Topic: Special Litigation Committee

Chancery Court Blocks Former Judge From Serving On LLC Special Litigation Committees

By: Scott E. Waxman and Trevor M. Gates

In Obeid v. Hogan, No. CV 11900-VCL (Del. Ch. June 10, 2016), the Delaware Court of Chancery prevented a former federal judge from serving as the sole member of parallel special litigation committees formed to assess derivative actions because he was not a director or manager of the respective limited liability companies (“LLCs”).  In reaching this decision, the court followed corporate precedent in interpreting an LLC agreement because of the LLC’s “corporate-style governance structure.”  The court concluded an LLC board of directors could therefore delegate authority to a committee to take control of a derivative action, under certain circumstances, but that authority could not be delegated to a non-director/non-member in this instance.

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