Chancery Rules that LLC Agreement is Subject to Statute of Frauds, in Issue of First Impression

Posted on October 28, 2008 by Francis Pileggi

Olson v. Halvorsen, (Del. Ch., Oct. 22, 2008), read opinion here. The Chancery Court decided an issue of first impression in the context of cross motions for summary judgment in this case: Does the statute of frauds apply to an LLC Agreement. The answer is yes.

Moreover, the court reasoned that in light of the multi-year earnout provision involved in the LLC agreement at issue–that was never signed, the exception to the statute of frauds for partial perfomance did not apply. See generally Section 2714(a) of Title 6 of the  Delaware Code (requiring signed writing for an agreement that will not be performed within the space of a year)

SUPPLEMENT:  Professor Larry Ribstein has a scholarly analysis here of the decision and a broader discussion of oral LLC agreements, with reference to his prior treatment of the topic in his treatises and other articles he has written.

  • Thomason

    The ruling did not find a path forward from one unsigned contract, to multiple, confirmatory writings, to factual inquiry into the parties’ intent and reasonable expectations, or those overarched by an assertion that promissory estoppel prevents the statute of frauds from being raised. While the LLpartners surely acted consistent with their short-form agreements, they may too have taken actions plainly contemplated in the unsigned, long-form operating agreement. Does the mere existence of multiple writings provide grounds to deny SJmt, or an invitation to assess all the writings as a matter of law?
    The VC does not write up his ruling on the plaintiff’s ‘other’ claims, but refers to his oral ruling (plaintiff did plead promissory estoppel, fn. 8).
    Noting plaintiff’s counsel – the last time that a panel of Gibbons and Seitz were on the short end of a SJ ruling had to have been over in Phila?

  • http://www.delawarelitigation.com/2008/11/articles/chancery-court-updates/chancery-court-trial-on-viking-global-hedge-fund-available-live-online/index.html Delaware Corporate and Commercial Litigation Blog

    Chancery Court Trial on Viking Global Hedge Fund Available Live Online

    Olson v. Halvorsen. This Delaware Chancery Court decision about the hedge fund called Viking Global, was summarized here last week and held that the statute of frauds applied to the LLC Agreement in that case. Now, the trial in that…

  • http://community.martindale.com/blogs/delawarelitigation/archive/2009/12/16/oral-llc-agreements-addressed-by-delaware-supreme-court.aspx Delaware Corporate and Commercial Litigation Blog

    Oral LLC Agreements Addressed by Delaware Supreme Court

    Olson v. Halverson is a decision of the Delaware Supreme Court issued this week which affirmed a Delaware