LLC Agreement – Page 4 – Delaware Docket

Chancery Court Confirms that Broad Arbitration Clauses Cover Questions of Substantive Arbitrability

Mar 15 2017

In Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC, Civil Action No. 12647-VCMR (Del. Ch. Ct. March 2, 2017), the Delaware Court of Chancery granted the defendant’s motion to stay, holding that the Court lacks subject matter jurisdiction to decide the question of substantive arbitrability when the disputing parties are bound by an LLC agreement containing a broad arbitration clause.

Chancery Court Interprets Contractual Provisions, the Elimination of Fiduciary Duties and Standard to be Applied for Self-Dealing Transactions under LLC Agreement

Feb 24 2017

By Nicholas I. Froio and Rachel Cheasty Sanders

In CelestialRX Investments, LLC and Krittika Life Sciences, LLC v. Krivulka, et al., C.A. No. 11733-VCG (Del. Ch. Jan. 31, 2017), the Delaware Court of Chancery addressed two preliminary issues before it on motions for partial summary judgment filed by the various defendants. The plaintiffs include CelestialRX Investments, LLC (“CelestialRX”), one of three members of the Delaware limited liability company Akrimax Pharmaceuticals, LLC (“Akrimax”). The defendants include Leonard Mazur and Joseph J. Krivulka (“Krivulka”), the two other members of Akrimax, along with various entities Krivulka controls or in which he has invested. These entities entered into a number of transactions with Akrimax, these transactions being at the heart of this dispute. The Court first considered whether a release agreement dated July 1, 2013 (“Release Agreement”) barred CelestialRX from bringing causes of actions against the defendants which occurred prior to the release. After applying rules of contract interpretation, the Court, in dismissing the motion for partial summary judgment, held that the plaintiff was not a “Releasing Party” as defined in the Release Agreement and thus had not released any claims existing as of July 1, 2013. The Court next considered the extent to which the LLC Agreement of Akrimax and its July 1, 2013 amendment (“Amendment No. 7”) limited or modified fiduciary duties of the members, directors or managers of Akrimax, and what standard of care applied under the LLC Agreement in the context of conflicted transactions.

Chancery Court Finds Unqualified Inspection Right in Statutory Trust Agreement Renders Default Preconditions and Defenses Inapplicable

Sep 16 2016

By: Scott Waxman and Eric Jay

In Grand Acquisition LLC v. Passco Indian Springs DST, C.A. No. 12003-VCMR (Del. Ch. Aug. 26, 2016) the Delaware Court of Chancery found that under the Delaware Statutory Trust Act (the “Act”), the governing instrument of a Delaware statutory trust (DST) does not need to affirmatively disavow the preconditions and defenses applicable to inspection rights related to a DST’s books and records under Section 3819 of the Act in order to create a separate and distinct contractual right that can, in some circumstances, render statutory preconditions and defenses inapplicable to such requests. Read More

Court of Chancery Dismisses Breach of Fiduciary Duty Claim as Duplicative of Breach of Contract Claim

Mar 04 2016

By Scott Waxman and Zack Sager

In CIM Urban Lending GP, LLC v. Cantor Commercial Real Estate Sponsor, L.P., the Delaware Court of Chancery dismissed a breach of fiduciary duty claim against a general partner of a Delaware limited partnership because there was no independent factual basis for the breach of fiduciary duty claim apart from the plaintiffs’ breach of contract claim.

Court of Chancery Reallocates Limited Liability Company Distributions According to Prior Agreements between the Parties

Nov 02 2015

By Andrew Skouvakis and Thomas Meyer

In Finger Lakes Capital Partners, LLC v. Honeoye Lake Acquisition, LLC, the Court of Chancery held that proceeds from a limited liability company’s liquidity event distributed to the members of the limited liability company should be reallocated in accordance with prior agreements between the members. The Court found that an integration clause in the limited liability company agreement did not supersede allocation provisions in the prior agreements.

In 2003, Zubin Mehta and Gregory Shalov formed Finger Lakes Capital Partners, LLC (“Finger Lakes”) to sponsor investments in portfolio companies. Lyrical Partners, L.P. (“Lyrical”) provided the majority of the capital for these investments. In 2004, Mehta, Shalov, and Lyrical executed a binding term sheet (the “Term Sheet”) addressing the ongoing business relationship between Finger Lakes and Lyrical. Under the Term Sheet, Lyrical received a 25% ownership interest in Finger Lakes and was entitled to a percentage of portfolio company management fees that would otherwise go to Finger Lakes.

Delaware Chancery Court Addresses Alleged Breaches of LLC Agreement

Jul 14 2015

By Scott Waxman and Sophia Lee Shin

NewYork.com Internet Holdings, Inc. v. Entertainment Benefits Group, LLC, et al., involves a dispute between the two owners, each with a 50% interest, of NewYork.com Entertainment Group, LLC (“NYEG” or the “Company”). The plaintiff alleged that the Company’s board (the “Board”) was deadlocked because it had been excluded from all decision-making and sought dissolution, and the defendant counterclaimed for various breaches by the plaintiff of the Company’s operating agreement; the plaintiff then moved to strike the defendant’s counterclaim or dismiss it in its entirety. In this opinion, the court granted in part and denied in part the plaintiff’s motion to strike, and denied in its entirety the plaintiff’s motion to dismiss.

The plaintiff and defendant in this case were the two owners of NYEG. The principals of the plaintiff, NewYork.com Internet Holdings, Inc. (“NYIH”), were the original registrants of the domain name NewYork.com, a website that sells and markets travel and entertainment tickets in New York. The defendant, Entertainment Benefits Group, LLC (“EBG”), is in the business of selling and marketing travel and entertainment tickets.

Chancery Court Interprets Redemption Option Provisions in LLC Agreement in Connection with Judicial Dissolution

May 05 2015

By Andrew Skouvakis and Peter C. Seel

In Hampton v. Turner, Vice Chancellor Noble denied a motion for summary judgment in a dispute about whether a limited liability company had properly exercised a redemption option under its operating agreement and tendered the correct purchase price for three members’ limited liability company interests, after such members sought judicial dissolution of the company. In denying summary judgment, Vice Chancellor Noble found that the operating agreement was unambiguous with respect to the application of the redemption option provisions and how those should be interpreted to determine a purchase price.

The Court of Chancery Orders Dissolution of a Limited Liability Company Solely on Equitable Grounds

May 05 2015

By Eric Feldman and B. Ashby Hardesty, Jr.

The Delaware Chancery Court held that the assignor of a limited liability company interest and its assignee, neither of which was a member or manager of the limited liability company, both lacked standing to petition for judicial dissolution of the limited liability company under Section 18-802 of the Delaware Limited Liability Company Act (the “LLC Act”). However, the Court went on to further hold that the assignee nonetheless had standing to seek judicial dissolution of the limited liability company in equity. Subsequent to such decision, the Court later issued an order granting the petitioners’ motion for summary judgment seeking judicial dissolution, representing the first time that a Delaware court has dissolved a limited liability company entirely on equitable grounds.

In In re Carlisle Etcetera, Well Union Capital Limited (“WU Parent”) and Tom James Company (“Tom James”) formed a two member Delaware limited liability company (the “LLC”), adopting a very basic operating agreement, with the intent to later amend and restate the operating agreement. The LLC was managed by a four member board, with each member entitled to appoint two of the board managers, and the entire board designated as the “manager” of the LLC. Additionally, a Tom James executive was appointed by the board as the CEO of the LLC. After formation, WU Parent transferred all of its limited liability company interest in the LLC to its wholly-owned subsidiary (“WU Sub”), of which Tom James was aware, and to which it did not object. The parties later began to negotiate an amended and restated operating agreement, which reflected Tom James and WU Sub as the members of the LLC.

Chancery Court Finds Arbitration Clause in Limited Liability Company Agreement Survives Company’s Conversion into Corporation Despite Corporation’s Litigation Only Approach

Mar 09 2015

By Scott Waxman and Peter C. Seel

In 3850 & 3860 Colonial Blvd., LLC v. Griffin, the Chancery Court denied a motion to dismiss and stayed the proceedings on all counts, finding that the arbitration clause in the limited liability company agreement controlled and the case must be submitted to an arbitrator to decide the issue of substantive arbitrability.

On February 26, 2015, the Chancery Court in 3850 & 3860 Colonial Blvd., LLC v. Griffin, C.A. No. 9575-VCN (Del. Ch. February 26, 2015) (Noble, V.C.) addressed the recurring theme of substantive arbitrability in a dispute that involved the conversion of a limited liability company into a corporation and their conflicting dispute resolution mechanisms. In 2007, defendant Christopher Griffin (the “Defendant”) formed Rubicon Media LLC (“Rubicon LLC”). In 2011, the Defendant reformed Rubicon LLC’s capital structure and, in 2013, converted Rubicon LLC into a corporation: Rubicon Inc. (“Rubicon Inc.,” and together with the Defendant, the “Defendants”). Among other things, the conversion of Rubicon LLC into Rubicon Inc. altered the rights of shareholders with respect to the dispute resolution process. The operative clause in the LLC Agreement (the “LLC Provision”) directs the parties to resolve disputes through mediation and arbitration, whereas the corresponding provision in the Certificate of Incorporation (the “Charter Provision”) designates the Delaware Court of Chancery as the exclusive forum for all disputes.

Catagory:LLC Agreement