Durham v. Grapetree, LLC, C.A. No. 7325-VCG (May 16, 2014)

By Eric Feldman and Eric Taylor

This is a case dealing with the interpretation of a Limited Liability Company Agreement for a family-owned Delaware Limited Liability Company, Grapetree, LLC (“Grapetree”), set up to manage inherited resort rental properties. The plaintiff in the suit, Andrew Durham (“Andrew”) is one of five members of Grapetree, all siblings, and the only non-managing member (under the 2008 OperatingAgreement of Grapetree, which governed during the time of the actions in dispute). Andrew is a self-employed landscape architect who made several expenditures over the years to maintain and improve the managed properties and seeks reimbursement for those expenses. The 2008 OperatingAgreement contains certain limitations on authority, namely that expenditures over $2,000 are subject to the majority vote of the members and all routine operational issues are subject to the majority vote of the managing members. (It should be noted that the limitation contained an apparent error requiring a majority “3/5” vote of the managing members, despite the fact that there were only four managing members.)

The parties agree that the limitations on authority are the relevant governing provisions, but disagree on their application. The Court noted that members of a limited liability company have broad discretion to define their rights and obligations, but found that the operative language was ambiguous and, as a result, resorted to extrinsic evidence to determine the parties’ intent. Grapetree argued that the limitations included in the 2008 Operating Agreement vested total control over routine operational issues to the managing members, a claim supported by the four siblings’ efforts to remove Andrew as a managing member following a pattern of behavior they considered improper. However, the Court found that this argument was not supported by the course of dealingwith respect to Grapetree, which the Court looked to in order to determine the parties’ intent. The Court found that the managing members did not consistently vote pursuant to the 2008 OperatingAgreement to approve or reject expenditures of Andrew under $2,000 and that Andrew was at times encouraged to make expenditures up to $2,000 without seeking authorization. The Court found that, regardless of how the 2008 Operating Agreement was meant to operate, consistent with the course of dealing, Andrew is entitled to reimbursement for all expenditures under $2,000 made on behalf of Grapetree within three years before the filing of his complaint (claims older than three years being barred by analogy to the statute of limitations), and re-opened the record for the limited purpose of allowing Andrew to authenticate and support his requests for reimbursement. (Here, the Court granted leniency to Andrew because he was representing himself pro se, although the Court notedthat it would ordinarily conclude that he had not met his burden to authenticate the documentation to support his claims.)

As a separate matter, Grapetree requested that sanctions be imposed on Andrew, specifically that he forfeit his claim to reimbursement, because of his conduct during the proceedings (including correspondence containing insults, derogatory comments and personal attacks). The Court declined to impose such sanctions on Andrew, finding that equity did not support such a harsh penalty, but warned Andrew that it may reconsider should Andrew exhibit such behavior in the future proceedings.

DurhamvGrapetree

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