L. Londell McMillan v. Sharon Nelson ( 2024 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
L. LONDELL MCMILLAN, CHARLES )
SPICER, JR., and JOHNNY )
NICHOLAS NELSON TORRES, )
)
Plaintiffs, )
)
v. ) C.A. No. 2024-0016-KSJM
)
SHARON NELSON and NORRINE )
NELSON, individually, and )
BREANNA M. NELSON and ALLEN )
D. NELSON, in their capacity as co- )
trustees of the John R. Nelson )
Revocable Trust, )
)
Defendants, and )
)
PRINCE LEGACY, LLC, )
)
Nominal Defendant. )
MEMORANDUM OPINION
Date Submitted: April 26, 2024
Date Decided: July 5, 2024
Thomas W. Briggs, Jr., Tarik J. Haskins, Elizabeth A. Mullin Stoffer, Jacob M.
Perrone, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware;
Alan I. Silver, Tal A. Bakke, BASSFORD REMELE, P.A., Minneapolis, Minnesota;
Counsel for Plaintiffs L. Londell McMillan, Charles Spicer, Jr., and Johnny Nicholas
Nelson Torres.
Alexandra D. Rogin, Paul S. Seward, ECKERT SEAMANS CHERIN & MELLOTT,
LLC, Wilmington, Delaware; Stephen A. Ling, Karen D. Olson, SPENCER FANE
LLP, Minneapolis, Minnesota; Courtney L. Creal, SPENCER FANE LLP, Nashville,
Tennessee; Counsel for Sharon Nelson, Norrine Nelson, Breanna M. Nelson, and
Allen D. Nelson.
McCORMICK, C.
The world-renowned recording artist Prince Rogers Nelson died unexpectedly
on April 21, 2016. His six siblings inherited equal interests in his estate, and three
of them assigned their combined 50% interest to Prince Legacy, LLC. Prince’s former
business advisors, L. Londell McMillan and Charles Spicer, Jr., assisted some of the
heirs in the probate process. As compensation for their services, the heirs granted
McMillan and Spicer each a 10% interest in Prince Legacy. They also vested broad
and exclusive management authority in McMillan and Spicer as Managing Members
of the LLC. One of the heirs, Sharon Nelson, came to regret this decision and inserted
herself into management decisions—by demanding, for example, that the entire staff
of the Paisley Park Museum be replaced. When McMillan and Spicer did not
acquiesce to her demands, Sharon led the defendants’ efforts to remove McMillan and
Spicer as Managing Members by amending the LLC agreement. McMillan and
Spicer, along with one of the heirs, filed this action seeking a declaration that the
LLC agreement’s unambiguous terms prohibit the defendants’ attempts to amend it.
The defendants moved to dismiss the complaint, and the plaintiffs moved for partial
summary judgment. This decision denies the defendants’ motion and grants
summary judgment in favor of the plaintiffs.
I. FACTUAL BACKGROUND
For the motion to dismiss, the facts are drawn from the Verified Complaint
(the “Complaint”) and the documents it incorporates by reference.1 For the motion
for partial summary judgment, the court draws on the undisputed facts and the plain
1 C.A. No. 2024-0016-KSJM, Docket (“Dkt.”) 1.
language of the Prince Legacy LLC Operating Agreement dated July 25, 2022 (the
“LLC Agreement”).2
A. The Interests In The Prince Estate
Prince’s six siblings—Sharon, Norrine Nelson, John R. Nelson, Tyka Nelson,
Omarr Baker, and Alfred Jackson—inherited equal interests in his estate.3
Tyka, Omarr, and Alfred, who were collectively entitled to 50% of the estate
assets, sold their stake to a music publishing company, Primary Wave Music, LLC.
Primary Wave later assigned its interests to an affiliate, Prince OAT Holdings LLC.
Sharon, Norrine, and John, who were collectively entitled to the other 50% of
the estate assets, assigned 20% of their collective interests to McMillan and Spicer,
former Prince advisors who had assisted them in the probate process. John passed
away on September 3, 2021. His interests passed to the John R. Nelson Revocable
Trust (the “Trust”). Breanna Nelson, Allen Nelson, and Johnny Nicholas Nelson
Torres are co-trustees of the Trust.
Prince’s estate was subject to proceedings before the Probate Division of the
Carver County, Minnesota District Court (the “Probate Court”). Those proceedings
concluded in August of 2022. Before distributing the estate assets, the Probate Court
ordered the disaggregated heirs (those other than Prince OAT), to form a holding
company to receive and jointly manage the estate assets with Prince OAT. This
2 Compl. Ex A.
3 This decision refers to the heirs by their first name. The court intends no disrespect.
2
allowed the disaggregated heirs to consolidate their 50% interest, thereby
maintaining input and some control over the assets and Prince’s legacy.
To hold their collective interests, Sharon, Norrine, the Trust, McMillan, and
Spicer (each, a “Member”) formed Prince Legacy (or the “Company”) a Delaware
limited liability company.4 Through the LLC Agreement, the Members vested
management of the Company in “Managing Members” and appointed McMillan and
Spicer as Managing Members.5 The remaining Members were “Non-Managing
Members.”6
At the Probate Court’s direction, Prince OAT and Prince Legacy entered into a
joint management agreement to manage the Prince estate. The agreement
designated McMillan and Spicer as management representatives for Prince Legacy.
B. The Prince Legacy LLC Agreement
The LLC Agreement contained provisions that made it difficult to alter
Member composition and remove Managing Members. The relevant provisions of the
LLC Agreement are quoted in full in the legal analysis. A brief summary of those
provisions follows.
Section 6.2 sets forth the responsibilities and powers of the Managing
Members, as well as the limited grounds for removing the Managing Members. It
makes the Managing Members “responsible for the day-to-day management of the
4 LLC Agr. at 1.
5 Id. at 1, § 6.1.
6 Id. at 1.
3
Company’s business and affairs.”7 It further provides that Managing Members could
be removed only for failing to perform their responsibilities and only then with the
remaining Managing Member’s consent. It states that if “any Managing Member
fails to be able to perform his responsibilities or fails to provide day-to-day
management of the Company, such Managing Member can be removed and/or
replaced by the vote of the Members subject to the remaining Managing Member’s
mutual consent.”8
Section 6.3 sets forth the limitations on the Managing Members’ authority
established in Section 6.2. Specifically, Section 6.3 identifies nineteen actions the
Managing Members can only take with the consent of at least 66 2/3% of the Members’
“Percentage Interests” and nine actions the Managing Members can only take with
the consent of 100% of the Members’ Percentage Interests.
Section 6.5 expressly excludes the Non-Managing Members from participating
in the control of the Company’s affairs and from acting for or binding the Company.
It provides that “[a] Member who is not a Managing Member shall not participate in
the control of the Company’s affairs and shall have no right or authority to act for or
to bind the Company.”9
Section 7.1 limits a Member’s ability to transfer or sell the Member’s interest.
Entitled “Transfer of Interest of Member,” Section 7.1 provides that a Member may
7 Id. § 6.2.
8 Id.
9 Id. § 6.5.
4
not “sell, assign, transfer, mortgage, pledge, encumber, hypothecate, or otherwise
dispose of all or any part of his interest in the Company . . . without first having
obtained the written consent of one-hundred percent (100 %) of the Percentage
Interests then held by the Members.”10
C. Efforts To Amend The Prince Legacy LLC Agreement
As alleged in the Complaint, before the parties signed the LLC Agreement,
Sharon proposed that she be appointed as sole Managing Member. The other
Members rejected that proposal. She then proposed that she be appointed co-
Managing Member. The other Members rejected that proposal as well. Sharon
ultimately agreed to McMillan and Spicer’s appointment as Managing Members.
She later came to regret that decision and took efforts to insert herself into
management decisions. For example, Sharon demanded that the entire staff of the
Paisley Park Museum be replaced and that the Paisley Park Museum host lavish
events at the expense of the museum. McMillan and Spicer rejected those and other
demands by Sharon. Sharon later accused them of fraud and attempted to sell her
interests in Prince Legacy without the consent of the other Members in violation of
the LLC Agreement.
Some of Sharon’s family members came to her side. Beginning in December
2023, Sharon, Norrine, and two of the Trust’s three trustees, Breanne and Allen (with
Sharon and Norrine, “Defendants”), attempted to amend the LLC Agreement.
10 Id. § 7.1.
5
Their first effort occurred during a December 13, 2023 Members’ meeting.
Counsel for Defendants proposed a vote to adopt an amended agreement (the
“Amended LLC Agreement”). Among other things, the Amended LLC Agreement
removed McMillan and Spicer as Managing Members and replaced them with
Sharon, Norrine, and the Trust.11 It also included a new forum selection provision,
requiring that all actions arising out of the Amended LLC Agreement be brought in
Minnesota.12 It further relaxed the unanimous approval requirement of Section 7.1
concerning the transfer and sale of membership interests.13 The proposal was not on
the agenda, so McMillan and Spicer did not allow the Members to vote on it.
Defendants requested that a vote to amend the LLC Agreement be added to
the agenda for the next Members’ meeting, then scheduled for December 20, 2023.
McMillan and Spicer cancelled the December 20 meeting. Defendants purported to
hold the meeting anyway. Also on December 20, Defendants executed a written
consent (the “Written Consent”) adopting the Amended LLC Agreement.14
Defendants informed McMillan, Spicer, and the third trustee of the Trust, Johnny
(collectively, “Plaintiffs”), of their December 20 actions by letter on December 26.
D. This Litigation
Plaintiffs filed this action on January 5, 2024. The Complaint contains three
counts.
11 Compl. Ex. D (Am. LLC Agr.) § 6.1.
12 Id. § 13.6.
13 Id. § 7.1.
14 Compl. Ex. E (Written Consent) at 1.
6
• In Count I, filed pursuant to Sections 18-110 and 18-111 of the LLC Act,
Plaintiffs seek a declaration concerning the invalidity of the Amended
LLC Agreement and the Written Consent.
• In Count II, Plaintiffs claim that Defendants breached the LLC
Agreement by purportedly amending it and removing McMillan and
Spicer as Managing Members.
• In Count III, Plaintiffs claim that Defendants breached the covenant of
good faith and fair dealing implied in the LLC Agreement.
The court expedited resolution of whether Defendants validly amended the
LLC Agreement and removed McMillan and Spicer as Managing Members.15 The
court also granted Plaintiffs’ motion for a status quo order keeping McMillan and
Spicer as the Managing Members during this action.16
Defendants moved to dismiss the Complaint, and Plaintiffs moved for
summary judgment on Count I.17 The court heard argument on both motions.18
II. LEGAL ANALYSIS
Defendants moved to dismiss under myriad provisions. Under Rule 12(b)(1),
Defendants argue that the court lacks subject matter jurisdiction over the contract
claims against them. Under Rule 12(b)(2), Defendants argue that the court lacks
personal jurisdiction over them. Under Rule 12(b)(3), Defendants argue that this
court is an improper forum in light of a forum selection provision contained in the
Amended LLC Agreement. Under Rule 12(b)(6), Defendants argue the Complaint
15 See Dkt. 30 (“1/25/24 Hr’g Tr.”) at 41:2–14.
16 Dkt. 24.
17 Dkt. 18; Dkt. 39.
18 Dkt. 65 (“4/26/24 Hr’g Tr.”).
7
fails to state a claim. Defendants also moved to strike Plaintiffs’ request for fees and
costs.
Plaintiffs moved for summary judgment on Count I of their Complaint, arguing
that the Written Consent amending the LLC agreement was invalid and that
McMillan and Spicer are the Managing Members of Prince Legacy.
A. Subject Matter Jurisdiction
The Court of Chancery acquires subject matter jurisdiction when the complaint
states a claim for relief that is equitable in character, the complaint requests an
equitable remedy, or Chancery is vested with jurisdiction by statute.19 The plaintiff
bears the burden of establishing the court’s subject matter jurisdiction.20
Plaintiffs argue that Section 18-110 of the LLC Act provides subject matter
jurisdiction over Count I. Section 18-110 provides this court with subject matter
jurisdiction to resolve disputes concerning “the validity of any admission, election,
appointment, removal or resignation of a manager of a limited liability company.” 21
Count I falls within the scope of Section 18-110, and the court therefore has subject
matter jurisdiction over it.
19 Vama F.Z. Co. v. WS02, Inc., 2021 WL 1174690, at *2 (Del. Ch. Mar. 29, 2021)
(quoting Perlman v. Vox Media, Inc., 2019 WL 2647520, at *4 (Del. Ch. June 27,
2019), aff’d, 249 A.3d 375 (Del. 2021) (TABLE)).
20 See, e.g., Hall v. Coupe, 2016 WL 3094406, at *2 (Del. Ch. May 25, 2016); Morgan
v. Carpenter, 2014 WL 7192476, at *3 (Del. Ch. Dec. 18, 2014); Pitts v. City of Wilm.,
2009 WL 1204492, at *5 (Del. Ch. Apr. 27, 2009).
21 6 Del. C. § 18-110.
8
Plaintiffs argue that Section 18-111 of the LLC Act provides subject matter
jurisdiction over Counts II and III. Section 18-111 grants this court jurisdiction “to
interpret, apply or enforce the provisions of a limited liability company agreement,”
which is what Counts II and III seek to do.22 The court therefore has subject matter
jurisdiction over Counts II and III.
Defendants’ Rule 12(b)(1) motion is denied.
B. Personal Jurisdiction
Defendants moved to dismiss the Complaint for lack of personal jurisdiction
under Rule 12(b)(2).23 “‘Generally, a plaintiff does not have the burden to plead in its
complaint facts establishing a court’s personal jurisdiction over [a non-resident]
defendant.’”24 But when Rule 12(b)(2) is invoked, the plaintiff carries this burden. 25
Where no discovery has been conducted, the plaintiff must make a prima facie factual
showing.26 “Still, allegations regarding personal jurisdiction in a complaint are
presumed true, unless contradicted by affidavit, and, as with a motion to dismiss
under Rule 12(b)(6), the court must construe the record in the light most favorable to
the plaintiff.”27
22 6 Del. C. § 18-111.
23 Ct. Ch. R. 12(b)(2).
24 Focus Fin. P’rs, LLC v. Holsopple, 241 A.3d 784, 800 (Del. Ch. 2020) (alteration
added) (quoting Benerofe v. Cha, 1996 WL 535405, at *3 (Del. Ch. Sept. 12, 1996)).
25 AeroGlobal Cap. Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 438 (Del. 2005).
26 Focus Fin., 241 A.3d at 801 (citing Ryan v. Gifford, 935 A.2d 258, 265 (Del. Ch.
2007)).
27 Hartsel v. Vanguard Grp., Inc., 2011 WL 2421003, at *7 (Del. Ch. June 15, 2011),
aff’d 38 A.3d 1254 (Del. 2012) (TABLE).
9
When deciding a Rule 12(b)(2) motion, “[t]he court engages in a two-step
analysis: the court must first determine that service of process is authorized by
statute and then must determine that the exercise of jurisdiction over the nonresident
defendant comports with traditional due process notions of fair play and substantial
justice.”28 The court conducts this analysis as to each count.
Defendants’ personal jurisdiction argument is misplaced as to Count I because
it asserts a claim that the court adjudicates in rem rather than in personam. Section
18-110 of the LLC Act provides that:
the Court of Chancery may hear and determine the validity
of any admission, election, appointment, removal or
resignation of a manager of a limited liability company,
and the right of any person to become or continue to be a
manager of a limited liability company, and, in case the
right to serve as a manager is claimed by more than 1
person, may determine the person or persons entitled to
serve as manager.29
Under this statute, the office is the res, and the court has power to adjudicate title to
the res.30 Rather than asserting personal jurisdiction over potential holders to the
28 Ryan, 935 A.2d at 265 (citations omitted).
29 6 Del. C. § 18-110(a).
30 Feeley v. NHAOCG, LLC, 2012 WL 966944, at *5 (Del. Ch. Mar. 20, 2012) (“Because
a Section 18-110 proceeding affects the Delaware LLC and the office of managing
member, it is not necessary for all claimants to the office to be subject to the Court’s
in personam jurisdiction in order for the Court to make an authoritative
determination.” (citing Haft v. Dart Gp. Corp., 1996 WL 255899, at *2 (Del. Ch. Apr.
26, 1996))).
10
res, those claimants are given notice, and they can decide whether to appear to contest
their claim.31
No one disputes that Section 18-110 applies and that Defendants were served
in accordance with its provisions. If they choose to ignore the notice, “[t]heir failure
to participate . . . will not foreclose” this court’s ability to resolve the issue of their
entitlement to the seat they claim.32 This conclusion has the practical effect of
rendering the personal jurisdiction question as to Count I irrelevant.
As to Counts II and III, Plaintiffs rely on Section 18-109 of the LLC Act as a
basis for personal jurisdiction. Section 18-109 is an implied consent statute by which
LLC managers submit to the jurisdiction of Delaware courts.33 Defendants respond
that persons who merely claim to be managers do not impliedly consent to this court’s
jurisdiction under Section 18-109. But Defendants are wrong. By claiming title as a
manager of a Delaware LLC, a defendant consents to the personal jurisdiction of the
Delaware courts under Section 18-109.
On this point, the United States District Court for the District of Delaware’s
decision in American Institutional Partners, LLC v. Fairstar Resources LTD.34 is
31 Id. (“What is necessary under our statute, and under the constitution, is that
reasonable steps be taken to notify claimants to the office of the forthcoming
adjudication and that they receive an opportunity to be heard.” (quoting Haft, 1996
WL 255899, at *2)).
32 Id. (emphasis omitted) (quoting Haft, 1996 WL 255899, at *2).
33 6 Del. C. § 18-109 (providing that a manager of a Delaware LLC may be served
with process in all civil actions “involving or relating to the business of the limited
liability company or a violation by the manager . . . of a duty to the limited liability
company or any member of the limited liability company”).
34 2011 WL 1230074 (D. Del. Mar. 31, 2011).
11
instructive. There, the defendants claimed managerial status and that claim, among
others, was the subject of the litigation. The plaintiffs identified Section 18-109 as
the basis for personal jurisdiction.35 The defendants moved to dismiss under Rule
12(b)(2), arguing that the plaintiffs’ dispute over the defendants’ managerial status
foreclosed the plaintiffs’ reliance on the implied consent statute as a basis for
jurisdiction. After a scholarly examination of Section 18-109, Judge Leonard P. Stark
rejected the defendants’ argument. He interpreted the language of Section 18-109 as
“encompass[ing] actions against purported managers who may never have been
actual managers.”36 He reasoned that “the Defendants alleged assertion of
managerial interests is sufficient to justify haling Defendants into a Delaware
court.”37
As in Fairstar, Defendants here claim managerial status over a Delaware
LLC.38 Whether or not Defendants succeeded in achieving Managing Member status,
35 Id. at *6.
36 Id. at *7.
37 Id. Judge Stark’s reasoning is consistent with estoppel principles. Framed in those
terms, a person cannot claim status as managers of a Delaware LLC but deny the
implication of that status, including a consent to personal jurisdiction. Cf. Neurvana
Med., LLC v. Balt USA, LLC, 2019 WL 4464268, at *3 (Del. Ch. Sept. 18, 2019)
(observing that equitable estoppel exists “‘to prevent someone from accepting the
benefits of a contract without accepting its obligations’” and that, “in the context of
forum selection provisions, equitable estoppel ‘prevents a non-signatory to a contract
from embracing the contract, and then turning her back on the portions of the
contract, such as a forum selection clause, that she finds distasteful’” (first quoting
Plaze, Inc. v. Callas, 2019 WL 1028110, at *8 (Del. Ch. Feb. 28, 2019), then quoting
Cap. Gp. Cos., Inc. v. Armour, 2004 WL 2521295, at *6 (Del. Ch. Oct. 29, 2004))).
38 Written Consent at 1; Am. LLC Agr., signature pages (Sharon, Norrine, Breanna,
and Allen signing the Amended LLC Agreement as the Managing Members).
12
by claiming to be Managing Members and taking action to manage the business and
affairs of the Company, Defendants impliedly consented to this court’s exercise of
personal jurisdiction under Section 18-109. Accordingly, under Section 18-109, the
court can exercise service of process on Defendants.
The minimum-contacts test is also satisfied. The minimum-contacts analysis
asks whether “the exercise of jurisdiction over the nonresident defendant comports
with traditional due process notions of fair play and substantial justice.”39
Defendants purposefully availed themselves of this forum when taking action to
appoint themselves as Managing Members. At a minimum, having claimed that
status, it was foreseeable that they would be subject to litigation in Delaware over
their conduct.40
Another factor relevant to the minimum-contacts analysis is “the forum State’s
interest in adjudicating the dispute.”41 That is satisfied here. “Delaware has a strong
interest in providing a forum for disputes relating to the ability of managers of an
LLC formed under its law to properly discharge their respective managerial
functions.”42 “Due process is satisfied as long as (i) the allegations against the
defendant-manager focus centrally on the defendant’s rights, duties and obligations
39 Ryan, 935 A.2d at 265 (citations omitted).
40 See Hazout v. Tsang Mun Ting, 134 A.3d 274, 293–94 (Del. 2016) (reaching similar
conclusion as to directors of a Delaware corporation subject to 10 Del. C. § 3114).
41 In re P3 Health Gp. Hldgs., LLC, 285 A.3d 143, 157 (Del. Ch. 2022) (cleaned up).
42 Id. (citations omitted); see Cornerstone Techs., LLC v. Conrad, 2003 WL 1787959,
at *13 (Del. Ch. Mar. 31, 2003) (“this state has a strong interest in resolving disputes
regarding the internal affairs of LLCs formed under its laws” (citation omitted)).
13
as a manager of a Delaware LLC, and (ii) the resolution of the matter will be
inextricably bound up in Delaware law.”43 Defendants are alleged to have breached
the LLC Agreement by purporting to remove the Managing Members and amend the
LLC Agreement. The allegations underlying the claims focus on Defendants’ rights
to act as managing members of a Delaware LLC. And resolution of the dispute is
inextricably bound up in the control dispute analysis and requires applying Delaware
law.44
Accordingly, personal jurisdiction is proper under the implied consent statute
to adjudicate Counts II and III, and Defendants’ motion to dismiss on that ground is
denied.
C. Venue
Defendants moved to dismiss the Complaint under Rule 12(b)(3), arguing that
this court is not a proper venue in light of the Minnesota forum selection provision
found in the Amended LLC Agreement.45 Before that provision can be effective,
however, the Amended LLC Agreement must be effective.46 As discussed below, the
Amended LLC Agreement was not valid. Thus, the forum provision is not implicated.
Defendants’ Rule 12(b)(3) motion is denied.
43 P3 Health Gp. Hldgs., 285 A.3d at 157 (citation omitted).
44 Id. at 158 (finding due process prong satisfied where the functional manager was
sued for, among other claims, tortious interference of the LLC agreement, because
Delaware was the state that “gave life to the Company, whose law will govern the
dispute, and which has a powerful interest in providing a forum for adjudicating
litigation involving its entity citizens”).
45 Dkt. 42 (“Defs.’ Mot. to Dismiss Opening Br.”) at 39–41.
46 Defendants conceded this point. See 1/25/24 Hr’g Tr. at 30:9–23, 31:22–32:2.
14
D. Failure To State A Claim
Defendants moved to dismiss the Complaint under Rule 12(b)(6). “[T]he
governing pleading standard in Delaware to survive a motion to dismiss is reasonable
‘conceivability.’”47 When considering a motion to dismiss under Rule 12(b)(6), the
court must “accept all well-pleaded factual allegations in the [c]omplaint as true . . . ,
draw all reasonable inferences in favor of the plaintiff, and deny the motion unless
the plaintiff could not recover under any reasonably conceivable set of circumstances
susceptible of proof.”48 The court, however, need not “accept conclusory allegations
unsupported by specific facts or . . . draw unreasonable inferences in favor of the non-
moving party.”49
LLC agreements are enforceable in the same manner as other contracts. To
state a claim for breach of contract, a plaintiff must adequately allege “(i) a
contractual obligation, (ii) a breach of that obligation by the defendant, and (iii) a
causally related injury that warrants a remedy, such as damages or in an appropriate
case, specific performance.”50 Delaware courts follow the objective theory of
contracts, giving words “their plain meaning unless it appears that the parties
47 Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 537 (Del.
2011).
48 Id. at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).
49 Price v. E.I. DuPont de Nemours & Co., Inc., 26 A.3d 162, 166 (Del. 2011) (citing
Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)), overruled on other
grounds by Ramsey v. Ga. S. Univ. Advanced Dev. Ctr., 189 A.3d 1255 (Del. 2018).
50 AB Stable VIII LLC v. Maps Hotels and Resorts One LLC, 2020 WL 7024929, at
*47 (Del. Ch. Nov. 30, 2020) (citation omitted), aff’d, 268 A.3d 198 (Del. 2021).
15
intended a special meaning.”51 In practice, the objective theory requires that a court
“give priority to the parties’ intentions as reflected in the four corners of the
agreement, construing the agreement as a whole and giving effect to all its
provisions.”52 In so doing, the court evaluates the relevant provision’s semantics,
syntax, and context, aided by interpretive canons.
Plaintiffs claim that Defendants lacked the authority to call a meeting of
Members to amend the LLC Agreement or amend the LLC Agreement by written
consent. Defendants say that the LLC Agreement granted them this authority.
Primarily, the parties base their positions on competing interpretations of Sections
6.2, 6.5, and 6.3 of the LLC Agreement.
Section 6.2, titled “Duties of the Managing Members,” provides that:
The Managing Members shall be responsible for the day-
to-day management of the Company’s business and affairs
and shall devote such time and effort to the Company as
shall reasonably be required for its welfare and success.
The Managing Members shall coordinate meetings,
conference calls, and communicate as reasonably required
subject to a meeting once every other meeting [sic]. With
respect to contractual and legal matters handled by the
Managing Members, McMillan shall provide and make the
final decision on such business and legal matters.
Specifically, except as otherwise limited in this Agreement,
the Managing Members are authorized to own, hold,
manage, administer, operate, lease, sell, exchange, pledge,
encumber, transfer, purchase, grant options related to, and
51 Allen v. Encore Energy P’rs, L.P., 72 A.3d 93, 104 (Del. 2013) (citing AT & T Corp.
v. Lillis, 953 A.2d 241, 252 (Del. 2008)); see also Salamone v. Gorman, 106 A.3d 354,
367–68 (Del. 2014) (“A contract’s construction should be that which would be
understood by an objective, reasonable third party.” (quoting Osborn ex rel. Osborn v.
Kemp, 991 A.2d 1153, 1159 (Del. 2010))).
52 In re Viking Pump, Inc., 148 A.3d 633, 648 (Del. 2016) (quoting Salamone, 106 A.3d
at 368).
16
otherwise deal with the Company assets in Delaware or
any other state on behalf of the Company, except as
otherwise provided in Section 6.3. In the event any
Managing Member fails to be able to perform his
responsibilities or fails to provide day-to-day management
of the Company, such Managing Member can be removed
and/or replaced by the vote of the Members subject to the
remaining Managing Member’s mutual consent . . . .53
Section 6.5, titled “Members Who Are Not a Managing Member” provides:
A Member who is not a Managing Member shall not
participate in the control of the Company’s affairs and shall
have no right or authority to act for or to bind the
Company. The Member hereby consents to the exercise by
the Managing Members of the powers conferred by this
Agreement and to the employment, when and if the same
is deemed necessary or advisable, of such brokers, agents,
accountants, attorneys, and such other advisors as the
Managing Members may determine to be appropriate for
the management of the Company business, subject to
consultation with all the Members.54
Section 6.3, titled “Limitations on Authority of Managing Members,” identifies
28 actions over which Non-Managing Members have a say. As to nine of the 28
actions, consent of 100% of the Members’ Percent Interest is required.55 As to the
remaining 19, the agreement provides that: “Notwithstanding the provisions of
Section 6.2 above: (a) the consent of at least sixty-six and two thirds percent (66 2/3
%) of the Percentage Interests then held by the Members shall be required to do any
53 LLC Agr. § 6.2.
54 Id. § 6.5.
55 Id. § 6.3(b).
17
of the following: . . .”56 The list of 19 actions includes: “Amend this Agreement, except
as otherwise provided in Section 6.2.”57
Plaintiffs interpret these provisions collectively to prohibit a Non-Managing
Member from participating in the control of the Company or seeking to bind the
Company, including by amending the LLC Agreement and proposing agenda items.58
Their interpretation begins with Section 6.2, which grants the Managing Members
broad authority over the Company’s business and affairs.59 Plaintiffs’ interpretation
turns next to Section 6.5, which affirmatively prohibits Non-Managing Members from
“participat[ing] in the control of the Company’s affairs” of “act[ing] for” or “bind[ing]
the Company.”60 To them, Section 6.3 provided a limited exception to these two
general principles, providing Non-Managing Members with veto rights over the 28
enumerated actions.61 Section 6.3 does not give Non-Managing Members a unilateral
right to ensure that the 28 enumerated actions be taken, Plaintiffs say.
Plaintiffs rely on Section 5.3 to bolster their interpretation. Titled “Member
Meetings,” Section 5.3 provides:
The Members shall meet no less than required under the
Act and shall meet every other month to provide
56 Id. § 6.3(a).
57 Id. § 6.3(a)(19).
58 4/26/24 Hr’g Tr. at 19:4–16.
59 Among other things, it authorizes the Managing Members to “own, hold, manage,
administer, operate, lease, sell, exchange, pledge, encumber, transfer, purchase,
grant options related to, and otherwise deal with the Company assets . . . except as
otherwise provided in Section 6.3 hereunder.” LLC Agr. § 6.2.
60 Id. § 6.5.
61 Id. § 6.3.
18
meaningful input and consultation on matters related to
the Company. During the Member Meetings, the Members
shall have the right to review the then current bank
statements of the Company.62
The language “meaningful input and consultation” is a marked departure from words
like “direction” or “control” and emphasizes the limited and advisory role that Non-
Managing Members play under the parties’ contractual scheme. It is also a marked
departure from the specific right set out in the second sentence of Section 5.3—to
review then-current bank statements. The second sentence reflects that the drafters
of the LLC Agreement knew how to grant affirmative rights to Non-Managing
Members, but failed to do so in the way that Defendants suggest.
Defendants read these provisions differently. Their interpretation starts with
Section 6.3, which they read to mean that actions enumerated in Section 6.3 “may be
taken by Members holding 66 2/3% of the Percentage Interests . . . regardless of
whether such action was first presented or proposed by a Managing Member . . . .”63
They further say that nothing in either 6.2 or 6.5 affirmatively prohibits Non-
Managing Members from amending the LLC Agreement. They argue that Section
6.2 grants the Managing Members broad but not exclusive authority to operate the
day-to-day business of the Company. They acknowledge that Section 6.5 prohibits a
Non-Managing Member from controlling the Company’s affairs, but they cabin this
prohibition to Non-Managing Members who act in their individual capacity. They
say that the LLC Agreement requires that “Members, as a whole, . . . make certain
62 Id. § 5.3.
63 Defs.’ Mot. to Dismiss Opening Br. at 21.
19
decisions by a majority or super majority vote or agreement” and that, “by voting
collectively according to the powers granted in the [LLC Agreement], no Non-
Managing Member alone is participating in the control of the Company’s affairs.”64
Defendants point to Section 13.3 to bolster their position. Titled
“Modifications,” Section 13.3 provides:
Except as otherwise provided in Section 6.3(b), no
amendment or modification of this Agreement shall be
valid or binding unless such amendment or modification is
in writing and is signed by a majority of the Members
holding not less than sixty-six and two thirds percent (66
2/3 %) of the Percentage Interests then held by the
Members.65
They say that nothing in Section 13.3 requires or states that the Managing Members
must approve an amendment to the LLC Agreement.66 Nor is there anything in the
LLC Agreement requiring that the Managing Members propose the vote in the first
place or present it to the Members at a Members’ meeting.67
Plaintiffs’ interpretation is the only reasonable one. Through Section 6.5, Non-
Managing Members explicitly divested themselves of any right to “participate in the
control of the Company’s affairs” and any “right or authority to act for or to bind the
Company.”68 It is true that the language of Section 6.5 refers to a “Member,” singular,
but that is of no consequence. By actively working together to restructure and revise
64 Dkt. 58 at 19–20 (emphasis added).
65 LLC Agr. § 13.3.
66 Defs.’ Mot. to Dismiss Opening Br. at 23–24.
67 Id.
68 LLC Agr. § 6.5.
20
the governance of the Company, including the mechanism by which Members can
transfer or sell their assets, Defendants participated in the control of the Company
in violation of Section 6.5. Through Section 6.2, the LLC Agreement empowers the
Managing Members to manage the “business and affairs” of the Company. Section
6.3 does not reverse the language of Section 6.5 by providing Non-Managing Members
with a right to unilaterally direct Company action. Rather, it gives them the ability
to consent or veto 28 specific actions proposed by the Managing Members.
This court’s decision in 2009 Caiola Family Trust v. PWA, LLC confirms
Plaintiffs’ reading of the LLC Agreement.69 There, non-managing members who
collectively held a 90% interest in the defendant LLC argued that a provision similar
to Section 6.3 gave them affirmative decision-making authority over the actions
enumerated in the provision, which included terminating and replacing the manager.
The introductory language of the disputed provision, found in Section 8.4 of the LLC
agreement, provided that:
The prior written approval of a Majority Vote of the Non–
Managing Members shall be required for the Company to
take, or enter into any agreement to take, any of the
following actions, and the Managing Member will use all
commercially reasonable efforts to carry out and
implement any of the following decisions approved by a
Majority Vote of the Non–Managing Members.70
69 2014 WL 1813174, at *7–9 (Del. Ch. Apr. 30, 2014) (finding disputed provision
provided non-managing members “with a limited veto power over the actions
enumerated in that section, not with the unilateral authority to compel the Company
or the Managing Member to take those actions”).
70 Id. (citing section 8.4(a) of the LLC agreement at issue in that action).
21
Vice Chancellor Parsons granted summary judgment for the managing members
based on the plain language of Section 8.4 and the structure of the agreement.
The Vice Chancellor reasoned that, by its plain language, Section 8.4 did not
grant non-managing members a unilateral right to take enumerated actions. He
noted that the phrase “prior written approval” in the first clause, and reference to
“approved by” in the second clause, gave the non-managing members a “veto right”—
that is, a right to approve (or not approve) a decision made by the managing
members.71 It did not give them “the affirmative authority to mandate unilaterally
that any of the enumerated actions be taken.”72
The structure of the agreement bolstered the Vice Chancellor’s conclusion. A
separate provision, Section 6.1, gave the managing member the “‘sole and exclusive
control over the Company’ and the ‘power and authority to take such actions’ as he
deems appropriate in the ‘conduct of the business and affairs of the Company.’” 73
Under this contractual scheme, “by default, the power to make decisions on behalf of
the Company rests with the Managing Member.”74
Section 6.2 of the LLC Agreement is similar to Section 6.1 of the agreement in
Caiola. Section 6.2 provides that “Managing Members shall be responsible for the
day-to-day management of the Company’s business and affairs . . . .”75 Although it
71 Id. at *8.
72 Id.
73 Id. at *9 (quoting Section 6.1 of the LLC agreement at issue in that action).
74 Id.
75 LLC Agr. § 6.2.
22
does not expressly give the Managing Members the “sole and exclusive” authority to
conduct the Company’s business and affairs, that distinction is without significance
here because Section 6.5 of the LLC Agreement is to the same effect.
Contrary to Defendants’ assertion, Section 13.3 does not support their
interpretation of Section 6.3(a)(19). Section 13.3 is a formalities clause that sets forth
the mechanics for an amendment to the LLC Agreement pursuant to Section
6.3(a)(19)—that is, one approved by the Managing Members with the consent of 66
2/3% of the Percentage Interests. Any such amendment must be in writing and
signed by at least 66 2/3% of the Members’ Percent Interests for it to be valid and
binding. It does not confer on the Non-Managing Members the power to unilaterally
propose and adopt amendments. Nor does it trump Section 6.5 and the prohibition
on non-Managing Members binding the Company as Defendants purported to do by
amending the LLC Agreement.
Moreover, Defendants’ interpretation of Section 6.3(a)(19), and by necessity
Section 6.3(a), would lead to the absurd result of giving the Non-Managing Members
the authority to unilaterally take actions on behalf of the Company and bind the
Company without the approval of the Managing Members in violation of Section 6.5.
This reading would render much of Sections 6.2 and 6.5 mere surplusage, as it would
allow the Non-Managing Members to discard the entire management structure
established by the LLC Agreement. Defendants’ interpretation also cannot be
reconciled with Section 6.5, whereby the Non-Managing Members expressly
relinquished any authority to bind the Company.
23
Perhaps most compelling, Plaintiffs’ interpretation is consistent with the
Managing Member-removal provisions of the LLC Agreement. Section 6.2 states that
a Managing Member can be removed where the “Managing Member fails to be able
to perform his responsibilities or fails to provide day-to-day management of the
Company” and the “remaining Managing Member” has consented to the removal.76
Allowing Members to remove Managing Members by amending the LLC Agreement
absent these circumstances would undermine the plain language of Section 6.2.
For completeness, the analysis addresses the parties’ quibble over the clauses
beginning with “notwithstanding” and “except as provided in” in Section 6.3. Again,
Plaintiffs’ interpretation of these clauses is the only reasonable one.
Defendants argue that the “[n]otwithstanding the provisions of 6.2” language
in Section 6.3 means that “despite what is set forth by Section 6.2, the actions
identified in Section 6.3 may be taken by Members holding 66 2/3% of the Percentage
Interests. In other words, as long as Members holding 66 2/3% of the Percentage
Interests approve any action in Section 6.3(a), they can take any such action,
regardless of whether such action was first presented or proposed by a Managing
Member or a Non-Managing Member.”77 Defendants read Section 6.3 as invalidating
Section 6.2.
The word “notwithstanding” in Section 6.3 does not help Defendants. Reading
Sections 6.2 and 6.3 together, the “notwithstanding” language operates to harmonize
76 Id. § 6.2.
77 Defs.’ Mot. to Dismiss Opening Br. at 21 (internal quotation marks omitted).
24
the language in Section 6.2. That is because absent the term “notwithstanding,” there
might be some conflict between Section 6.2, which gives the Managing Members
broad authority, and Section 6.3, which gives the Non-Managing Members veto rights
as to certain decisions.78
Defendants also argue that the “except as otherwise provided in Section 6.2”
language means that the LLC Agreement “may be amended unless Section 6.2
specifically provides that it cannot be amended.” 79 Thus “the provision of Section
6.3(a)(19) that allows amendment of the [LLC agreement] ‘except as otherwise set
forth in Section 6.2’ refers only to the provisions of Section 6.3 that require
unanimous consent.”80 Defendants believe that those items that require a 66 2/3%
vote are not subject to the Managing Members’ input or consent.
Defendants read Section 6.2 too narrowly. Section 6.2 provides that “[t]he
Managing Members shall be responsible for the day-to-day management of the
Company’s business and affairs and shall devote such time and effort to the Company
78 In re Est. of Crist, 863 A.2d 255, 258 (Del. Ch. 2004) (“The use of such a
‘notwithstanding’ clause clearly signals the drafter’s intention that the provisions of
the ‘notwithstanding’ section override conflicting provisions of any other section.”
(quoting Cisneros v. Alpine Ridge Gp., 508 U.S. 10, 18 (1993))), aff’d, 879 A.2d 602(Del. 2005) (TABLE).
Together, Sections 6.2 and 6.3 provide the framework for the Managing Members’
authority to act on behalf of the Company, and the limitations on such authority. See,
e.g., EMSI Acq., Inc. v. Contrarian Funds, LLC, 2017 WL 1732369, at *10 (Del. Ch.
May 3, 2017) (citation omitted); see also AG Oncon, LLC v. Ligand Pharm. Inc., 2019
WL 2245976, at *7 (Del. Ch. May 24, 2019), aff’d, 224 A.3d 963 (Del. 2020).
79 Defs.’ Mot. to Dismiss Opening Br. at 28 (emphasis in original).
80 Id. at 29 (bold in original).
25
as shall reasonably be required for its welfare and success.” 81 Section 6.3 already
lists out the items that need unanimous consent, so that cannot be it. Instead, the
plain meaning of the term “except as otherwise provided” means that if there is a
conflict between Section 6.2 and Section 6.3(a)(19), Section 6.2 governs.82 As stated
above, allowing the Non-Managing Members to govern interferes with the rights
given to the Managing Member in Sections 6.2 and 6.5.
In the end, Plaintiffs’ contractual analysis prevails. The effect of this
conclusion is that Counts I and II of the Complaint state a claim. Count III does not.
In Count I, Plaintiffs seek a declaration pursuant to Section 18-110 that:
Defendants do not have the authority to unilaterally amend the LLC Agreement,
Defendants did not amend the LLC Agreement, the LLC Agreement remains in effect,
and McMillan and Spicer remain the Managing Members of the Company. As a
matter of contract law, this is the only reasonable interpretation.
To support a claim for declaratory relief, however, Plaintiffs must also plead
that an actual controversy exists.83
Defendants do not meaningfully dispute that Plaintiffs have made this
showing. Instead, they argue that Plaintiffs have failed to state a claim for the
81 LLC Agr. § 6.2.
82 In any event, Defendants’ argument does not work because Section 6.2 explicitly
provides that the Managing Members must consent to each other’s termination,
which did not happen.
83 Tygon Peak Cap. Mgmt., LLC v. Mobile Invs. Investco, LLC, 2022 WL 34688, at *9
(Del. Ch. Jan. 4, 2022) (quoting Stroud v. Milliken Enters., Inc., 552 A.2d 476, 479–
80 (Del. 1989)), aff’d, 315 A.3d 445 (Del. 2024) (TABLE).
26
specific declaration that Plaintiffs seek. But the contractual analysis instructs
otherwise. Plaintiffs have stated a claim for declaratory judgment.
In Count II, Plaintiffs claim that Defendants materially breached the LLC
Agreement by acting without authorization to amend it, declaring that it has been
amended, and removing McMillan and Spicer as Managing Members.
To state a claim for breach of contract, a plaintiff must adequately allege “(i) a
contractual obligation, (ii) a breach of that obligation by the defendant, and (iii) a
causally related injury that warrants a remedy, such as damages or in an appropriate
case, specific performance.”84
Plaintiffs here allege that Defendants breached the LLC Agreement by
purporting to remove the Managing Members and amend the LLC Agreement. As
stated in the above analysis, that allegation is adequately alleged. Plaintiffs have
stated a claim for breach of contract.85
In Count III, Plaintiffs claim that Defendants breached the implied covenant
of good faith and fair dealing by removing the Managing Members and amending the
LLC Agreement.86
84 AB Stable VIII LLC, 2020 WL 7024929, at *47 (citation omitted).
85 See also Doe v. Cahill, 884 A.2d 451, 458 (Del. 2005) (“the threshold for the showing
a plaintiff must make to survive a motion to dismiss is low”).
86 Compl. ¶¶ 109–15.
27
“The implied covenant is inherent in all contracts.”87 But it is “a limited and
extraordinary legal remedy”88 whose application is a “cautious enterprise.”89 “[T]he
implied covenant ‘does not apply when the contract addresses the conduct at issue,’
but only ‘when the contract is truly silent’ concerning the matter at hand.” 90 As
discussed above, the LLC Agreement covers the relevant ground. There is no gap to
fill. Count III is dismissed.
E. Costs and Fees
Defendants argue that the court should strike Plaintiffs’ demand for costs and
fees because “[c]osts and fees are improper in a Section 18-110 proceeding.”91
Defendants cite to Avgiris Brothers, LLC v. Bouikidis92 for that proposition. There,
however, the court declined to shift fees to the defendants where it had found that it
lacked personal jurisdiction over them.93 The court has found that it can exercise
personal jurisdiction over Defendants, so Defendants’ basis for striking Plaintiffs’
requests for costs and fees is rejected.
87 Dieckman v. Regency GP LP, 155 A.3d 358, 367 (Del. 2017) (citation omitted).
88 Oxbow Carbon & Minerals Hldgs., Inc. v. Crestview-Oxbow Acq., LLC, 202 A.3d
482, 507 (Del. 2019) (quoting Nemec v. Shrader, 991 A.2d 1120, 1128 (Del. 2010)).
89 Nemec, 991 A.2d at 1125 (citations omitted).
90 Oxbow, 202 A.3d at 507 (first quoting Nationwide Emerging Managers, LLC v.
Northpointe Hldgs. LLC, 112 A.3d 878, 896 (Del. 2015), then quoting Allied Cap.
Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1033 (Del. Ch. 2006)).
91 Defs.’ Mot. to Dismiss Opening Br. at 37.
92 2023 WL 7137104 (Del. Ch. Oct. 31, 2023).
93 Id. at *3.
28
F. Summary Judgment
Under Court of Chancery Rule 56, summary judgment is appropriate when
“there is no genuine issue as to any material fact and . . . the moving party is entitled
to a judgment as a matter of law.”94 On a motion for summary judgment, unlike a
motion to dismiss, the court may consider evidence obtained in discovery, affidavits,
and declarations.95 The court must view the evidence “in the light most favorable to
the non-moving party, and the moving party bears the burden of demonstrating the
absence of a material factual dispute.”96 On the other hand, if “there are material
factual disputes, that is, if the parties are in disagreement concerning the factual
predicate for the legal principles they advance, summary judgment is not
warranted.”97 “There is no ‘right’ to a summary judgment.”98
For the reasons stated above, the LLC Agreement is unambiguous and
Plaintiffs’ interpretation is the only reasonable one. Accordingly, Plaintiffs are
entitled to summary judgment on Count I.99
94 Ct. Ch. R. 56(c).
95 See id.; see also In re Gardner Denver, Inc., 2014 WL 715705, at *4 (Del. Ch. Feb.
21, 2014) (describing the standard for converting a motion to dismiss to a motion for
summary judgment when matters outside the pleadings are presented to the court).
96 XO Commc’ns, LLC v. Level 3 Commc’ns, Inc., 948 A.2d 1111, 1117 (Del. Ch. 2007)
(citation omitted).
97 Merrill v. Crothall-Am., Inc., 606 A.2d 96, 99 (Del. 1992).
98 Telxon Corp. v. Meyerson, 802 A.2d 257, 262 (Del. 2002) (citations omitted).
99 Seidensticker v. Gasparilla Inn, Inc., 2007 WL 4054473, at *2 (Del. Ch. Nov. 8,
2007) (“Where the dispute centers on the proper interpretation of an unambiguous
contract, summary judgment is appropriate because such interpretation is a question
of law.” (citation omitted)); see GMG Cap. Invs., LLC v. Athenian Venture P’rs I, L.P.,
29
III. CONCLUSION
For the foregoing reasons, Defendants’ motion is granted in part, and denied
in part. Plaintiffs’ motion for summary judgment on Count I is granted.
36 A.3d 776, 783 (Del. 2012) (finding summary judgment appropriate where language
at center of the contractual dispute was “clear and unambiguous” (citations omitted)).
30