Chancery Dismisses Dissolution Claim

Wiggs v. Summit Midstream Partners, LLC, C.A. No. 7801-VCN (Del. Ch. March 28, 2013).

This opinion addresses: claims for breach of fiduciary duty in the context of an LLC agreement, which waived all fiduciary duties, and also addresses a claim based on the implied covenant of good faith and fair dealing, as well as a judicial dissolution claim based on Sections 18-802 and 18-803 of Title 6 of the Delaware Code (the Delaware LLC Act). The court dismissed the entire complaint but the judicial dissolution analysis is the most noteworthy.

Judicial Dissolution Under LLC Act

The court recognized that judicial dissolution is “a limited remedy that Delaware courts grant sparingly.”  See footnote 135.  The court often looks to the limited partnership dissolution statute in the absence of extensive case law involving Section 18-802 of the LLC Act.

Two situations where the court has ordered dissolution are:  “(1) Where there is a deadlock that prevents the corporation from operating; and (2) Where the defined purpose of the entity is fulfilled or impossible to carry out.”  See footnote 137 and 138.  There was no deadlock in this situation and in evaluating whether the defined purpose of the entity was either fulfilled or impossible to carry out, the court:  “must assess whether it is reasonably practicable to carry on the business of the limited partnership, and not whether it is impossible.”  See footnote 139.

The court looks to the purpose clause in the governing agreement and determines whether the business can continue in accordance with that stated purpose.  See footnotes 141 and 142.

The court quoted from the purpose clause in the LLC agreement which was very broad and essentially allowed for “any lawful activity”.  Based on that broad purpose clause, which allowed the entity to engage in any lawful activity, the court determined that the plaintiffs did not plead a “reasonably conceivable” claim that it was “no longer reasonably practicable for [the LLC] to operate in accordance with its broad purpose clause.”