Topic: Withdrawal

WITHDRAWN LIMITED PARTNER IS NOT ALLOWED TO INSPECT BOOKS AND RECORDS

By Scott E. Waxman and Annamarie C. Larson

In Harry Greenhouse v. Polychain Fund I LP and Polychain 2030, LLC, C.A. No. 2018-0214-JRS (Del. Ch. May 29, 2019), the Delaware Court of Chancery held that a withdrawn limited partner no longer retains an equity interest in the partnership and therefore is not entitled to inspect the partnership’s books and records.

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Purported Assignment of Limited Liability Company Interest Impacts Jurisdiction Under Conspiracy Theory of Jurisdiction

By: Scott Waxman and Zack Sager

In Perry v. Neupert, the Delaware Court of Chancery found that it could exercise personal jurisdiction over a Liechtenstein entity under the conspiracy theory of jurisdiction.  In reaching this conclusion, the Court analyzed the effects of an assignment by a sole member of a Delaware limited liability company of its entire limited liability company interest to a single assignee under the Delaware Limited Liability Company Act currently in effect and in effect prior to the 2016 amendments thereto.

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Touch of Italy Salumeria & Pasticceria, LLC, et al. v. Louis Bascio, et al., C.A. No 8602 (January 13, 2014) (Glasscock, V.C.)

By Eric Feldman and Eric Taylor

Touch of Italy Salumeria & Pasticceria, LLC, et al. v. Louis Bascio, et al. is about the members of a Delaware limited liability company, Touch of Italy Salumeria & Pasticceria, LLC (the “Company”), suing a former member of the Company seeking injunctive and monetary relief after the former member withdrew from the Company in accordance with the terms of its limited liability company agreement (the “LLC Agreement”) and opened a competing business on the same street as the Company a mere ten weeks later. Emphasizing that limited liability companies are explicitly contractual relationships, the Court of Chancery dismissed the action because the LLC Agreement permitted any member to withdraw from the Company by giving written notice of the decision to withdraw to the other members, at which time the remaining members would have 60 days to elect to purchase the withdrawing member’s interest in the Company. The LLC Agreement did not contain a covenant not to compete following withdrawal. Adding to the plaintiffs’ ire was the fact that the withdrawing member allegedly lied about his intentions after withdrawal, saying that he was planning to move to Pennsylvania and perhaps open a new business there. The remaining members of the Company said that, had they known of his true intentions, they would have objected. However, the Court of Chancery noted that the plaintiffs’ lacked the means to object in any legally effective way and interpreted the complaint as “an attempt to achieve a result–restraint on post-withdrawal competition–that the members could have but chose not to forestall by contract.” The Court of Chancery emphasized that it must enforce LLC agreements as written, in this case allowing a member of the Company to withdraw and open a competing business because the LLC Agreement contained no restriction on doing so.

Touch of Italy v. Louis Bascio

Touch of Italy Salumeria & Pasticceria, LLC, et al. v. Louis Bascio, et al., C.A. No 8602 (January 13, 2014) (Glasscock, V.C.)

By Eric Feldman and Eric Taylor

Touch of Italy Salumeria & Pasticceria, LLC, et al. v. Louis Bascio, et al. is about the members of a Delaware limited liability company, Touch of Italy Salumeria & Pasticceria, LLC (the “Company”), suing a former member of the Company seeking injunctive and monetary relief after the former member withdrew from the Company in accordance with the terms of its limited liability company agreement (the “LLC Agreement”) and opened a competing business on the same street as the Company a mere ten weeks later. Emphasizing that limited liability companies are explicitly contractual relationships, the Court of Chancery dismissed the action because the LLC Agreement permitted any member to withdraw from the Company by giving written notice of the decision to withdraw to the other members, at which time the remaining members would have 60 days to elect to purchase the withdrawing member’s interest in the Company. The LLC Agreement did not contain a covenant not to compete following withdrawal. Adding to the plaintiffs’ ire was the fact that the withdrawing member allegedly lied about his intentions after withdrawal, saying that he was planning to move to Pennsylvania and perhaps open a new business there. The remaining members of the Company said that, had they known of his true intentions, they would have objected. However, the Court of Chancery noted that the plaintiffs’ lacked the means to object in any legally effective way and interpreted the complaint as “an attempt to achieve a result–restraint on post-withdrawal competition–that the members could have but chose not to forestall by contract.” The Court of Chancery emphasized that it must enforce LLC agreements as written, in this case allowing a member of the Company to withdraw and open a competing business because the LLC Agreement contained no restriction on doing so.

Touch of Italy v. Louis Bascio

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