A recent Delaware Court of Chancery decision provided an exemplary analysis of when a deadlock in an LLC might be the basis for a dissolution. In Mehra v. Teller, C.A. No. 2019-0812-KSJM (Del. Ch. Jan. 29, 2021), the court applied case law, statutes, and learned commentary that it synthesized in a careful application of those applicable principles that were distilled based on the facts of this case.
Two central issues were addressed by the court:
(1) whether there was a failure to achieve votes necessary for board action; and
(2) whether the board deadlock was “genuine” or merely manufactured to force the appearance of a deadlock. See Slip op. at 48.
This 75-page opinion by Vice Chancellor Kathaleen St. Jude McCormick deserves to be read in its entirety, but the key takeaways, in my subjective view, that make this decision especially noteworthy are the following:
(1) The court’s comprehensive and detailed analysis that examines the two determinative issues should be read by anyone who needs to determine whether circumstances of a particular case satisfy the definition of deadlock for purposes of seeking a dissolution. See Slip op. at 48 to 58.
(2) Especially important are footnotes 243 and 244, which explain why the deadlock in this situation was not disingenuous, and was not merely pre-planned for strategic purposes.
(3) The court illustrates why it refused to invalidate the dissolution based on equitable grounds. This explanation by the court provides guidance to address the common defense that the person seeking dissolution is not doing so equitably. See Slip op. at. 69 – 75.