Topic: LLC Agreement

Court Relies on Canons of Construction to find LLC Agreement Consent Right Inapplicable to Contemplated Sale of Subsidiary Stock

By: Scott E. Waxman and Michael C. Payant

In AM General Holdings LLC v. The Renco Group, Inc., et al., CA. No. 7639 and The Renco Group, Inc. v. MacAndrews AMG Holdings, LLC, et al., C.A. No. 7668-VCS (Del. Ch. June 26, 2020), the Delaware Court of Chancery (the “Court”) considered the latest dispute in a nearly decade-long litigation between The Renco Group, Inc. (“Renco”) and MacAndrews AMG Holdings LLC (“MacAndrews”), regarding interpretation of the Limited Liability Company Agreement (the “Agreement”) for AM General Holdings LLC (“Holdco”). Relying on canons of construction, the Court determined the Agreement did not provide Renco a consent right with respect to a contemplated subsidiary sale, and granted MacAndrews’ motion for judgment on the pleadings.

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Chancery Court Rules that LLC Unit Buyout Provision Operated As a Call Option

By Scott Waxman and Priya Chadha

In Kieran Walsh et al. v. White House Post Productions, LLC, et al., C.A. No. 2019-0419-KSJM (March 25, 2020), Plaintiffs Kieran Walsh and Francis Devlin brought claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and specific performance following a dispute with Defendant Carbon Visual Effects, LLC (the “Company”) regarding a buyout provision in the Company’s LLC Agreement.  On a motion to dismiss, Vice Chancellor McCormick held that the buyout provision operated as a call option, requiring Defendants to purchase Plaintiffs’ LLC units once it exercised its option by noticing its intent to purchase them.

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Delaware Court of Chancery Applies Narrow Arbitration Provision in Member Dispute; Stays Claims Pending Arbitration

By Scott E. Waxman and Jessica A. Pingleton

In 360 Campaign Consulting, LLC et al. v. Diversity Communication, LLC, et al., C.A. No. 2019-0807-MTZ (Del. Ch. Mar. 20, 2020), the Delaware Court of Chancery (the “Court”) applied a middle ground approach based on the plain language of an arbitration provision in a governing limited liability company agreement (the “LLC Agreement”), holding that only disputes, controversies or claims between Members arising out of or relating to the LLC Agreement were arbitrable. The Court granted a stay of all remaining claims pending resolution of the arbitration.

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Delaware Court of Chancery Allows Direct Claims for Breach of Contract and Fraud to Proceed, Even After Dismissing Related Derivative Claims

By Scott E. Waxman and Frank J. Mazzucco

In MKE Holdings, Ltd. and David Bergevin v. Kevin Schwartz, et al. and Verdesian Life Sciences, LLC, C.A. No. 2018-0729-SG (Del. Ch. Jan. 29, 2020), the Delaware Court of Chancery allowed direct claims for breach of contract and fraud in connection with an equity financing to survive a motion to dismiss, even after having previously dismissed the related derivative claims.  

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MANAGERS NOT PROPERLY REMOVED FROM LLC DESPITE SOLE MEMBER’S INTENT

By: Scott Waxman and Zack Sager

In Llamas v. Titus, the Court of Chancery held that, despite the intent of an LLC’s sole member, certain managers of the LLC were not removed as such because the sole member did not expressly remove them.  In its analysis, the Court applied corporate law principles by analogy because the LLC adopted a corporate-like structure.

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Court of Chancery Finds that the Implied Contractual Covenant of Good Faith and Fair Dealing Requires Delaware LLC to Exercise Discretion in Good Faith

By: Scott Waxman and Zack Sager

In Coca-Cola Beverages Florida Holdings, LLC v. Goins, the Court of Chancery granted in part and denied in part a motion to dismiss a claim for breach of the implied contractual covenant of good faith and fair dealing, and, in so doing, found that the discretion afforded to a Delaware limited liability company under an agreement was required to be exercised in good faith.  In addition, the Court analyzed a motion to dismiss claims for breach of contract, unjust enrichment, quantum meruit, and fraud.

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CHANCERY COURT FINDS THAT LANGUAGE IN AN LLC AGREEMENT THAT STATES AN ASSIGNMENT IS “NULL AND VOID” TRUMPS THE COMMON LAW AND RENDERS EQUITABLE DEFENSES INEFFECTIVE

By: Scott Waxman and Calvin Kennedy

In Absalom Absalom Trust f/k/a Anne Deane 2013 Revocable Trust v. Saint Gervais LLC, C.A. No. 2018-0452-TMR (Del. Ch. June 27, 2019), the Court of Chancery found that the transfer of membership interests in an LLC was void, rather than voidable as it ordinarily would be at common law, due to the plain language of the Company’s LLC agreement (the “LLC Agreement”). Further, the Court held that equitable defenses were unavailable to the plaintiff with regards to the transfer because the contractual language of the LLC Agreement trumped common law. Lastly, the Court found that the unambiguous contractual language controlled despite the flexibility of LLCs and the alleged purpose of the provision.

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SOPHISTICATED PARTY OR NOT, LLC AGREEMENT STILL GOVERNS

By: Scott Waxman and Rich Minice

In Durham v. Grapetree, LLC, Civil Action No. 2018-0174-SG (Del. Ch. June 4, 2019), the Delaware Court of Chancery granted the request made by Grapetree, LLC ( “Grapetree”) to shift its fees incurred in defending this litigation to the mostly unsuccessful plaintiff, Andrew Durham (“Durham”). In shifting Grapetree’s fees under this litigation, the Court reinforced the longstanding principal that Delaware law is contractarian in nature, and that parties shall be held to their bargains regardless of their legal sophistication. The underlying litigation and the Court’s initial findings (the “Books and Records Action”) were previously summarized by this blog here.

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Chancery Court finds Commission under Sales Agreement was not “Required” such that entry into Sales Agreement Required Additional Approvals

By Scott E. Waxman and Michael C. Payant

In CompoSecure, L.L.C. v. CardUX, LLC f/k/a Affluent Card, LLC, C.A. No. 12524-VCL (Del. Ch. June 5, 2019), the Delaware Court of Chancery (the “Court”) concluded in a Report on Remand from the Delaware Supreme Court that a Sales Agreement (“Agreement”) entered into by CompoSecure, L.L.C. (“CompoSecure”) and CardUX, LLC (“CardUX”) was not subject to the heightened approval requirements contained in the CompoSecure LLC Agreement because the Agreement did not require CompoSecure to expend more than $500,000 in any fiscal year.

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COURT OF CHANCERY HOLDS THAT MEMBER OF LIMITED LIABILITY COMPANY IS ENTITLED TO ADVANCEMENT WHILE DEFENDING A LAWSUIT IN ITS “OFFICIAL CAPACITY”

By Scott E. Waxman and Frank J. Mazzucco

In Freeman Family LLC v. Park Avenue Landing LLC, C.A. No. 2018-0683-TMR (Del. Ch. April 30, 2019), the Delaware Court of Chancery (the “Court”) held that a member of a limited liability company, in defending a lawsuit in its “official capacity” brought by the company’s managing member, was entitled to advancement of litigation expenses under the company’s operating agreement.

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