Courtesy of Kurt Heyman of Proctor Heyman Enerio LLP, who represented the party seeking the dissolution of an LLC in a decision issued today by the Court of Chancery, we have the following highlights of the important opinion:
The Court of Chancery, per Vice Chancellor Laster, just issued an Opinion denying a motion to dismiss the petition for dissolution in In re Carlisle Etcetera LLC, C.A. No. 10280-VCL (Del. Ch. Apr. 30, 2015). This decision appears to be the first in Delaware to provide strong support for the concept of “equitable dissolution” of LLCs.
The respondent, Tom James Company, moved to dismiss on the grounds that the petitioners lacked standing to seek judicial dissolution under Section 18-802 of the LLC Act, because neither was a member of the LLC as a result of (a) the LLC agreement’s silence on the issue of assignments and (b) the original member’s (WU Parent) assignment of its interest to its wholly owned subsidiary (WU Sub). (See Section 18-702 of the LLC Act regarding the effect of assignments where the LLC agreement is silent on the issue.)
The Vice Chancellor agreed with Tom James’ argument, notwithstanding the fact that Tom James was aware of the assignment when it occurred and treated the assignee as a member, and therefore held that the petitioners lacked standing to seek judicial dissolution under Section 18-802.
However, in a lengthy analysis of the Court’s equitable jurisdiction, the Vice Chancellor found that the assignee nevertheless had standing to seek “dissolution in equity,” and consequently denied the motion to dismiss. The critical holding of the case is as follows:
“James argues that because neither WU Parent nor WU Sub can seek statutory dissolution under Section 18-802, this case must be dismissed. In my view, James errs in contending that Section 18-802 is the exclusive extra-contractual means of obtaining dissolution of an LLC. Under the facts of this case, WU Sub has standing to seek dissolution in equity.”
Because the Court took pains to note that its finding was based on “the facts of this case,” a careful analysis of those facts is necessary before concluding that the decision applies to other cases.
Supplement: On May 4, 2015, the Court granted a motion for summary judgment in this case. The Order provides a helpful description, with citations to authority, of those circumstances in which a deadlock will warrant dissolution–because not all deadlocks will justify a dissolution by the court. The same day the Court also entered an Order appointing a Receiver to oversee the dissolution. This Order provides helpful details that address the powers of a Receiver and scope of a Receiver’s role in connection with a dissolution.
By coincidence, a day before the initial decision in the above case, another member of the Court of Chancery issued a separate decision in an unrelated case that also involved an issue of standing to pursue an claim for dissolution of an LLC pursuant to Section 18-802. See Hampton v. Turner, C.A. No. 8963-VCN (Del. Ch. Apr. 29, 2015). Proctor Heyman Enerio LLP also represented a party in this Hampton case.