929, 2005 WL 2899680 (Del. Ch. Oct. 26, 2005). Plaintiff, a member of Paradigm Financial Products International LLC, sought to assert a cause of action on behalf of Paradigm against Defendant Ivy Asset Management Corp. for breach of contract. Ivy Asset moved to dismiss for lack of subject matter jurisdiction. Plaintiff formed Paradigm with Defendant William Fung. Paradigm and Ivy Asset decided to enter into a join venture together. Ivy Asset formed Ivy International to enter into the joint venture agreement with Paradigm. The joint venture agreement provided that controversies arising between its members concerning the joint venture agreement were subject to arbitration. Over time, Paradigm and Ivy Assets' interests diverged. Plaintiff alleged that Paradigm and Ivy Asset entered into a new bargain, Ivy Asset breached the new bargain and Fung acted in his own self-interests instead of Paradigm's by failing to sue Ivy Asset. Ivy Asset moved to dismiss for lack of subject matter jurisdiction based on the arbitration clause in the joint venture agreement. The Court held that Plaintiff had standing to assert derivative claims on behalf of Paradigm. The Court also held that Plaintiff's claims were subject to arbitration, even though Ivy Asset was not a signatory to the joint venture agreement. Plaintiff initially named Ivy Asset as a defendant, Plaintiffs' claims relating to the new bargain fell within the scope of the arbitration clause and Ivy Asset could require Paradigm to arbitrate the claims. Share