Spellman v. Katz, (Del Ch., Feb. 6, 2009), read opinion here. This Delaware Chancery Court opinion involved the appointment of a liquidating trustee to wind-up the LLC where the two 50/50 owners were deadlocked and their Operating Agreement already provided for dissolution.

The same vice chancellor issued a decision a few days later involving a deadlock  between two 50/50 shareholders in a closely-held corporation (as opposed to an LLC as in this case) and the appointment of a custodian in that case, which was highlighted here.

For any business litigator who deals with disputes among or between the owners of  a closely-held LLC or corporation, these two cases are must reading. For now, I will  highlight a few key points in this decision of immense practical application:

  • Two doctors, who apparently could not get along together, owned an LLC that was created for the limited purpose  of  building a medical office. They remained personally liable on the mortgage as guarantors but were not otherwise able to disentangle themselves from their "now unwanted" business arrangement via their LLC.
  • One doctor  sought a declaration of dissolution per Section 18-802 of the Delaware LLC Act or alternatively an order under Section 18-803(a) to appoint a liquidating trustee to effectuate the winding up of the LLC’s affairs, because the operating agreement already provided for  the dissolution by agreement of the members.
  • The court’s reasoning for appointing a liquidating trustee, which it said it could do under either Section 18-803 or 18-802, should be read to get an understanding of the detailed facts and legal analysis on which the court relied.
  • Of useful import was a discussion accompanying footnote 17 for the key principle that a party will be bound by a contract that he signs "even if he said that he did not read it".
  • The court  also discussed the derivative pleading requirement and demand futility in the context of LLCs.