Topic: Dissolution and Winding-Up

Chancery Court Grants Summary Judgment for Dissolution of Corporation owned 50% by Two Stockholders Where Judicial Admissions Establish Prerequisites for Intervention

By: Chris Cunningham and Will Smith

In Benjamin Feldman v. YIDL Trust, C.A. No. 2017-0253-AGB (Del. Ch. November 7, 2017), plaintiff Benjamin Feldman brought a motion for summary judgment under Court of Chancery Rule 56 for dissolution of a jointly-held Delaware corporation pursuant to 8 Del. C. § 273. The Delaware Court of Chancery granted the motion, holding that YIDL Trust made voluntary and knowing concessions of fact during the judicial proceedings that conclusively established the prerequisites for a judicial order of dissolution under Section 273.

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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.

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Testimony Regarding Timeliness of Election to Continue an LLC Found to be Untrustworthy, Resulting in LLC Dissolution

By: Scott Waxman and Ernest Simons

In Delaware Acceptance Corporation, CACV of Colorado, LLC and 202 Investments, Inc., v. Estate of Frank C. Metzner, the Court of Chancery removed the executrix of an estate for breaching her fiduciary duty to a creditor of the estate. The case hinged on the authenticity of several documents, which if found to be forged would lead to the dissolution of an LLC and a distribution of its assets. The Court of Chancery found that the executrix was not a credible witness, and, therefore, it could not trust the authenticity of documents that she presented in support of the continued existence of the LLC. Read More

It’s a Family Affair… but Not Any More, as Chancery Court Grants Motion to Dissolve General Partners Under Section 273 of the DGCL

By Annette Becker and Lauren Garraux

The Chancery Court granted a petition in accordance with Section 273 of the Delaware General Corporation Law to dissolve two Delaware corporations, the general partners of two Massachusetts limited partnerships, initially formed by the patriarchs of the Grossman and Cohen families to own three real estate properties for the benefit of their respective family members, after the families reached an impasse as to how to dispose of the assets of the business.

In 1992, the patriarchs of the Grossman and Cohen families formed two Massachusetts limited partnerships (the “Partnerships”) to own three real estate properties for the benefit of their family members (at the time of this dispute, 25 Grossmans and 6 Cohens), who are limited partners in the Partnerships.  The general partners of the Partnerships (the “General Partners”) are two Delaware corporations, each of which is a joint venture corporation with two 50% stockholders, at the time of the dispute, the petitioner, Louis Grossman (“Louis”), and the respondent, Claire Cohen (“Claire”).

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Comerica Bank v. Global Payments Direct, Inc., C.A. No. 9707-CB (Aug. 1, 2014) (Bouchard, C.)

By Scott Waxman and Zack Sager

This case involves the unfriendly winding up of a two-member Delaware limited liability company (the “LLC”). One of the issues raised in this case was whether “cause” existed for the Court of Chancery to intervene and wind up the LLC’s affairs and appoint a liquidating trustee under Section 18-803(a) of the Delaware Limited Liability Company Act (the “LLC Act”). One of the members of the LLC (“Global”) argued that the Court did not have cause because a deadlock did not exist among the parties entitled to wind up the LLC. Global argued that because it was the 51% owner of the LLC and had the right to make any decisions necessary to wind up the LLC, no deadlock existed.

In rejecting Global’s argument, the Court stated that nothing in the LLC Act “requires a finding of deadlock as a prerequisite to this Court assuming control of the wind up process of a Delaware LLC and/or appointing a liquidating trustee.” According to the Court, ample cause existed because Global was unwilling to wind up the LLC in an orderly and timely manner and took a confrontational approach that was contradictory to its obligation to wind up the LLC promptly so as to maximize the value of the property distributed to the members. Chancellor Bouchard noted that although the “contours of [default fiduciary duties] may be different after dissolution of an LLC during the wind up period, they continue to encompass, in my view, an obligation to distribute the assets of the company promptly consistent with maximizing their value.”

Comerica Bank v Global Payments Direct

Levey v. Brownstone Asset Mgmt., LP, et al., C.A. No. 5714-VCL (Del. Ch. Aug. 1, 2014) (Laster, V.C.)

By Scott Waxman and Marisa DiLemme

In Levey v. Brownstone Asset Mgmt., LP, et al., the plaintiff, Gordon Levey (“Levey”), and the three individual defendants worked together as principals in a financial services boutique, Brownstone Investment Group LLC.  Operating out of the same office, Levey and the three defendants also ran a hedge fund.  In this action, Levey, after resigning from the financial services boutique, sought a declaration that he continued to own equity in two of the entities through which the boutique operated: (1) Brownstone Investment Partners LLC, a Delaware limited liability company, which was the passive manager of the hedge fund (the “Passive Manager”); and (2) Brownstone Asset Management LP, a Delaware limited partnership, which was the active manager of the hedge fund (the “Active Manager”). Levey sought a declaration that he continued to hold a 5% interest in the Passive Manager and the Active Manager, and if he did remain an owner of those interests, he demanded his proportionate share of all past distributions made by those entities.  He also sought an order requiring the defendants to identify any undisclosed profits (from which he would presumably also seek his share).

The court first addressed the critical factual issue of whether Levey withdrew from the Passive Manager and the Active Manager on January 26, 2006.  Levey argued that he may have tried to withdraw but failed in the attempt, while the defendants argued that he could and did withdraw.  The court found that an objective viewer would regard Levey as withdrawing, listing actions that support this conclusion – he turned in his keys, he cut up his corporate charge card and building identification card, and the other principals and employees of the firm gathered together and said goodbye to him.  He also withdrew his personal funds that were invested in the hedge fund.  Levey argued that he intended to resign as an employee and to withdraw from the financial services boutique, but not to withdraw from the Passive Manager and the Active Manager.  However, based on the dislike Levey had expressed for his partners, the court did not find it credible that he wanted to maintain his relationship with his partners through the Passive Manager and the Active Manager.  Therefore, the court found that Levey withdrew from the Passive Manager and the Active Manager on January 26, 2006.

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In re Interstate General Media Holdings, LLC, C.A. No. 9221-VCP (Apr. 25, 2014) (Parsons, V.C.)

By Scott Waxman and Zack Sager

In In re Interstate General Media Holdings, LLC, the managing members of Interstate General Media Holdings, LLC, a Delaware limited liability company (the “Company”), sought judicial dissolution of the Company.  Both managing members agreed that the Company was deadlocked and judicial dissolution was necessary, but they disagreed about whether the Company should be sold at a private auction or a public auction.  The limited liability company agreement of the Company (the “LLC Agreement”) did not explicitly address how the Company was to be dissolved and liquidated.  Nonetheless, one of the managing members argued that the Court of Chancery should look to the intent and provisions of the LLC Agreement for guidance in fashioning an appropriate remedy.  The court rejected this argument holding that because the LLC Agreement did not explicitly address the procedures for dissolution and liquidation, it was essentially irrelevant in determining the issue.  Further, because the managing members sought judicial dissolution, which was not proscribed by the LLC Agreement, the Company submitted itself to the discretion of the court to determine how the Company was to be dissolved and liquidated.  The court ultimately ordered the dissolution of the Company and a sale of the Company via a private auction, finding that this method would maximize the value of the members’ limited liability company interests in the Company.

InReInterstate

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