Too Many Cooks in the Kitchen – Deadlocked Management Leads to LLC Dissolution

By Scott E. Waxman and Reese Brammell

In In re GR BURGR, LLC, C.A. No. 12825-VCS (Aug. 25, 2017), the Delaware Court of Chancery exercised its power under Section 18-802 of the Delaware Limited Liability Company Act to effect the judicial dissolution of GR BURGR, LLC (“GRB”). GRB was a Delaware limited liability company formed by an entity affiliated with celebrity chef Gordon Ramsay (“GRUS”) and Rowan Siebel, each owning a 50% membership interest. This structure, along with the LLC Agreement’s lack of a tiebreaker, effectively turned any action requiring a majority vote of the managers into a unanimous vote. The relationship between the members eventually deteriorated, and the company, formed for the purpose of developing and operating burger restaurants, became locked in a stalemate regarding its future operations. GRUS petitioned for dissolution Section 18-802. The Court found that the undisputed facts entitled GRUS to such relief and, rejecting Siebel’s claims that dissolution was not equitable, granted the same.

During its existence GRB’s sole enterprise was operating BURGR Gordon Ramsay, an aptly named burger restaurant located at Caesars’ Planet Hollywood Resort and Casino in Las Vegas. As part of GRB’s agreement with Caesars to operate the restaurant (the “Caesars Agreement”), Caesars retained the right to terminate the same if GRB, its members, managers, and affiliates become “Unsuitable Persons” whose affiliation with Caesars may harm its reputation or jeopardize its ability to maintain its gaming and alcohol licenses. Under the Caesars Agreement, whether or not any party is “Unsuitable” was a determination to be made by Caesars in its “sole and exclusive judgment.”

Nearly three and a half years after the Caesar’s Agreement took effect, Siebel pled guilty to one count of impeding the administration of the Internal Revenue Code, a felony. Caesars’ promptly notified GRB that it had determined Siebel’s felony conviction rendered him an Unsuitable Person, and cautioned that it would terminate the Caesars Agreement if GRB did not end its relationship with Siebel. Siebel rebuffed GRUS’ request that he remove himself from the entity. Ten days later, Caesars followed through on its warning and terminated the Caesars’ Agreement.

The trademark “BURGR Gordon Ramsay” is owned by GRUS but was licensed to GRB; that license agreement, along with the Caesars Agreement, and the restaurant concept, menu, recipes, and additional related trademarks developed by GRB, were the entity’s primary assets. In September 2016, the Caesars Agreement was terminated, and the next day GRUS terminated its license agreement with GRB. Two of GRB’s three primary assets were gone.

GRUS petitioned this Court less than one month later, seeking the judicial dissolution and winding up of GRB pursuant to Section 18-802. Siebel made multiple counterclaims that generally alleged that GRUS and Ramsay sought to usurp corporate opportunities from GRB and Siebel, in part by colluding with Caesars to have Siebel named an “Unsuitable Person.”

Section 18-802 allows the Court of Chancery to dissolve a limited liability company whenever it is “not reasonably practicable to carry on the business in conformity with [the LLC Agreement].” While acknowledging that the discretionary remedy of dissolution is granted sparingly, the Court pointed to three factors that tend to exist when judicial dissolution is allowed: “(1) the members’ vote is deadlocked at the Board level; (2) the operating agreement gives no means of navigating around the deadlock; and (3) due to the financial condition of the company, there is effectively no business to operate.”

GRB’s circumstances matched all three. Here, the Court noted that the dysfunctional management (Ramsay and Siebel were not on speaking terms) left GRB “in a petrified state.” The LLC Agreement offered no solution to the impasse. Further, because Caesars had exercised its right to terminate the Caesars’ Agreement, and made it clear that its relationship with GRB would not continue while Siebel was involved, GRUS was stuck in a “lifeless joint venture.” These facts, including that the situation was largely the result of Siebel’s own misdeeds, enabled the Court to easily dismiss Siebel’s arguments that a grant of dissolution under 18-802 would not be appropriate. Finding that the “insurmountable” deadlock, faced by GRB satisfied the “not reasonably practicable” standard, the Court turned its attention to additional arguments from Siebel.

Siebel raised the point that the grant of the judicial dissolution remedy is in the Court’s discretion; and that the Court should deny the petition because GRUS had ulterior motives. Specifically that GRUS was seeking to usurp a business opportunity, disenfranchise Siebel, and extricate itself from a bad deal. The Court was not convinced; explaining that the issues with GRB were related to events caused by Siebel. Further, Siebel did not allege any facts that, if true, would indicate bad faith by GRUS or usurpation of specific future business opportunity rightfully belonging to GRB. Accordingly, the Court made clear that denying Ramsay the opportunity to use his celebrity and engage in some other burger venture “would be the antithesis of equitable.”

Having found GRB a suitable candidate for the Section 18-802 remedy as a matter of law, and after determining the remedy was appropriate in light of respondent’s equitable concerns, the Court granted GRUS’s petition and instructed counsel for the parties to attempt to agree upon a liquidating trustee.

In re GR Burgr, LLC, memorandum opinion 170825

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