Barry Leistner v. Red Mud Enterprises LLC ( 2023 )

COURT OF CHANCERY
OF THE
SAM GLASSCOCK III
VICE CHANCELLOR
STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE
34 THE CIRCLE
GEORGETOWN, DELAWARE 19947
Date Submitted: November 20, 2023
Date Decided: December 8, 2023
Francis Pileggi, Esquire Andre Dupre, Esquire
Sean Brennecke, Esquire Steven Wood, Esquire
Aimee Czachorowski, Esquire Johanna Peuscher-Funk, Esquire
LEWIS BRISBOIS BISGAARD Kendeil A. Dorvilier, Esquire
& SMITH LLP MCCARTER & ENGLISH LLP
500 Delaware Avenue, Suite 700 Renaissance Centre
Wilmington, DE 19801 405 N. King Street, 8th Floor
Wilmington, DE 19801
Re: Barry Leistner v. Red Mud Enterprises LLC,
C.A. No. 2023-0503-SEM
Dear Counsel:
Before me are Plaintiff’s Exceptions to the Magistrate’s Final Report of
September 7, 2023 (the “Report”), denying a books and records request. 1 Plaintiff,
Barry Leistner, is a member and investor of Red Mud Enterprises LLC (the
“Company”). 2 In an unrelated New York action, in 2010, Plaintiff obtained a default
judgment against the principals of Red Mud. Despite obtaining the judgment,
Plaintiff continued to do business with the principals. But distrust and contentious
1
Bench Ruling before Magistrate in Chancery, Dkt. No. 78; Tr. Tel. Post-Trial Rulings of
Magistrate’s Final Report, Dkt. No. 83 (“Report”).
2
According to the parties, the Company business involves a process to remediate the industrial
waste “red mud,” a byproduct of aluminum production. See Pl.’s Mem. in Supp. of Exceptions
to Magistrate’s Report 13–14, Dkt. No. 86 (“Pl.’s Exceptions”).
discussions among the parties persisted over several years. Thereafter, Plaintiff
became a member of Red Mud and made a books and record demand, which was
divided into four categories and subdivided into 42 sub-categories (the “Demand”).
The Company deemed the Demand unreasonable, characterizing the Demand as a
“fishing expedition” and beyond the scope required by the LLC agreement. The
Magistrate found that the Company had met its burden to show that its decision was
proper, since Plaintiff’s purposes in seeking books and records were to pursue his
interests as a judgment creditor of Red Mud’s principals, and also to become
involved in the day-to-day management of the Company, which was a role not
guaranteed by the LLC agreement.3
I have reviewed the record and arguments, together with the Magistrate’s
thoughtful decision. Plaintiff sought records purportedly to value his interest in Red
Mud. That is undoubtedly a proper purpose. The evidence presented to the
Magistrate, however, indicates that, as the Magistrate found, the primary purpose of
Plaintiff was not a stockholder interest.4 This is strongly supported by the breadth
and nature of the documents sought, which go far beyond those needed for a
stockholder purpose. Upon de novo review,5 I adopt the Magistrate’s Report.
Specifically, Plaintiff’s document request is overbroad, to the extent it is not
3
Report 33–39.
4
Id.
5
See DiGiacobbe v. Sestak, 743 A.2d 180, 184 (Del. 1999).
2
sustainable under the rationale expressed in Highland Select Equity Fund, L.P. v.
Motient Corporation.6 Plaintiff in exceptions asks me to, “at a minimum,” tailor his
request to provide valuation materials.7 That I decline to do on exceptions. To the
extent Plaintiff requires documents to value his interests, or for some other
stockholder purpose, this decision of course is without prejudice to Plaintiff’s right
to seek books and records going forward upon a reasonable demand. To the extent
Plaintiff cites “late discovered evidence,” that evidence may be relevant to any
litigation over a subsequent demand, if any.
In addition to the records demand based on the LLC agreement and the statute,
the litigation also sought documents as a matter of separate contract. I adopt the
Magistrate’s finding that specific performance of these obligations is unnecessary,
since the records have been produced. 8
For the foregoing reasons, and for the reasons explained in the Magistrate’s
well-reasoned bench ruling of September 7, 2023, Plaintiff’s Exceptions are
DENIED. To the extent the foregoing requires an Order to take effect, IT IS SO
ORDERED.
6
906 A.2d 156, 157 (Del. Ch. 2006), aff'd sub nom. Highland Equity Fund, L.P. v. Motient
Corp., 922 A.2d 415 (Del. 2007).
7
Pl.’s Exceptions 4.
8
Report 26.
3
Sincerely,
/s/ Sam Glasscock III
Vice Chancellor
4