In Re Doehler Dry Ingredient Solutions, LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
In re: Dissolution of DOEHLER )
DRY INGREDIENT SOLUTIONS, ) C.A. No. 2022-0354-LWW
LLC, a Delaware limited liability )
company )
MEMORANDUM OPINION
Date Submitted: July 8, 2022
Date Decided: September 15, 2022
Francis G.X. Pileggi, Cheneise V. Wright, LEWIS BRISBOIS BISGAARD &
SMITH LLP, Wilmington, Delaware; Counsel for Petitioner Russell Davis
Kurt M. Heyman, Melissa N. Donimirski, HEYMAN ENERIO GATTUSO &
HIRZEL LLP, Wilmington, Delaware; Luke A. Lantta, Aiten M. McPherson,
BRYAN CAVE LEIGHTON PAISNER LLP, Atlanta, Georgia; Counsel for
Respondents Doehler North America Inc., Stuart McCarroll, and Andreas Klein
K. Tyler O’Connell, Kirsten A. Zeberkiewicz, Barnaby Grzaslewicz, MORRIS
JAMES LLP, Wilmington, Delaware; Counsel for Respondent Doehler Dry
Ingredient Solutions, Inc.
David B. Anthony, Zachary J. Schnapp, BERGER HARRIS LLP, Wilmington,
Delaware; Counsel for Respondent Garry Beckett
WILL, Vice Chancellor
The petitioner in this action is a minority member and former manager of a
Delaware limited liability company. The majority members of the company
purportedly removed the petitioner as a manager through a March 2022 written
consent. Now, the petitioner brings claims for judicial dissolution and winding up
the affairs of the company, citing the requested dissolution as “cause.” He names
the company, its other members, a current manager, a former manager, and the chair
of a member’s parent company as respondents.
The petitioner asserts that his removal and assorted disputes, such as the
purported hacking of his email by a manager of the company and unspecified
conspiracies to commit malfeasance, have led to irreconcilable differences among
the members and managers. He points to unproven breaches of fiduciary duty and
of the company’s LLC agreement in support of his claims. And he insists that he
will cause deadlock in future votes on matters requiring unanimous member consent.
In this opinion, after considering threshold jurisdictional questions, I grant the
respondents’ motion to dismiss the petition for failure to state a claim. The
dysfunction and contrived deadlock complained of fall well short of the high bar to
plead a claim for judicial dissolution. Because the petition fails to adequately allege
that it is not reasonably practicable for the company to carry on its business in
conformity with its LLC agreement, the action is dismissed.
1
I. FACTUAL BACKGROUND1
Respondent Doehler Dry Ingredient Solutions, LLC (“Doehler” or the
“Company”) is a Delaware limited liability company with its principal place of
business in Indiana.2 The Company was formed in 2017 for the purpose of “buying,
sourcing, manufacturing, producing, distributing, packaging, marketing, and
selling” dry foods, such as “air and freeze dried fruits and vegetables,” for “business-
to-business and direct consumer sales.”3
Doehler is governed by the Operating Agreement of Doehler Dry Ingredient
Solutions, LLC (the “LLC Agreement”). The LLC Agreement provides that the
business of Doehler is managed by a “Board of Managers.”4 The Board of Managers
initially included: petitioner Russell Davis; respondent Garry Beckett, who owns
1
The facts are drawn from the Verified Petition and the documents it incorporates by
reference or are subject to judicial notice. Dkt. 1 (“Pet.”); see Winshall v. Viacom Int’l,
Inc., 76 A.3d 808, 818 (Del. 2013) (“[A] plaintiff may not reference certain documents
outside the complaint and at the same time prevent the court from considering those
documents’ actual terms.” (quoting Fletcher Int’l, Ltd. v. ION Geophysical Corp., 2011
WL 1167088, at *3 n.17 (Del. Ch. Mar. 29, 2011))); In re Books-A-Million, Inc. S’holders
Litig., 2016 WL 5874974, at *1 (Del. Ch. Oct. 10, 2016) (explaining that the court may
take judicial notice of “facts that are not subject to reasonable dispute” (citing In re Gen.
Motors (Hughes) S’holder Litig., 897 A.2d 162, 170 (Del. 2006))); Lima Delta Co. v. Glob.
Aerospace, Inc., 2017 WL 4461423, at *4 (Del. Super. Ct. Oct. 5, 2017) (explaining that
dockets, pleadings, and transcripts from a foreign action are subject to judicial notice).
2
Pet. ¶ 11.
3
Pet. Ex. A (“LLC Agreement”) § 1(b); see Pet. ¶ 1.
4
LLC Agreement § 7(a).
2
25% of the Company and remains a manager;5 respondent Stuart McCarroll, who is
no longer a manager;6 and non-party J. Patrick O’Keefe.7 Davis is allegedly the
beneficial owner (through his controlled entity Crosskeys Associates Limited) of
25% of the Company.8 The remaining 50% of Doehler is held by respondent
Doehler North America, Inc. (“DNA”).9 Respondent Andreas Klein is the chair of
DNA’s parent company in Germany.10
By March 2022, a dispute had emerged between Davis and the other members
of the Company. On March 24, members representing a majority of Doehler’s
membership interests voted by written consent to adopt resolutions removing Davis
as a manager of the Company and limiting Davis’s ability to invoice the Company
for compensation for services.11 That same day, Davis accused Beckett of hacking
Davis’s corporate email account and sharing information with Klein.12
5
Pet. ¶ 12.
6
Pet. ¶ 14.
7
LLC Agreement § 7(b).
8
Pet. ¶ 10.
9
Pet. ¶ 13.
10
Pet. ¶ 15; see Pet. Ex. C.
11
Pet. ¶ 16; Pet. Ex. B. The petitioner contends that certain provisions of the LLC
Agreement should have been amended following the written consent. Pet. ¶¶ 18-19.
12
See Pet. ¶¶ 20-22; Pet. Ex. C.
3
According to Davis, other disagreements also arose—though his description
of them is vague at best. At least one member “argue[d] that a prior [separate]
agreement’s terms control over the [LLC] Agreement.”13 Beckett “formed one or
more companies of his own to compete with [the Company]” using Company
resources.14 And purported violations of the LLC Agreement occurred when
Doehler incurred more than $25,000 of debt without unanimous member consent
and when DNA sought to purchase Davis’s ownership interests in the Company.15
On April 20, 2022, DNA filed an action against Davis and Crosskey in the
United States District Court for the District of Delaware (the “Federal Action”).16
The complaint in the Federal Action asserts that Davis and Crosskey breached the
LLC Agreement by refusing to sell Crosskey’s units in Doehler to DNA.17 DNA
seeks specific performance “requiring [Crosskey] to sell and . . . Davis to cause the
sale of [Crosskey’s] units” for $44,486.14.18
13
Pet. ¶ 17.
14
Pet. ¶ 20.
15
Pet. ¶ 23.
16
Resp’ts’ Opening Br. Supp. Mot. to Dismiss (Dkt. 26) Ex. A (“Fed. Compl.”).
17
Fed. Compl. ¶¶ 58-66.
18
Fed. Compl. ¶ 66. The complaint in the Federal Action also asserts that Davis breached
a membership agreement among the Company’s members and seeks an injunction
preventing Davis from interfering with Doehler’s relationships with its customers,
employees, and other third parties. Id. ¶¶ 50-57.
4
The next day, Davis filed a petition in this court (the “Petition”), seeking
judicial dissolution of Doehler under Section 18-102 of the Delaware Limited
Liability Company Act.19 Davis contends that judicial dissolution is warranted
because of various “[i]rreconcilable differences among the members and
managers.”20 He also asks this court to wind up Doehler’s affairs and appoint a
liquidating trustee pursuant to Section 18-803 of the Delaware LLC Act.21
Respondents DNA, McCarroll, and Klein filed a motion to dismiss or stay this
action on May 20, 2022.22 Davis, in turn, filed a motion for partial summary
judgment on June 1.23 I heard oral argument on the motions on July 8.24 Trial is
scheduled to begin next month.
On July 15, the United States District Court for the District of Delaware
denied a motion to stay the proceedings in the Federal Action pending the resolution
of this action.25
19
Dkt. 1.
20
Pet. ¶¶ 2, 25-26.
21
Pet. ¶¶ 27-29.
22
Dkt. 21.
23
Dkt. 32.
24
Dkt. 66.
25
Dtk. 70; Doehler N. Am., Inc. v. Davis, 2022 WL 2785969, at *3-4 (D. Del. July 15,
2022). The federal court determined that it had diversity jurisdiction. Id. at *3.
5
II. LEGAL ANALYSIS
The respondents have moved to dismiss the Petition pursuant to Court of
Chancery Rules 12(b)(1), 12(b)(2), and 12(b)(6).26 They maintain that the Petition
should be dismissed in its entirety because this court lacks subject matter
jurisdiction. In the alternative, the respondents ask for a stay of this action pending
resolution of the Federal Action. The respondents also assert that the court lacks
personal jurisdiction over Klein. Finally, the respondents argue that the Petition fails
to state a claim upon which relief can be granted.
Davis opposes the respondents’ motion. He separately argues that he is
entitled to partial summary judgment in his favor on the grounds that Ҥ 18-802 of
the Delaware LLC Act has been satisfied” and “it no longer remains practicable to
carry on the business of [Doehler] in accordance with its [LLC] Agreement.”27 The
respondents oppose the summary judgment motion.
Because I conclude that this action must be dismissed in its entirety under
Rule 12(b)(6), I decline to address Davis’s arguments in support of partial summary
judgment.
26
Although the respondents also moved to dismiss under Rule 12(b)(3), they advanced no
arguments in support in their briefing. See Emerald P’rs v. Berlin, 726 A.2d 1215, 1224
(Del. 1999) (“Issues not briefed are deemed waived.”).
27
Pet’r’s Opening Br. Supp. Mot. for Partial Summ. J. (Dkt. 32) 39-40.
6
A. Subject Matter Jurisdiction
I begin by addressing the threshold issue of subject matter jurisdiction.
“Subject matter jurisdiction is in essence a question of the power of a court to hear
and decide the case before it.”28 When considering a motion to dismiss under Rule
12(b)(1) for lack of subject matter jurisdiction, I must take all well-pleaded
allegations as true and construe reasonable inferences in the non-movant’s favor.29
“The burden of establishing the Court’s subject matter jurisdiction rests with the
party seeking the Court’s intervention.”30
Section 18-802 of the Delaware LLC Act grants the Court of Chancery subject
matter jurisdiction over dissolution proceedings.31 That statute provides: “On
application by or for a member or manager the Court of Chancery may decree
dissolution of a limited liability company whenever it is not reasonably practicable
to carry on the business in conformity with the operating agreement.”32 The
respondents argue that this court nonetheless lacks jurisdiction under the doctrine set
28
Abbott v. Vavala, 2022 WL 453609, at *5 (Del. Ch. Feb. 15, 2022).
29
de Adler v. Upper N.Y. Inv. Co., 2013 WL 5874645, at *7 (Del. Ch. Oct. 31, 2013).
30
Ropp v. King, 2007 WL 2198771, at *2 (Del. Ch. July 25, 2007).
31
See Darby Emerging Mkts. Fund, L.P. v. Ryan, 2013 WL 6401131, at *5 (Del. Ch. Nov.
27, 2013) (“As Delaware’s constitutional court of equity, this Court can acquire subject
matter jurisdiction over a case . . . [through] a statutory delegation of subject matter
jurisdiction.”).
32
6 Del. C. § 18-802; see In re TGM Enters., LLC, 2008 WL 4261035, at *2 (Del. Ch.
Sept. 12, 2008) (stating that “jurisdiction rests solely with the Court of Chancery where a
party moves for dissolution of a company”).
7
forth by the United States Supreme Court in Princess Lida of Thurn & Taxis v.
Thompson.33
In Princess Lida, the trustees of a fund filed suit in Pennsylvania state court
for an accounting of the trust funds. The trust’s beneficiaries subsequently filed an
action in federal court, alleging that the trustees had mismanaged the funds and
seeking removal of the trustees, an accounting, and restoration of the trust funds.34
The Supreme Court held that because the Pennsylvania state court action was quasi
in rem, the federal court hearing the subsequent action lacked jurisdiction over the
property at issue.35 The Supreme Court explained that “the court first assuming
jurisdiction over property may maintain and exercise that jurisdiction to the
exclusion of the other.”36
The Princess Lida doctrine applies where there is a prior pending action and
two conditions are met: “(1) the litigation in both the first and second fora are in rem
or quasi in rem in nature, and (2) the relief sought requires that the second court
exercise control over the property in dispute and such property is already under the
33
Princess Lida of Thurn & Taxis v. Thompson, 305 U.S. 456 (1939).
34
Id. at 458-59.
35
Id. at 466-468.
36
Id. at 466; see also Penn Gen. Cas. Co. v. Commonwealth of Pennsylvania, 294 U.S.
189, 194-199 (1935) (applying the doctrine in the context of a first-filed federal case and
second-filed state case and holding that the federal court had exclusive jurisdiction).
8
control of the first court.”37 Delaware courts have not had occasion to consider the
application of Princess Lida. The United States Court of Appeals for the Third
Circuit has described the doctrine as a “mechanical rule” of jurisdiction rather than
a matter of discretion.38
The present action is in rem.39 Under Princess Lida, I must consider whether
the Federal Action is similarly in rem or quasi in rem—that is, whether the “practical
effect of the relief” sought in the Federal Action would require that court to assert
control over property.40 The Supreme Court in Princess Lida explained:
the principle applicable to both federal and state courts that the court first
assuming jurisdiction over property may maintain and exercise that
jurisdiction to the exclusion of the other . . . [applies] in suits of a similar
nature where, to give effect to its jurisdiction, the court must control the
property.41
The Federal Action is for breach of contract, which is a classic in personam
action.42 The respondents contend that the Federal Action is in rem or quasi in rem
Dyno v. Dyno, 2021 WL 3508252, at *2 (3d Cir. Aug. 10, 2021) (quoting Dailey v. Nat’l
37
Hockey League, 987 F.2d 172, 176 (3d Cir. 1993)).
38
Id.39
See In re Rehab. of Nat’l Heritage Life Ins. Co., 656 A.2d 252, 260 (Del. Ch. 1994) (“A
dissolution proceeding is an in rem action.”).
40
Dyno, 2021 WL 3508252, at *3; see also Dailey v. Nat’l Hockey League, 987 F.2d 172,
177 (3d Cir. 1993).
41
Princess Lida, 305 U.S. at 466.
42
See 20 Am. Jur. 2d Courts § 80, Westlaw (database updated Aug. 2022) (“When the
cause of action is based on a contract and the action seeks damages on the ground of breach
of contract, the action is transitory in nature and may be adjudicated by any court which
has jurisdiction in personam of the defendant, irrespective of where the contract was
9
because that litigation seeks specific performance of an obligation under a buy-out
provision in the LLC Agreement concerning the sale of Crosskey’s Doehler units to
DNA.43 But “an action for specific performance of a contract,” even where it relates
to “property, is in personam insofar as it is sought to compel performance by the
defendant.”44 That is precisely the situation in the Federal Action, where DNA seeks
relief “requiring [Crosskey] to sell” and “requiring Davis to cause the sale” of
Crosskey’s units in Doehler for a set price.45
concluded and irrespective of where it is to be performed.”); Miller v. Miller, 423 F.2d 145,
147 (10th Cir. 1970) (“The federal court judgment when entered will act in personam on
the parties before it. The possession of land will not be affected. . . . Here, the federal
action takes possession or control of no res. It determines personal rights under a written
instrument.”); Ballantine Books, Inc. v. Cap. Distrib. Co., 302 F.2d 17, 19 (2d Cir. 1962)
(“Had this case been initiated as a civil action rather than by arbitration, it would have been
a simple contract action, with none of the in rem characteristics which required the
application of a different rule in such cases as Princess Lida of Thurn & Taxis v.
Thompson.”).
43
Resp’ts’ Opening Br. Supp. Mot. to Dismiss 9-11.
44
71 Am. Jur. 2d Specific Performance § 196, Westlaw (database updated Aug. 2022);
Anzilotti v. Andrews Constr. Co., 115 A.2d 493, 496 (Del. Ch. 1955) (explaining that “a
suit for specific performance is in the nature of a proceeding in personam”); Cottman
Transmission Sys., Inc. v. Lehwald, Inc., 774 F. Supp. 919, 921 (E.D. Pa. 1991) (“It is
settled law that ‘a suit to compel the specific performance of a contract to convey real
property is a suit in personam, and not in rem.’” (quoting Atlantic Seaboard Nat. Gas Co.
v. Whitten, 315 Pa. 529, 532 (1934))). The respondents point out that an action for specific
performance may, in certain instances, be considered an in rem or quasi in rem action
where the parties’ interests in property are determined. See Resp’ts’ Reply Br. Supp. Mot.
to Dismiss (Dkt. 60) 7-8, n.4. They cite to examples concerning the conveyance of real
property or property sought by the claimant that is within the jurisdiction of the court and
subject to seizure. Id. The claims in the Federal Action are not of that ilk.
45
Fed. Compl. ¶ 66.
10
Even if the Federal Action could arguably be viewed as quasi in rem, the
parties’ respective property interests differ between the two matters.46 In the Federal
Action, the only property arguably at stake is Crosskey’s membership units in
Doehler. The property at issue in the present litigation is Doehler itself. I therefore
cannot conclude that this court’s adjudication of the dissolution proceeding would
impede the federal court’s jurisdiction.47
The District of Delaware opined in the Federal Action that “[i]f the Court of
Chancery were to dissolve [Doehler], then [the federal court] would not be able to
award specific performance, that is, compel [Davis and Crosskey] to transfer their
units of [Doehler] to plaintiff.”48 That statement, made in the context of denying a
motion to stay, could well provide a basis for a discretionary stay of this action
pending the resolution of the Federal Action. 49 But I need not reach the respondents’
alternative request for a stay, which is not a matter of subject matter jurisdiction.
46
See Three Keys Ltd. v. SR Util. Hldg. Co., 540 F.3d 220, 230 (3d Cir. 2008) (describing
the “distinction between an in personam action seeking a judgment that a party has the
right to a distributive share of an estate, but stopping short of determining a party’s interest
in specific estate property, and an in rem action . . . seek[ing] a determination of a party’s
interest in specific property [within the estate]”).
47
See 13F Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure §
3631 (3d ed. 2022) (explaining that a court does not interfere with another court’s exclusive
control of a res if one court is adjudicating the right of an individual to that res in a separate
in personam action).
48
Doehler N. Am., 2022 WL 2785969, at *3.
49
See McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng’g Co., 263 A.2d 281,
283 (1970).
11
The respondents’ concerns about this action proceeding alongside the Federal Action
will not be realized in any event because the petitioner has failed to state a claim.
B. Personal Jurisdiction
The second threshold issue raised by the respondents is whether this court has
personal jurisdiction over Klein,50 who has moved for dismissal on that basis. The
court applies a two-step analysis in determining whether it has jurisdiction over a
non-resident defendant. “First, the court must determine whether service of process
is authorized by statute. If so, the court will consider whether the defendant has
sufficient minimum contacts with Delaware such that the exercise of jurisdiction
‘does not offend traditional notions of fair play and substantial justice.’”51 The
petitioner bears the burden of showing a basis for the court’s exercise of jurisdiction
over Klein.52
50
Branson v. Exide Elecs. Corp., 625 A.2d 267, 269 (Del. 1993) (“A court without personal
jurisdiction has no power to dismiss a complaint for failure to state a claim.”); Werner v.
Miller Tech. Mgmt., L.P., 831 A.2d 318, 327 (Del. Ch. 2003) (“Before reaching the merits
of their motion to dismiss under Court of Chancery Rule 12(b)(6), the court must first
consider the [respondents’] motion to dismiss for lack of personal jurisdiction pursuant to
Court of Chancery Rule 12(b)(2).”).
51
Fortis Advisors LLC v. Johnson & Johnson, 2021 WL 5893997, at *5 (Del. Ch. Dec. 13,
2021) (quoting Matthew v. Fläkt Woods Grp. SA, 56 A.3d 1023, 1027 (Del. 2012) & Int’l
Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).
52
See Ryan v. Gifford, 935 A.2d 258, 265 (Del. Ch. 2007) (“If, as here, no evidentiary
hearing has been held, plaintiffs need only make a prima facie showing of personal
jurisdiction and the record is construed in the light most favorable to the plaintiff.”). Davis
contends that he has sufficiently pleaded civil conspiracy under Rule 8(a). Rule 8(a) is not
the appropriate legal standard to analyze personal jurisdiction based on the conspiracy
theory. Instead, I apply Rule 12(b)(2) and the Istituto Bancario test. See HUMC Holdco,
12
Klein is not alleged to be a past or present manager of Doehler. He is the chair
of DNA’s parent company, which is located in Germany.53 The lone basis for
personal jurisdiction pleaded in the Petition is a conspiracy theory.54
“The conspiracy theory of jurisdiction is narrowly and strictly construed.”55
To establish personal jurisdiction under the conspiracy theory, Davis must show five
elements:
(1) a conspiracy . . . existed; (2) the [respondent] was a
member of that conspiracy; (3) a substantial act or
substantial effect in furtherance of the conspiracy occurred
in the forum state; (4) the [respondent] knew or had reason
to know of the act in the forum state or that acts outside
the forum state would have an effect in the forum state;
and (5) the act in, or effect on, the forum state was a direct
LLC v. MPT of Hoboken TRS, LLC, 2022 WL 3010640, at *20 (Del. Ch. July 29, 2022)
(“Court of Chancery Rule 8(a) requires a pleading to contain ‘a short and plain statement
of the claim showing that the pleader is entitled to relief.’ ‘When a complaint fails to do
so, it must be dismissed under Rule 12(b)(6).’” (quoting In re Coca-Cola Enters., Inc.,
2007 WL 3122370, at *3 (Del. Ch. Oct. 17, 2007))).
53
See Pet. ¶ 15, Ex. C.
54
Pet. ¶ 9, n.2. In opposing the motion to dismiss, the petitioner advances a previously
unpleaded theory of personal jurisdiction: that Klein is subject to service under 6 Del. C. §
18-109. Pet’r’s Answering Br. Opp. Mot. to Dismiss (Dkt. 51) 37. But “[a]rguments in
briefs do not serve to amend the pleadings.” Cal. Pub. Emps.’ Ret. Sys. v. Coulter, 2002
WL 31888343, at *12 (Del. Ch. Dec. 18, 2002). Were I to credit it, the argument would
fail. Davis asserts that Klein is subject to service because he “participated materially in the
management of [Doehler] for purposes of the claims being asserted.” Pet’r’s Answering
Br. Opp. Mot. to Dismiss 37 (quoting Metro Storage Int’l LLC v. Harron, 2019 WL
3282613, at *20 (Del. Ch. July 19, 2019)). The Petition offers no grounds from which I
could conclude that Klein materially participated in managing Doehler such that he could
be treated as a manager under Section 18-109(a)(ii).
55
Comput. People, Inc. v. Best Int’l Grp., Inc., 1999 WL 288119, at *6 (Del. Ch. Apr. 27,
1999).
13
and foreseeable result of the conduct in furtherance of the
conspiracy.56
The test “ultimately ‘turns on the imputation to the [alleged] conspirator of
meaningful activity on behalf of the conspiracy which occurred and caused effects
in Delaware.’”57 The plaintiff is required to assert specific facts—not conclusory
allegations—in support of each element.58 “[A]pplication of personal jurisdiction
under the conspiracy theory requires factual proof of each enumerated element.”59
The petitioner fails to make the requisite “showing that a tangible act or
omission actually took place in Delaware.”60 Davis alleges that a civil conspiracy
existed between Klein and Beckett for Beckett to breach his fiduciary duties as a
manager of Doehler by “hacking into [Davis’s] email inbox.”61 To support this
theory, Davis cites an email he sent to Klein, Beckett, and others accusing Beckett
of “having emails from [Davis’s account] . . . forwarded to [Beckett’s] account.”62
56
Istituto Bancario Italiano SpA v. Hunter Eng’g Co., 449 A.2d 210, 225 (Del. 1982).
57
Comput. People, 1999 WL 28119, at *6 (emphasis in original) (quoting HMG/Courtland
Props., Inc. v. Gray, 729 A. 2d 300, 307 (Del. Ch. 1999)).
58
See Hartsel v. Vanguard Grp., Inc., 2011 WL 2421003, at *10 (Del. Ch. June 15, 2011),
aff’d, 38 A.3d 1254 (Del. 2012) (TABLE).
59
Lone Pine Res., LP v. Dickey, 2021 WL 2311954, at *10 (Del. Ch. June 7, 2021).
60
Hartsel, 2011 WL 2421033, at *14 (emphasis in original); see also Altabef v. Neugarten,
2021 WL 5919459, at *10-11 (Del. Ch. Dec. 15, 2021).
61
Pet. ¶ 9 n.2.
62
Pet. Ex. C at 2.
14
Setting aside whether this email can evidence Klein’s involvement in the so-
called hacking, it cannot support conspiracy jurisdiction. The Petition does not
allege any act or omission in Delaware—let alone a “substantial” one.63 It is not
enough for Davis to assert that the conspiracy caused harm to a Delaware entity or
that Beckett is a manager of a Delaware LLC.64 To hold otherwise would
“circumvent the minimum contacts requirement of International Shoe Co. v.
Washington.”65
Accordingly, the court lacks personal jurisdiction over Klein.66
C. Failure to State a Claim
Finally, the respondents argue that the court should dismiss the Petition under
Rule 12(b)(6) because it fails to state a claim for dissolution. “[T]he pleading
63
Istituto Bancario, 449 A.2d at 225.
64
Pet. ¶ 9 n.2; see Hartsel, 2011 WL 2421003, at *14 “(Although this Court has recognized
financial harm to a Delaware business entity as a form of injury that has occurred in
Delaware, it nonetheless has required, consistent with notions of due process, a factual
showing that a tangible act or omission actually took place in Delaware.”); Altabef, 2021
WL 5919459, at *11 n.116.
65
Comput. People, 1999 WL 288119, at *6.
66
The respondents further argue that Klein and McCarroll should be dismissed from this
action because the requested relief cannot be awarded by those individuals. This argument
concerns whether McCarroll and Klein are “real parties in interest.” Resp’ts’ Reply Br.
Supp. Mot. to Dismiss 22. Because I have determined that the court lacks personal
jurisdiction over Klein and that the Petition fails to state a claim, I need not address this
argument. I note that I cannot discern the relevance of Davis’s allegation that McCarroll
(in concert with DNA and Klein) failed to act in the Company’s best interest to his
dissolution claim. See Pet. ¶ 24.
15
standards for purposes of a Rule 12(b)(6) motion ‘are minimal,’” and the operative
test is “one of ‘reasonable conceivability,’” which “asks whether there is a
‘possibility’ of recovery.”67 When considering a 12(b)(6) motion:
(i) all well-pleaded factual allegations are accepted as true;
(ii) even vague allegations are well-pleaded if they give
the opposing party notice of the claim; (iii) the Court must
draw all reasonable inferences in favor of the non-moving
party; and (iv) dismissal is inappropriate unless the
plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible of
proof.68
The court is not required to “to accept conclusory allegations unsupported by
specific facts or to draw unreasonable inferences in favor of the non-moving
party.”69
The Petition asks this court to order the dissolution of Doehler pursuant to
Section 18-802 of the Delaware Limited Liability Company Act, which provides:
On application by or for a member or manager the Court
of Chancery may decree dissolution of a limited liability
company whenever it is not reasonably practicable to carry
on the business in conformity with a limited liability
company agreement.70
67
In re China Agritech, Inc. S’holder Deriv. Litig., 2013 WL 2181514, at *23-24 (Del. Ch.
May 21, 2013) (quoting Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC,
27 A.3d 531, 536-37 (Del. 2011)).
68
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002) (internal citation omitted).
69
Price v. E.I. DuPont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011).
70
6 Del. C. § 18-802.
16
“Given its extreme nature, judicial dissolution is a limited remedy that this court
grants sparingly.”71 Its availability is limited to situations where “the LLC’s
management has become so dysfunctional or its business purpose so thwarted that it
is no longer practicable to operate the business, such as in . . . a voting deadlock or
where the defined purpose of the entity has become impossible to fulfill.”72 The
Petition falls well short of satisfying this arduous standard.
First, the petitioner does not allege facts supporting an inference that the
Company is deadlocked at the member or manager level.73 In arguing that he has
pleaded deadlock, he focuses on an allegation that the members of the Company
71
In re Arrow Inv. Advisors, LLC, 2009 WL 1101682, at *2 (Del. Ch. Apr. 23, 2009).
72
Id.; see also BET FRX LLC v. Myers, 2022 WL 1236955, at *6 (Del. Ch. Apr. 27, 2022);
Fisk Ventures, LLC v. Segal, 2009 WL 73957, at *4 (Del. Ch. Jan. 13, 2009) (“The text of
§ 18-802 does not specify what a court must consider in evaluating the ‘reasonably
practicable’ standard, but several convincing factual circumstances have pervaded the case
law: (1) the members’ vote is deadlocked at the Board level; (2) the operating agreement
gives no means of navigating around the deadlock; and (3) due to the financial condition
of the company, there is effectively no business to operate.”); In re Seneca Invs. LLC, 970
A.2d 259, 263 (Del. Ch. 2008) (dismissing a petition for dissolution of a limited liability
company because the petition did not allege a voting deadlock among the members or that
it was impracticable to carry on the entity’s business purpose).
73
Davis cites to exhibits extrinsic to the Petition, including exhibits to his opening brief
for summary judgment, in support of this argument and elsewhere in his opposition brief.
E.g., Pet’r’s Answering Br. Opp. Mot. to Dismiss 48 n.12. I disregard these attempts to
introduce evidence in opposing a motion to dismiss. See Vanderbilt Income & Growth
Assocs. LLC v. Arvida/JMB Managers, Inc., 691 A.2d 609, 612 (Del. 1996) (“[T]he general
rule [is] that matters outside the pleadings should not be considered in ruling on a Rule
12(b)(6) motion to dismiss.”). Davis also relies on various post-trial decisions that are
unhelpful to his arguments at the pleading stage. E.g., Pet’r’s Answering Br. Opp. Mot. to
Dismiss 56. Simply put, his various arguments fail. The Petition comes nowhere close to
stating a reasonably conceivable claim for judicial dissolution.
17
violated the LLC Agreement by incurring more than $25,000 without unanimous
consent.74 The Petition framed this as an issue of breach of contract—not
deadlock.75 Regardless, Davis provides no facts from which the court could assess
whether that breach is reasonably conceivable.76
Davis also contends that Crosskey will decline to approve “nine actions
critical to the LLC” for which unanimous consent is required under the LLC
Agreement. His argument fails to identify any existing deadlock. Rather, it concerns
prospective deadlock if the petitioner withholds future consent. This contrived
attempt to manufacture deadlock cannot support a claim for judicial dissolution.77
Had Davis adequately alleged voting deadlock, dissolution would still be
unavailable because the deadlock could “be remedied through a legal mechanism set
within the four corners of the operating agreement.”78 For example, Section 10(b)
74
Pet’r’s Answering Br. Opp. Mot. to Dismiss 47 (citing Pet. ¶ 23).
75
See BET FRX, 2022 WL 1236995, at *7 (“Mere disagreement, or even fiduciary breaches
standing alone, do not support a claim for judicial dissolution.”).
76
The provision at issue appears to only apply to debt “with, from or on behalf of any
financial institution.” LLC Agreement § 6(b)(ix).
77
See Mehra v. Teller, 2021 WL 300352, at *18 (Del. Ch. Jan. 29, 2021) (“A genuine
deadlock does not exist where it is ‘based upon a specious premise’ or ‘one side sought to
manufacture it ‘by refusing to consider any issue.’” (quoting Kleinberg v. Cohen, 2017 WL
568342, at *11 (Del. Ch. Feb. 13, 2017))); Millien v. Popescu, 2014 WL 656651, at *2 n.17
(Del. Ch. Feb. 19, 2014) (“Millien sought to create a deadlock by refusing to consider any
issue. This is not the type of conduct that should support the appointment of a custodian.”).
78
Fisk Ventures, 2009 WL 73957, at *7; see Malpiede v. Townson, 780 A.2d 1075, 1083
(Del. 2001) (“[A] claim may be dismissed if allegations in the complaint or in the exhibits
incorporated into the complaint effectively negate the claim as a matter of law.”).
18
of the LLC Agreement contains a “Buy-Sell Option” that applies “in the event that
the Members become deadlocked with respect to any decision that materially and
adversely affects the Corporation’s business as a result of their dispute.”79 Davis did
not avail himself of this option (or even reference it in the Petition).80 Furthermore,
Section 12 of the LLC Agreement provides a contractual process for dissolution
“[u]pon the occurrence of an event of dissolution described in Section 1, or in the
event that a deadlock cannot be duly resolved under the provisions of Section
10(b).”81
79
LLC Agreement § 10(b). Under the Buy-Sell Option, any of the members (the “Electing
Members”) can deliver written notice to the other members (the “Responding Members”)
proposing a purchase price for each of Doehler’s units (the “Buy-Sell Price”). Id. After
receiving this notice, the Responding Members are required to either (1) purchase all of the
Electing Members units in Doehler at the Buy-Sell Price or (2) sell all of their units to the
Electing Members at the Buy-Sell Price. Id.
80
Davis argues that the Buy-Sell Option is inequitable because it amounts to a game of
“Russian Roulette” that could force Davis to buy the interests of DNA and Beckett rather
than provide for the sale of Crosskey’s units. See Pet’r’s Answering Br. Opp. Mot. to
Dismiss 54. A review of the LLC Agreement indicates that this concern would only arise
if Davis proposed an unreasonably high price. Davis raises a separate argument in the
reply brief in support of his summary judgment motion that the Buy-Sell Option fails to
operate as an equitable exit mechanism because it “does not mandate a price [or] pricing
formula.” Pet’r’s Reply Br. Supp. Mot. for Partial Summ. J. (Dkt. 61) 16 (quoting Seokoh,
Inc. v. Lard-PT, LLC, 2021 WL 1197593, at *15 (Del. Ch. Mar. 30, 2021)). That argument
is not before me in addressing the motion to dismiss. I note for the sake of completeness
that, so long as Davis proposed a fair price, the Buy-Sell Option does not require further
“negotiations [among the members] regarding [price] as a matter of course.” Seokoh, 2021
WL 1197593, at *15.
81
LLC Agreement § 12. Section 1 of the LLC Agreement provides that “[t]he Company’s
existence shall continue in full force and effect until the Company is dissolved upon the
first to occur of the following events: (i) the unanimous determination of the Members to
19
Second, Davis’s allegations do not demonstrate that the “defined purpose of
the entity has become impossible to fulfill.”82 As described in the LLC Agreement,
Doehler was formed to act as a vehicle for its members to invest in the dry foods
business.83 Nothing in the Petition supports an inference that the Company is not
currently performing these functions.84
Instead, Davis appears to base his request for dissolution on his removal as a
manager, the attempt to remove him as a member, purported breaches of the LLC
Agreement, alleged breaches of fiduciary duty, and an unarticulated “conspir[acy]
to commit malfeasance.”85 These allegations (even if true) do not suggest that
Doehler “is suffering the rare fate of being a company that is unable to operate in
accordance with its governing document.”86 He thus provides no valid grounds for
judicial dissolution.87
dissolve the Company; or (j) any event that makes the continued existence of the Company
unlawful, including the entry of a decree of judicial dissolution.” LLC Agreement § 1(h).
82
In re Arrow Inv. Advisors, 2009 WL 1101682, at *2.
83
LLC Agreement § 1(b).
84
Once again, in opposing the motion to dismiss, Davis improperly relies upon extrinsic
evidence in an effort to establish a “dysfunctional and fractious relationship” among the
members of Doehler. Pet’r’s Answering Br. Opp. Mot. to Dismiss 55; see supra note 73.
85
Pet. ¶¶ 2, 16-24.
86
In re Arrow Inv. Advisors, 2009 WL 1101682, at *3.
87
Id.; see also BET FRX, 2022 WL 1236955, at *6-7.
20
Because Davis has failed to state a viable dissolution claim, his claim to wind
up the affairs of Doehler under 6 Del. C. § 18-803 must likewise be dismissed.
Section 18-803 of the Delaware LLC Act provides that “the Court of Chancery, upon
cause shown, may wind up the limited liability company’s affairs upon application
of any member . . . and in connection therewith, may appoint a liquidating trustee.”
The sole “cause” alleged by Davis is the predicate claim for judicial dissolution.88
III. CONCLUSION
The respondents’ motion to dismiss for lack of subject matter jurisdiction
under Rule 12(b)(1) is denied. Klein’s motion to dismiss under Rule 12(b)(2) for
lack of personal jurisdiction is granted. The respondents’ motion to dismiss the
Petition under Rule 12(b)(6) is granted. Given that the Petition is dismissed in its
entirety with prejudice, the petitioner’s motion for summary judgment fails.
88
Pet. ¶ 28.
21