In re Carlisle Etcetera LLC
114 A.3d 592
Del. Ch.2015Background
- In 2012 Well Union Capital Ltd. (WU Parent) and Tom James Co. (James) formed Carlisle Etcetera LLC under a short Initial LLC Agreement, agreeing to negotiate a more detailed operating agreement later.
- WU Parent transferred its 50% membership interest to a U.S. subsidiary (WU Sub); James knew of and treated WU Sub as the holder for tax and practical purposes but the Initial LLC Agreement was silent on assignments.
- The Board (four directors, two appointed by each side) is the Company’s sole manager and requires unanimous Board action; the Board became deadlocked 2–2 and Brubaker (a James executive) operated as de facto CEO without Board oversight.
- Efforts to negotiate a buyout failed; WU Sub filed to dissolve the LLC under 6 Del. C. § 18-802; James moved to dismiss arguing lack of statutory standing because WU Parent assigned away membership and WU Sub is only an assignee.
- The Court held that under the LLC Act neither WU Parent (having assigned its interest) nor WU Sub (not formally admitted as a member) had statutory standing to seek dissolution under § 18-802, but denied dismissal because WU Sub had equitable standing to seek dissolution in equity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether petitioners have statutory standing under 6 Del. C. § 18-802 to seek dissolution | WU Sub (and WU Parent as co-petitioner) argued they have standing because WU Sub was treated as the member and was reflected in company records | James argued § 18-802 permits only members or managers to seek statutory dissolution and WU Parent assigned away membership while WU Sub is only an assignee | Court: § 18-802 is limited to members/managers; neither petitioner is a member for § 18-802 purposes, so no statutory standing |
| Whether WU Sub’s assignment resulted in de facto membership | WU Sub contended it became a member by consent and that company records/drafts reflected its membership (invoking § 18-301) | James argued admission of an assignee as member requires a permitted admission under § 18-704 (affirmative vote or written consent of all members) and no such formal action occurred | Court: Transfer made WU Sub an assignee; absent the unanimous member action required by § 18-704, WU Sub was not a member under the LLC Act |
| Whether § 18-802 is the exclusive route to dissolve an LLC (i.e., whether lack of statutory standing requires dismissal) | WU Sub argued equity can provide relief and that equitable dissolution is available where statutory remedies are unavailable or inadequate | James argued statutory scheme governs dissolution and petitioners lack any statutory right so the suit must be dismissed | Court: § 18-802 is not exclusive; Court of Chancery retains equitable power to order dissolution and appoint a receiver where equity so requires |
| Whether equitable standing exists for an assignee to seek dissolution under the facts alleged | WU Sub argued equity should recognize its substantive role/expectations (parties treated WU Sub as member; proposed agreement would have admitted affiliate) and that the deadlock created an intolerable status quo | James argued assignee lacks member rights and cannot obtain dissolution absent statutory admission | Court: On pleadings, equitable considerations (substance over form, parties’ conduct, inability to manage due to deadlock) support recognizing WU Sub’s standing in equity to seek dissolution; motion to dismiss denied on that basis |
Key Cases Cited
- Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531 (Del. 2011) (Delaware Rule 12(b)(6) pleading standard & reasonable-conceivability test)
- Eureka VIII LLC v. Niagara Falls Hldgs. LLC, 899 A.2d 95 (Del. Ch. 2006) (assignment typically divests statutory membership rights)
- Haley v. Talcott, 864 A.3d 86 (Del. Ch. 2004) (equity may order dissolution where contractual exit is inadequate)
- DuPont v. DuPont, 85 A.2d 724 (Del. 1951) (constitutional vesting of Chancery’s general equity jurisdiction)
- Schoon v. Smith, 953 A.2d 196 (Del. 2008) (equity’s adaptive role and continuing jurisdiction)
- CML V, LLC v. Bax, 28 A.3d 1037 (Del. 2011) (limits on equitable remedies where adequate legal remedies exist)
- In re Revlon, Inc. S’holders Litig., 990 A.2d 940 (Del. Ch. 2010) (Delaware courts retain oversight authority over entities formed under Delaware law)