Prof. Larry Ribstein posts here about a dispute between the founder of Facebook and the founders of another start-up, and the procedural entanglements that arose in the lawsuit that was filed in federal court in Massachusetts, against the backdrop of the failure at the time of formation of the Delaware LLC to have any formally appointed members and the absence of any operating agreement at that time. The good professor refers to several of his articles and one of his casebooks that address the myriad procedural and substantive issues that this messy set of facts create. The post is must reading for anyone who litigates related LLC issues or who is interested in avoiding problems that are generated by forming LLCs without the formal appointment of members and/or without an operating agreement in place.
Here is a post by Prof. Gordon Smith that previously highlighted the case in the context of a discussion about the duties that founders of entities owe each other. An excerpt from Prof. Ribstein’s post follows:
… right now, as Gordon says, the case is "procedurally muddled." But there is much of interest in that muddle. In ConnectU LLC v. Zuckerberg, 482 F.Supp.2d 3 (D.Mass., 2007), the court dismissed the initial complaint in this case, which was brought by a Delaware LLC that had been formed with no members and no substantive agreement. Members were admitted pursuant to a later operating agreement dated retroactively to the time of formation, as permitted by the applicable Delaware statute (Del. Code Ann. Section 18-201).