Shamrock Holdings v. Arenson, 2006 WL 280293 (D.Del., Sept. 29, 2006), read opinion here. Relying on Chancery Court and Delaware Supreme Court precedent, the U.S. District Court for the District of Delaware discussed the distinction between a direct and a derivative claim and particularly the unjust enrichment exception to the analysis described in Tooley v. Donaldson Lufkin & Jenrette, Inc., 845 A.2d 1031,1039 (Del. 2004).  See In Re Cencom Cable Income Partners, 2000 WL 130629 at *5 (Del. Ch., Jan. 27, 2000). (Delaware Court of Chancery held that “the potential inclusion of culpable parties in the class due relief may affect the distinction between the derivative and direct claims.”) See generally DGCL Section 141(a).

In Cencom, then-Vice Chancellor, and now Chief Justice, Steele reasoned that when all the non-defendants constituted the complaining partners, and all the defendants constituted the only remaining partners of the entity, there was no policy reason to require derivative pleading. Id. at *3. He also recognized the need for flexibility when applying corporate precedents to alternative entities. Id. at *2.

 In the Shamrock case, Chief Judge Robinson, cited Cencom, supra, and the recent Delaware Supreme Court decision in Gentile v. Rossette, 2006 WL 2388934 at *1 (Del., Aug. 17, 2006), to conclude that a direct claim could be pursued against the parties who participated in the sale of operating units of the LLC involved.

The Court observed that the LLC at issue had effectively been dissolved. The court also appeared persuaded by the argument that the majority members of the LLC who would be among the beneficiaries of a derivative action would “be unjustly enriched” from any derivative action recovery.  The Court quoted Cencom, supra, as follows “superimposing derivative pleading requirements upon the claims will needlessly delay ultimate substantive resolution and serve no useful or meaningful public policy purpose. Cencom at *3.”


The Court  rejected the argument that an exculpation provision in the LLC agreement that did not protect from liability acts done in bad faith could also be used as a basis for a breach of contract claim due to alleged acts of bad faith.