Category: LLC Cases

AGREEMENT TO NEGOTIATE

By , September 11, 2017 4:10 pm

LLC lawyers, like all other business lawyers, find themselves dealing from time to time with agreements to negotiate, as entered into by their clients or other persons.  The post under the link below discussed a recent Delaware case holding the agreement to negotiate in issue in that case to be invalid.  The case seems to me to have implications in most or all non-Delaware jurisdictions

Here’s the link:  https://delawarechancery.foxrothschild.com/case-summaries/chancery-denies-relief-under-agreement-to-negotiate/?utm_source=Fox+Rothschild+-+Delaware+Chancery+Law+Blog&utm_campaign=96e6e7ad79-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_86821ff155-96e6e7ad79-70733165

MEMBER-MANAGEMENT COMPENSATION

By , August 31, 2017 1:56 pm

The case discussed in the post under the attached link concerns the payment of compensation to shareholders of close corporations, and the case is a Delaware case.  However, the case applies equally to the payment of manager compensation to members of multi-member LLCs.

Here’s the link:  http://www.nybusinessdivorce.com/2017/08/articles/delaware/navigating-rocky-shoals-safe-harbors-board-members-fix-compensation/

“PROPER PURPOSE”

By , June 19, 2017 1:34 pm

When non-manager members have disputes with managers, the access of the non-managers to LLC records is often a key issue.  The issue is whether the non-member members have a “proper purpose” for obtaining those records.  The post under the link below discusses a Delaware Court of Chancery case about that issue.

Here’s the link:  https://delawarechancery.foxrothschild.com/books-and-records-demand-2/chancery-finds-that-mismanagement-exists-warranting-section-220-books-and-records-demand/?utm_source=Fox+Rothschild+-+Delaware+Chancery+Law+Blog&utm_campaign=c83185548b-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_86821ff155-c83185548b-70733165

DELAWARE SUPREME COURT DECISION ABOUT IMPLIED COVENANT

By , March 9, 2017 2:36 pm

The judicial doctrine called the implied contractual covenant of good faith and fair dealing looms over every multi-member LLC operating agreement.  Delaware has a far more extensive body of case law on the Implied Covenant than any other state, and this case law is likely to be persuasive in many other states. The link below discusses an important Delaware Supreme Court Implied Covenant case.

Here’s the link: https://delawarechancery.foxrothschild.com/mergers-and-acquisitions/delaware-supreme-court-addresses-the-implied-covenant-of-good-faith-and-fair-dealing/?utm_source=Fox+Rothschild+-+Delaware+Chancery+Law+Blog&utm_campaign=580be6649c-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_86821ff155-580be6649c-70733165

TOP 10 2016 BUSINESS DIVORCE CASES

By , January 11, 2017 6:38 pm

If, like me, you’re a fan of Peter Mahler’s remarkable weekly bog posts on business divorce cases, you’ll find his most recent post, under the link below, a useful review of his past year of posts.  It’s about his choice of the top ten 2016 business divorce cases.

Here’s the link:

http://www.nybusinessdivorce.com/2016/12/articles/annual-top-10-cases/top-10-business-divorce-cases-2016/

NY CASE ABOUT RIGHT OF SHAREHOLDERS TO INSPECT RECORDS OF CORPORATE SUBSIDIARY-SIGNIFICANCE FOR LLCS

By , January 6, 2017 4:03 pm

Under the link below is a post by Peter Mahler about a recent decision by a New York appellate court holding that the shareholders of a NY corporation had a common law right to inspect the books and records of a wholly owned subsidiary of that corporation.  Not just in NY but also in other states, this case is likely to be useful to LLC lawyers whose clients want to inspect the books and records of single-member LLCs and other subsidiaries of multi-member LLCs of which these clients are members.

Here is the link:

http://www.nybusinessdivorce.com/2016/10/articles/access-to-books-and-records/ruling-upholds-shareholders-right-inspect-subsidiarys-books-records/

LLC-RELATED DEALS INVOLVING MULTIPLE LEGAL DOCUMENTS

By , December 9, 2016 4:57 pm

LLC formations often involve multiple documents, especially if these formations involve passive investments that require federal securities compliance documents or if they involve holding company/operating company structures.  The November 14, 2016 decision of the Delaware Supreme Court  under the link below addresses, among other issues, how to determine the relative rank of multiple interrelated LLC documents in a single, complex deal extending over a significant period of time.

Here’s the link:

https://gallery.mailchimp.com/27d7d107b7ca58cf04799f740/files/Finger_Lakes_Capital_Partners_LLC_v._Honeoye_Lake_Acquisition_LLC.pdf

WHEN ARE LLCS SUBJECT TO CORPORATE LAW?

By , November 21, 2016 5:43 pm

I’ve already addressed once in this blog the Delaware case holding that an LLC may be subject to corporate law if its operating agreement so provides; but the subject is so important that I want to state below the title and the first paragraph of a new article about that case that just appeared:

2016-SEP Bus. L. Today 1
Business Law Today
September, 2016
Department
DELAWARE INSIDER: BE CAREFUL WHAT YOU ASK FOR: COURT OF CHANCERY FINDS CORPORATE LAW GOVERNS LLC BASED ON DRAFTING OF LLC AGREEMENT
Jason C. Jowers
Copyright © 2016 by the American Bar Association; Jason C. Jowers

It is the policy of the Delaware Limited Liability Company Act (LLC Act) “to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.” Indeed, cases routinely refer to LLCs as “creatures of contract,” given that the LLC Act generally cedes governance of the entity to the terms of the LLC agreement, establishing few mandatory provisions and normally only providing “gap fillers” where an LLC agreement is silent. Consequently, members of an LLC “can ‘customize’ their company, largely free of externally imposed restrictions.” Robert L. Symonds, Jr. & Matthew J. O’Toole, Delaware Limited Liability Companies § 1.03[A][1][a], at 1-13(2015). But what happens when drafters of LLC agreements use their statutorily granted freedom to adopt a governance structure that is similar to that of a corporation? Does adopting a corporate-style structure also adopt the corporate case law interpreting that structure and imposing restrictions?

In the recent case of Obeid v. Hogan, 2016 WL 3356851 (Del. Ch. June 10, 2016), the Delaware Court of Chancery confirmed that a Delaware LLC may adopt a governance structure that looks more like a corporation than a traditional LLC, but it also explained that “[t]he choices that the drafters make have consequences.” By adopting a corporate-style of governance, such as a board of directors, the Court of Chancery will to some extent turn by analogy to Delaware’s case law governing corporate boards of directors. If the LLC agreement drafters wish to adopt a board of directors structure but do not wish to import Delaware’s body of board governance case law by analogy, the drafters should specify rules in the LLC agreement to the extent they wish to deviate from the traditional corporate rules.

 

NY CASE ABOUT “PICK YOUR PARTNER” AND RELATED CONCEPTS

By , September 14, 2016 3:41 pm

The “pick-your-partner” concept and the related concepts of member vs. assignee and management rights vs. LLC interests are central to LLC law both in forming LLCs and in other LLC matters.  The recent NY court decision discussed by Peter Mahler under the link below addresses all of these concepts in deciding a case  involving all of them.  If any of your clients or if lawyers or accountants with whom you’re dealing in LLC matters raise questions about these concepts, the decision under the link below will provide them with authoritative (or at least persuasive) responses.

Here’s the link:  http://www.nybusinessdivorce.com/2016/08/articles/access-to-books-and-records/operating-agreements-two-step-consent-provision-foils-assignment-llc-member-interest/#

DECISION OF NJ SUPREME COURT IN IE TEST

By , August 10, 2016 2:29 pm

A couple of days ago, I shared a post published that day about the decision of the NJ Supreme Court in the IE Test case, but I received today a post from Peter Mahler about that case.  Peter’s analyses of LLC cases are always excellent, so I’m setting forth the link to his post below.  The case deals with a critically important LLC issue concerning statutory expulsions of LLC members.  Here’s the link:

http://www.nybusinessdivorce.com/2016/08/articles/deadlock/new-jersey-supreme-court-raises-bar-judicial-expulsion-llc-members/