Utilisave LLC, a Delaware LLC and MHS Venture Management Corp. v. Mikhail Khenin, C.A. 7796

Background

Utilisave, LLC was a Delaware LLC whose members included MHS (50%), Mikhail Khenin (40%), and Donna Miele (10%); Khenin served as CEO. 2006 Operating and employment agreements governed management, confidentiality, and distributions.
Relations soured after 2007; Khenin assumed de facto control, stopped payments to MHS/Steifman, and continued paying himself under a purportedly renewed employment arrangement that New York court later found backdated and ineffective.
Khenin unilaterally declared six member distributions (2008–2011); some earlier distributions were litigated and resolved in New York court. Post-trial, a Trustee was appointed to liquidate/sell Utilisave; sale approved to MHS in July 2012.
In 2011 Khenin formed Venergex LLC, purchased computers tied to a Venergex domain, and caused Utilisave’s entire database (source code, client lists, billing/usage data) to be copied to those machines. Plaintiffs contend the data were trade secrets and the download was for competitive use; defendant claimed it was an emergency backup.
Plaintiffs sued in Delaware Chancery for breaches of the Operating Agreement, misuse of confidential information, and misappropriation of trade secrets, and sought disgorgement and damages; defendant counterclaimed for distributions. After trial, the Master recommended awards on multiple claims and calculated damages.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
1) Breach of Operating Agreement by paying salary post-expiration	Khenin unlawfully continued to pay himself salary/raises after employment agreement expired and without member approval	Khenin provided CEO services and salary at 2008 level was reasonable; raises were justified	Liability found for breach; plaintiffs awarded the raises ($31,073.09) and disgorgement of one month’s 2011 salary ($28,623.92) under faithless-servant principles
2) Reimbursement for attorneys’ fees charged to Utilisave for Khenin’s personal counterclaims	Keane & Beane billed Utilisave for work on Khenin’s personal counterclaims; Utilisave should be reimbursed	Khenin contended he was billed separately and reimbursed; invoked privilege and refused some testimony	Adverse inference drawn from Khenin’s refusals; plaintiffs awarded $7,970 for invoices plausibly for Khenin’s personal counterclaims; other challenged entries credited to company claims were not charged back
3) Misappropriation of trade secrets (DUTSA) by copying database to Venergex machines	The database constituted trade secrets; copying to Venergex computers was a disclosure and willful misappropriation intended to compete, warranting damages and attorneys’ fees	Khenin said copies were emergency backups and disputed that files were placed on Venergex machines	Found misappropriation under DUTSA; download to Venergex machines accepted as disclosure; willfulness found, attorneys’ fees awarded; remedial costs awarded ($16,249.64) plus attorneys’ fees ($3,207.50)
4) Damages aggregation and total judgment	Plaintiffs sought disgorgement, reimbursement, remediation costs, and fees	Khenin disputed factual bases and some billings; challenged computations	Master recommended total judgment of $83,917.65 (sum of raises, disgorgement month, reimbursed legal fees, remediation damages, and trade-secret attorneys’ fees), plus simple pre- and post-judgment interest

Key Cases Cited

Beard Research, Inc. v. Kates, 8 A.3d 573 (Del. Ch. 2010) (Delaware court authority on allocating risk when damages are uncertain; wrongdoer bears uncertainty)
ASDI, Inc. v. Beard Research, Inc., 11 A.3d 749 (Del. 2010) (appellate disposition affirming relevant Chancery principles)
Nucar Consulting, Inc. v. Doyle, 913 A.2d 569 (Del. 2006) (trade-secret and DUTSA standards; misappropriation may be proven by circumstantial evidence)