A recent Delaware Court of Chancery decision determined the proper members of an LLC and their respective interests pursuant to Section 18-110 of the Delaware LLC Act. In REM OA Holdings, LLC v. Northern Gold Holdings, LLC, C.A. No. 2022-0582-LWW (Del. Ch. Sept. 20, 2023), the court determined in a post-trial opinion that at least one of the two initial 50/50 members lied while testifying during trial, but the court nonetheless reached a conclusion based on all the admissible evidence.
Although the entire decision should be read carefully for the factual context, this short blog post will only provide a few key takeaways.
- Despite one of the initial 50/50 members not being provided with all of the documents that described the loan terms that diluted his interest–before he signed a document agreeing to those terms–the court found that he would still be bound by a written consent to loan terms that would admit a new member.
- Without reference to the conduct of the counterparty who failed to provide all the terms, the member was nonetheless bound by the documents he signed.
- The court relied on several cases for the well-established principle that ignorance of the terms in an agreement signed and consented to is no defense to their enforceability. Slip op. at 49.
- This basic principle that one generally is bound by the document she signs, also extends to the terms of documents incorporated by reference—even if they were not supplied prior to signing. See footnote 274.
- The court determined that several arguments were unavailing to prevent enforceability, including: (1) unilateral mistake; (2) fraudulent inducement; and (3) breach of fiduciary duty.
- Regarding the breach of fiduciary duty argument, the court observed that fiduciary duties under the LLC agreement only applied to controllers or managers of the LLC, but the claimant in this case was neither. See Slip op. at page 52-54.
Of course, there is much more to commend the reading of this entire opinion, but these bullet points were the most useful takeaways with the most widespread applicability.