June 16, 2015 – Delaware Docket

Delaware Chancery Court Allows Disclosure of Privileged Information to LLC Members Under Garner Fiduciary Exception

Jun 16 2015

In De Vries v. Del Mar, L.L.C., two minority limited liability company members of Del Mar, L.L.C. (the “Company”) sought to compel disclosure of privileged information relating to the settlement of a $3.0 million loan to the Company, the transfer of the Company’s primary asset to the lender in post-settlement negotiations, and potential mismanagement and self-dealing by the managing member of the Company, Baja Management, LLC (“Baja”), and its president and sole managing member, Kenneth Jowdy (“Jowdy”). The Court held that the plaintiffs demonstrated sufficient “good cause” to compel inspection of privileged books and records of the Company related to the post-settlement events under the Garner doctrine of the Fifth Circuit Court of Appeals, adopted by the Delaware Supreme Court in Wal-Mart Stores v. Indiana Electrical Workers Pension Trust Fund IBEW, No. 614, 2013 (Del. July 23, 20

The Company was formed for the principal purpose of owning and developing a hotel, golf course and residential properties in Baja California, Mexico, and its main asset consisted of 9,238 acres of undeveloped land, valued at $68.9 million (the “Property”). Baja, the Company’s majority and managing member, owned 93% of the Company’s membership interests, and the remaining interests were held by various minority members who invested $500,000 each in exchange for a 0.5% interest in a private placement round in 2005. The Company obtained a secured loan of $3.0 million from a “hard money” lender in 2006, but failed to raise substantial investment funds for full development of the Property. Jowdy, the sole managing member of Baja, personally guaranteed the loan. In 2010, the Company defaulted on the loan, and the Company and Jowdy executed confessions of judgment for the full amount of the loan (and interest). Following settlement negotiations, and the Company’s inability to satisfy the judgments with further financing, the Company agreed to transfer the Property to the lender in lieu of the lender recording the judgments against the Company and Jowdy.

Delaware Chancery Court Awards Attorneys’ Fees Based on Gross Amount of Settlement Award and Denies Sharing of Award by NY Counsel

Jun 16 2015

By Kristy Harlan and Sophia Lee Shin

Following the settlement of In re Jefferies Group, Inc. Shareholders Litigation on March 26, 2015, the court issued this opinion on June 5, 2015 in response to plaintiffs’ Delaware counsel’s application for an award of attorneys’ fees and a motion by plaintiffs’ New York counsel for a share of that fee award. The court held that the Delaware counsel’s attorneys’ fees should be calculated on a gross basis, granting Delaware counsel an award of approximately 23.5% of the gross value of the settlement, and denied New York counsel’s motion for a share of that fee award.

On March 1, 2013, Jefferies Group, Inc. and Leucadia National Corporation consummated a stock-for-stock merger. On November 14, 2012, two days after the transaction was announced, the first of seven actions challenging the transaction was filed in New York state court. Eventually, the New York actions were stayed and the case proceeded in Delaware. The parties ultimately agreed to settle for payment of $70 million to the class, which settlement was approved by the court. The settlement contemplated that any award of attorneys’ fees would be in addition to the $70 million payment, with the defendants retaining the right to oppose the fee application.

Archive:June 16, 2015