Topic: Membership

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

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.

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Chancery Court Finds No Fiduciary Duty for Limited Partners

By Scott Waxman and Eric Jay

Chancery Court grants motion to dismiss against former limited partners seeking damages for a freeze-out merger they claimed was a self-dealing transaction by the general partner and its affiliates.  The Court granted the motion to dismiss for lack of subject matter jurisdiction with regard to the general partner defendants based on a standard arbitration clause that referenced AAA Rules. The Court also granted the motion to dismiss for failure to state a claim with regard to the affiliated limited partner defendants because majority ownership of the merged entities, without more, did not create a fiduciary duty to the plaintiffs.

On February 10, 2015, Vice Chancellor Parsons issued a memorandum opinion in Lewis v. AimCo Properties, L.P., 2015 WL 557995, (Del. Ch. Feb. 10, 2015) granting Motions to Dismiss for each group of defendants in the case. The case was brought by several former holders of limited partnership units (“Plaintiffs”) in four Delaware limited partnerships (the “Partnerships”). Each of the Partnerships was managed by corporate entity general partners (“GP Defendants”) that were each indirectly owned by Apartment Investment and Management Company (“AimCo”).  AimCo also indirectly held a majority of the limited partnership units of each Partnership through various affiliates (together with various officers, the “LP Defendants”).

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Capano v. Capano, C.A. No. 8721-VCN (June 30, 2014)

By Eric Feldman and Sophia Lee Shin

Capano, et al. v. Capano, et al. is a consolidated case involving three brothers that came before the Delaware Court of Chancery, in which Joseph and Gerry Capano each filed a complaint against Louis Capano.

Facts

Louis, Joseph and their father, Louis Sr., were equal partners in a Delaware partnership, Capano Investments. Upon Louis Sr.’s death, the partnership structure changed such that Louis and his son controlled 48.5% of the partnership, Joseph and his son controlled 48.5%, and Gerry (as the beneficiary with voting control of CI Trust) controlled 3%. In 2000, the partnership was subsequently converted into a Delaware limited liability company, Capano Investments, LLC (“CI-LLC”), with the same membership and respective ownership interests as those of the partnership

In 2000, Louis and Gerry executed two documents that purportedly granted Louis an interest in CI Trust: (1) Gerry granted Louis the “Power to Direct”, an irrevocable proxy to direct CI Trust’s trustee (at the time, Daniel McCollom) to vote its interest in CI-LLC; and (2) Gerry granted Louis the “Option” to purchase Gerry’s interest in CI Trust, but only with the consent of CI Trust’s trustee, and at a purchase price of $100,000 and the forgiveness of a $100,000 advance. Both the Power to Direct and the Option were signed by Louis and Gerry and had “(SEAL)” printed next their signatures.

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