Tag: LLC Agreement

Court of Chancery Grants Summary Judgment For Dissolution of Limited Liability Company Where Two Minority Members Failed To Purchase The Majority Member’s Limited Liability Interest, As Required By The Operating Agreement

By: Scott Waxman and Caitlin Velasco

In Terramar Retail Centers, LLC v. Marion #2-Seaport Trust U/A/D/ June 21, 2002, Civil Action No. 12875-VCL (Del. Ch. May 22, 2019), Terramar Retail Centers, LLC (“Terramar”), the manager and 50% member of Seaport Village Operating Company, LLC, a Delaware limited liability company (the “Company”), filed an action, seeking a declaration that it may dissolve the Company and sell its assets, and that Terramar appropriately determined the allocation of the sale proceeds. The Delaware Court of Chancery held that Terramar appropriately exercised its dissolution right under the Company’s operating agreement, because the fair market value and purchase price proposed by Terramar reflected its honest opinion and Terramar did not negotiate in bad faith. The Court further held that Terramar’s waterfall determination was correct because a settlement release and the statute of limitations barred the counterclaims raised, and Terramar did not breach its contractual obligations or fiduciary duties. The Court ruled in favor of Terramar on all claims, supporting Terramar’s ability to dissolve the Company, sell its assets, and distribute the proceeds in accordance with Terramar’s allocation of the sale proceeds.

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CONTRACTUAL AMBIGUITIES FAVOR THE NON-MOVING PARTY AT MOTION TO DISMISS STAGE

By: Scott Waxman and Rich Minice

In Coyne v. Fusion Healthworks, LLC Civil Action No. 2018-0011-MTZ (Del. Ch. April 30, 2019), the Delaware Court of Chancery denied a motion to dismiss for failure to state a claim (the “Motion”) filed by Fusion Healthworks, LLC (the “LLC”), James Sheehan with his personal medical practice, and Andrew Lietzke, with his personal medical practice (collectively, the “Defendants”). In denying the Motion, the court reiterated the standing principal that, when presented with a contractual ambiguity, dismissal at the motion to dismiss stage is only appropriate “if the defendants’ interpretation [of the ambiguity] is the only reasonable construction as a matter of law.” Coyne highlights the critical nature of competent drafting of LLC Agreements.

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COURT OF CHANCERY HOLDS THERE MUST BE A GAP IN AGREEMENT FOR AN IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

By: Scott E. Waxman and Douglas A. Logan

In Christopher Miller, et al., v. HCP & Company, et al., memorandum opinion 180201, the Court of Chancery granted a motion to dismiss because the underlying Limited Liability Company Agreement did not contain a “gap” for an implied covenant of good faith and fair dealing to fill. Rather, the Court of Chancery held that the Limited Liability Company Agreement contained negotiated investor favorable provisions regarding good faith and fair dealing, thus undercutting any argument that the Court of Chancery should read an implied covenant into the operating agreement.

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Too Many Cooks in the Kitchen – Deadlocked Management Leads to LLC Dissolution

By Scott E. Waxman and Reese Brammell

In In re GR BURGR, LLC, C.A. No. 12825-VCS (Aug. 25, 2017), the Delaware Court of Chancery exercised its power under Section 18-802 of the Delaware Limited Liability Company Act to effect the judicial dissolution of GR BURGR, LLC (“GRB”). GRB was a Delaware limited liability company formed by an entity affiliated with celebrity chef Gordon Ramsay (“GRUS”) and Rowan Siebel, each owning a 50% membership interest. This structure, along with the LLC Agreement’s lack of a tiebreaker, effectively turned any action requiring a majority vote of the managers into a unanimous vote. The relationship between the members eventually deteriorated, and the company, formed for the purpose of developing and operating burger restaurants, became locked in a stalemate regarding its future operations. GRUS petitioned for dissolution Section 18-802. The Court found that the undisputed facts entitled GRUS to such relief and, rejecting Siebel’s claims that dissolution was not equitable, granted the same.

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Chancery Court Denies Cross-Motions for Partial Summary Judgment Due to Ambiguities in Contract Language of LLC Agreement Governing Joint Venture

By Scott E. Waxman and Rachel Cheasty Sanders

In AM General Holdings LLC v. The Renco Group, Inc., C.A. No. 7639-VCS  and The Renco Group, Inc. v. MacAndrews AMG Holdings LLC, C.A. No. 7668-VCS (Del. Ch. May 17, 2017), the Delaware Court of Chancery denied cross-motions for partial summary judgment after reviewing the LLC Agreement of AM General Holdings LLC, which governs the joint venture relationship between Plaintiff, The Renco Group, Inc. (“Renco”), and Defendant, MacAndrews AMG Holdings LLC (“MacAndrews”), both members of AM General Holdings LLC (the “Company”).  Renco brought suit against MacAndrews alleging that MacAndrews, the managing member of the Company, caused the Company to distribute $72.8 million to MacAndrews in breach of the Company’s LLC Agreement.  Renco contended that, according to the LLC Agreement, the $72.8 million should have been distributed to Renco instead.  Both parties pointed to several provisions of the LLC Agreement governing the distribution at issue, and both parties contended that these provisions were clear and unambiguous.  After reviewing the provisions, however, the Court determined that the provisions were, in fact, ambiguous and thus, the case could not be disposed of through summary judgment proceedings.

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Chancery Court Rules Against Enforcement of a Call Right Due to Failure to Tender the Contractual Consideration

By: Jill B. Louis and Gilbert A. Perales

In Simon-Mills II, LLC, et al., v. KanAm USA XVI Limited Partnership, et al., C.A. No. 8520-VCG (Del. Ch. March 30, 2017), the Court of Chancery denied Plaintiffs’ request to enforce its call right and granted Defendants’ request for declaratory judgment when the contracted consideration for the call right could not be tendered.

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Failure to Make Demand to the Board of Directors Dooms 50% Owner’s Breach of Fiduciary Duty Claims Against Co-Owner

By: Michelle McCreery Repp and Benjamin Kendall

In Dietrichson v. Knott, C.A. No. 11965-VCMR (Del. Ch. Apr. 19, 2017), the Chancery Court dismissed the entire complaint brought by  one member of a limited liability company against another member for paying himself an unauthorized salary and misappropriating the proceeds of a sale of the company’s assets, concluding that the claims made were derivative rather than direct stockholder claims.  The Court also held that plaintiff’s claims were not “dual-natured” (i.e., having both direct and derivative aspects), because the plaintiff failed to plead that the transaction resulted in both an improper transfer of economic value and voting power from the minority equity holders to the controlling equity holder.

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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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