Most business partners enter into relationships with high hopes and the best of intentions. But when the euphoria of a new venture wears off, the pressure of day-to-day management of a struggling entity can lead to a variety of unfortunate legal disputes. This was the case with a Morris James client which had partnered with another major investor and several smaller investors to purchase a struggling entity. The two major investors agreed that they both needed to approve major decisions by the company. This structure lead to a deadlock when they could no longer agree on those major decisions.
The major investors agreed that the entity, in this case a Delaware limited liability company, needed to be dissolved to resolve the deadlock. The parties, however, did not agree on where and how it should be dissolved. The respective parties filed almost simultaneous judicial dissolution actions in Pennsylvania and Delaware. After litigating the issue in Delaware and Pennsylvania courts, the Pennsylvania court agreed to stay its hand to permit the Delaware court to decide how to dissolve the entity.
With the Delaware court in control of the process, ordinarily dissolution would mean a public sale of the entity. In this case, however, each side sought to depart from the usual practice. Morris James’ client wanted a private sale among only the members of the LLC conducted in an ascending bid, open auction. The other investor wanted a public sale but with each bidder submitting a single sealed bid. Morris James and its co-counsel presented facts at trial and expert testimony supporting the client’s preferred method of sale, arguing that the facts showed that the company could not survive a public sale process given the current level of distress and that no real bidders had emerged despite the public knowledge for months that the entity would be sold. After trial, the Court of Chancery entered an order largely granting Morris James’ client the relief it sought. Although the Court of Chancery also permitted the union representing a substantial portion of the company’s employees to participate in the auction, the union dropped its interest, leading to an auction among only the members of the LLC.
Morris James helped formulate a legal strategy that kept the case in Delaware, and convinced the Court of Chancery that a private sale was the best means of maximizing value. The firm identified the facts needed to support the client’s position—and marshalled those facts for trial, including identifying the right experts, resulting in a trial that substantially accomplished the client’s preferred method of sale.