Seaport Village Ltd. v. Seaport Village Operating Company, LLC, C.A. No. 8841-VCL (Sept. 24, 2014) (Laster, V.C.)

By Nick Froio and Zack Sager

Seaport Village Operating Company, LLC (the “LLC”) sought to recover from Seaport Village Ltd. (“Limited”) attorneys’ fees and expenses that the LLC incurred in two related actions.  The limited liability company agreement of the LLC (the “LLC Agreement”) provided that if any action was brought by a party against another party relating to or arising out of the LLC Agreement, the prevailing party shall be entitled to recover from the other party reasonable attorneys’ fees, costs and expenses.  Limited’s only defense was that because the LLC did not sign the LLC Agreement, it was not a “party” to the LLC Agreement.  The Court of Chancery rejected this argument citing Section 18-101(7) of the Delaware Limited Liability Company Act, which states that “[a] limited liability company is bound by its limited liability company agreement whether or not the limited liability company executes the limited liability company agreement.”  The court held that since the LLC was bound to the LLC Agreement and that, as a matter of contract law principles, “only parties to a contract are bound by that contract,” the LLC was a party to the LLC Agreement and could enforce the fee-shifting provision.

SeaportVillageLtdvSeaportVillageOperating

Copyright © 2019, K&L Gates LLP. All Rights Reserved.