Achaian, Inc. v. Leemon Family LLC
25 A.3d 800
| Del. Ch. | 2011Background
- Omniglow, LLC had three Members in 2006: Leemon Family LLC (50%), Holland (30%), and Achaian (20%).
- In 2008, Leemon allegedly took sole control of Omniglow contrary to the LLC Agreement which vests managerial authority in Members by percentage interests.
- In 2010, Holland transferred its entire 30% Interest to Achaian via a Purchase Agreement, while Achaian was already a Member.
- Achaian filed suit alleging the deadlock at 50/50 between Leemon and Achaian justifies dissolution under 6 Del. C. § 18-802.
- Leemon moved to dismiss arguing the transfer only conveyed economic rights, not voting rights, to Achaian because §7.2 requires consent to admit a new Member.
- The court held that the LLC Agreement allows transfer of the entire Interest, including voting rights, to an existing Member, resulting in two coequal 50% Members.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the LLC Agreement permit transfer of voting rights to an existing Member without consent? | Achaian: entire Interest includes voting rights; §7.1 free transfer to existing Members; §7.2 only restricts admission of new Members. | Leemon: default Act rules apply; voting rights transfer requires consent or re-admission for each Interest; §7.2 prevents transfer of voting power to non-new Members. | Yes; Holland could transfer voting rights to Achaian existing Member without new consent. |
| Did Achaian become admitted as a substituted Member for the 30% Interest acquired from Holland? | Achaian was already a Member; §7.2 does not require readmission for additional Interests acquired by an existing Member. | §7.2 requires consent for admission of a new Member; Achaian would need readmission for the additional Interest. | No; §7.2 does not require readmission for an already admitted Member acquiring additional Interest. |
| Whether the two coequal 50% Members and deadlock justify judicial dissolution. | Two 50% Owners cannot jointly manage; deadlock and lack of exit mechanism justify dissolution under §18-802 as analogized to §273 | Not contested in brief; but argues no dissolution unless deadlock is recognized and exit mechanisms fail. | Achaian pleaded sufficient facts for dissolution; court denied Leemon's motion to dismiss and granted declaratory judgment of two 50% Members. |
Key Cases Cited
- Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286 (Del. 1999) (contracts heavily govern private ordering; Act flexible but subordinate to agreement)
- Kuhn Const., Inc. v. Diamond State Port Corp., 990 A.2d 393 (Del. 2010) (read contracts as a whole; give effect to terms; avoid superfluous provisions)
- Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728 (Del. 2006) (plain meaning of terms; dictionary aid when not defined)
- Haley v. Talcott, 864 A.2d 86 (Del. Ch. 2004) (analogy to 8 Del. C. § 273 for deadlock dissolution in two-party entities)