Vinton v. Grayson
189 A.3d 695
| Del. Super. Ct. | 2018Background
- Route 9 Associates LLC (Route 9) was formed in 2005 by five members: Vinton (manager, 28%), Ruggio (27%), Grayson (27%), Robitzer (9%), and Jones (9%).
- Route 9 made post-formation capital calls previously; all members paid pro rata. The company ceased active development after 2009 and had minimal cash in 2017.
- In 2017 Route 9 faced approximately $153,121 in obligations after a DOT bond redemption and outstanding loans; Vinton (manager) issued a First Notice and then a Second Notice under Section 4.2 of the operating agreement calling for pro rata additional contributions.
- Grayson refused to pay the post-formation capital call and directed communications to counsel; Member Plaintiffs (individual members) and Route 9 sued Grayson for breach of contract and breach of the covenant of good faith and fair dealing.
- Grayson moved to dismiss, arguing (1) the individual members lack standing to sue (only the LLC may sue under the LLC Act) and (2) the operating agreement limited remedies to forfeiture/readjustment of units (so money damages were unavailable).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do individual members have standing to sue a co-member for failure to satisfy a post-formation capital call? | Member Plaintiffs: As signatories, they retained contractual rights (and the operating agreement’s cumulative-remedies clause preserves member rights) to sue Grayson. | Grayson: The LLC Act and operating agreement confine enforcement to the company; members lack an individual contract claim. | Held: Members have standing as signatories; they can assert breach-of-contract claims against Grayson. |
| Does the operating agreement/LLC Act preclude money damages and limit remedies to transfer/readjustment of units? | Route 9 Plaintiffs: The agreement imposes personal liability for additional capital contributions and contains a preservation-of-remedies clause, so money damages are available. | Grayson: The agreement’s specified consequence (transfer/readjustment of units) and the Act show the parties intended to limit remedies; therefore money damages are precluded. | Held: The readjustment remedy is not exclusive; the preservation-of-remedies clause and other provisions support personal liability and permit money damages. |
| How should courts construe ambiguous remedy clauses in operating agreements? | Plaintiffs: (implicit) interpret agreement holistically; preserving typical contract remedies when language allows. | Defendant: (implicit) read specified remedy as exclusive absent other language. | Held: Courts interpret the agreement as a whole; absence of an explicit exclusivity clause plus a preservation clause weighs against deeming the specified remedy exclusive. |
| Is Delaware law analogous to Kansas precedent relied upon by parties? | Plaintiffs: Skyscapes (Kansas) supports allowing damages where an operating agreement preserves remedies and extends personal liability. | Grayson: Canyon Creek (Kansas) supports barring money damages where the operating agreement provides only readjustment penalties. | Held: The Court aligns with Skyscapes’ approach—distinguishing Canyon Creek on facts and agreement language—and applies Delaware contract interpretation principles to allow damages here. |
Key Cases Cited
- Appriva S'holder Litig. Co., LLC v. EV3, Inc., 937 A.2d 1275 (Del. 2007) (contract interpretation and standing principles where contract issues closely relate to the merits)
- Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153 (Del. 2010) (objective theory of contract interpretation and giving plain meaning to unambiguous contractual language)
- Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728 (Del. 2006) (Delaware courts give contractual language its plain meaning when unambiguous)
- Westfield Ins. Grp. v. J.P.'s Wharf, Ltd., 859 A.2d 74 (Del. 2004) (read contract as a whole and give effect to each provision)