5high LLC v. Howard Feiler

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
5HIGH LLC, )
)
Plaintiff/Counter-Defendant, )
)
v. ) C.A. No. 2022-0108-LWW
)
HOWARD FEILER and AHJ&R )
BUSINESS DEVELOPMENT LLC, )
)
Defendants/Counter-Plaintiffs, )
)
and )
)
USAPPAREL WORKS LLC, )
)
Nominal Defendant. )
MEMORANDUM OPINION
Date Submitted: May 13, 2022
Date Decided: August 5, 2022
Andrew L. Cole & Michael E. Fitzpatrick, COLE SCHOTZ P.C., Wilmington,
Delaware; Counsel for Plaintiff 5high LLC
Frank E. Noyes, II, OFFIT KURMAN, P.A., Wilmington, Delaware; Counsel for
Defendants Howard Feiler and AHJ&R Business Development LLC
WILL, Vice Chancellor
Howard Feiler and Lawrence Arin formed nominal defendant USApparel
Works LLC in August 2021 as 50/50 members. No written agreements were created
to govern the entity.
USApparel soon ran short on cash. Arin and Feiler’s visions for how to
address the cash flow problem diverged. The two appeared to reach an agreement
in late November 2021 for each to make a small contribution. Feiler provided Arin
with a check for his portion. But after a disagreement between the parties on
November 30, 2021, Feiler had a change of heart.
On the morning of December 1, 2021, Feiler told Arin that he was leaving
USApparel and demanded his check back. Arin agreed. Feiler then took a series of
actions indicating that he had resigned. He told USApparel’s employees, its key
supplier, and its only customer that he was departing the business. He canceled a
business credit card. And he asked USApparel’s bank to remove him from its
account. Since then, he has not performed any business for USApparel or made an
additional capital contribution.
On December 5, 2021, Feiler asked Arin to sign an agreement memorializing
the fact that Feiler was no longer a member of USApparel and addressing the parties’
respective risks going forward. Arin and Feiler negotiated over the next month but
were unable to reach a written agreement.
1
Plaintiff 5high LLC—an entity owned and controlled by Arin that holds his
membership interest in USApparel—now seeks a declaration from this court that it
is the company’s sole member. Feiler and AHJ&R Business Development LLC—
an entity owned and controlled by Feiler that (purportedly) held his membership
interest in USApparel—assert that Feiler remains a member and advance a
counterclaim seeking a declaration to that effect.
The evidence at trial establishes that Feiler withdrew as a member of
USApparel on December 1, 2021. Thus, 5high is the sole member of USApparel.
Judgment shall be entered for the plaintiff.
I. FACTUAL BACKGROUND
This case was tried on a paper record consisting of 56 exhibits including two
deposition transcripts. The following facts were proven by a preponderance of the
evidence or are drawn from the admitted allegations in the pleadings.1
A. USApparel Is Formed.
Nominal defendant USApparel Works LLC (the “Company”) is a Delaware
limited liability company that operates in the uniform manufacturing industry.2
1
Where facts are drawn from exhibits jointly submitted by the parties at trial, they are
referred to according to the numbers provided on the parties’ joint exhibit list (cited as
“JX __”). Deposition transcripts are cited as “[Name] Dep.” The affidavit of Lawrence
Arin is cited as “Arin Aff.”
2
Answer to Verified Compl. for Decl. Relief with Countercl. (“Answer”) ¶ 9.
2
Defendant Howard Feiler and non-party Lawrence Arin formed USApparel on
August 11, 2021 by filing a certificate of formation with the Delaware Secretary of
State.3 Arin and Feiler agreed that plaintiff 5high LLC—an entity owned and
managed by Arin—and Feiler would be 50/50 members of USApparel.4 USApparel
did not have (and does not have) a written limited liability company agreement.5
Feiler and Arin ran the operations of the Company as equal partners. They
collectively invested over $100,000 in USApparel after its formation through two
tranches of equal capital contributions of $25,000.6 Neither received compensation
from the Company for their services at that time.7 But the Company, which is
headquartered in New Jersey, reimbursed Feiler—an Indiana resident—for his travel
and other business expenses.8
3
Id. ¶ 7.
4
Id. ¶ 11.
5
Id. ¶ 10; Arin Dep. 9.
6
Answer ¶ 8; Feiler Dep. 82-83. Feiler lent Arin the second $25,000 contribution. Feiler
Dep. 83.
7
See id. at 81.
8
See JX 2; Feiler Dep. 13, 17; Arin Dep. 46.
3
Feiler formed defendant AHJ&R Business Development LLC on November
9, 2021 for the purpose of holding his interest in USApparel.9 Feiler did not inform
Arin that he intended to transfer his membership interest in USApparel to AHJ&R.10
B. USApparel Operates at a Loss.
From its inception through at least November 30, 2021, USApparel operated
at a loss and faced significant cash flow issues.11 Arin and Feiler agreed that the
Company would require additional capital to meet its funding needs but disagreed
on where that capital should come from. Feiler believed that they should each invest
an additional $25,000.12 Arin advocated for a smaller investment and felt that the
Company should cut costs by decreasing the amount it reimbursed Feiler for travel
expenses.13
On November 23, 2021, Feiler emailed Arin a list of ways that he believed
the Company could raise cash.14 Feiler wrote, “the last thing I want to do is walk
9
See JX 9; Feiler Dep. 64-65.
10
Arin Aff. ¶ 2.
11
See Answer ¶ 12; JX 9; JX 10; JX 32; Feiler Dep. 33, 82.
12
See JX 11; JX 23; Feiler Dep. 31.
13
See JX 11; JX 23.
14
JX 11.
4
away from [the Company, but] [a]t some point that may happen[] if we can’t work
this out.”15 He asked that the two plan for “that scenario.”16
By November 30, 2021, USApparel had $700 remaining in its bank account.17
Around that time, Arin and Feiler reached an agreement that each would
invest an additional $9,000 into the Company.18 Feiler provided Arin with a signed
check for that amount on November 30.19 But that night, Feiler and Arin got into a
heated argument after Arin again suggested that the Company should stop
reimbursing Feiler for his travel expenses.20
C. Feiler Leaves the Company.
On the morning of December 1, 2021, Feiler informed Arin that he no longer
wished to be involved with USApparel.21 Feiler also asked Arin to return the $9,000
check he had given him the day before.22 Arin did not object and returned Feiler’s
check.23
15
Id.
16
Id.
17
Arin Dep. 58.
18
See Answer ¶ 15.
19
JX 14; Arin Dep. 56.
20
Feiler Dep. 12-13, 31; see Arin Dep. 56-58.
21
Feiler Dep. 12-13, 18; Arin Aff. ¶ 6.
22
Feiler Dep. 18.
23
See id. at 14; Arin Aff. ¶ 7.
5
After his conversation with Arin, Feiler moved forward with his decision to
leave the Company. Feiler took the following actions on December 1, 2021:
• He emailed several individuals at Fechheimer (USApparel’s sole
customer) to “inform [them] that as of 12/01/21 [he was] leaving
USApparel Works LLC to pursue other opportunities” and
that “Lawrence Arin [was] taking over as the sole managing partner.”24
• He sent a similar email to Joe Seickel of Seickel & Sons (one of
USApparel’s principal suppliers), assuring Seickel that Arin would
address a balance due on certain equipment.25
• He told personnel at USApparel’s factory that he was leaving and bid
them goodbye.26
• He canceled an American Express corporate card and asked Arin to cut
up the card.27
• He contacted USApparel’s bank to have his name removed from the
Company’s account.28
As of that date, Feiler ceased to perform services or contribute capital to the
Company.29 Arin alone has continued to operate USApparel.30
24
JX 15; see Answer ¶ 20.
25
JX 17; see Answer ¶ 19.
26
Feiler Dep. 45-46.
27
JX 19; JX 20; Feiler Dep. 20-23. Arin cut up the card as requested. See Feiler Dep. 20-
23.
28
Answer ¶ 21; Feiler Dep. 18. Arin subsequently went to the bank and signed the
appropriate paperwork so that Feiler could be removed from the account. Arin Dep. 104-
05.
29
See Answer ¶ 17; Feiler Dep. 17, 21-25.
30
Arin Aff. ¶¶ 8-9.
6
D. Feiler Prepares a “Dissolution Agreement.”
On Saturday December 4, 2021, Feiler emailed Arin to say that he would “be
working on the partnership dissolution agreement effective 12/01 and should have
an outline for [Arin’s] approval by Sunday.”31
The next day, Feiler sent Arin a document entitled “USApparel Works LLC
Partnership Dissolution Agreement” (the “Draft Dissolution Agreement”).32 The
cover email stated, “I am attaching a dissolution agreement for your perusal. Please
let me know if you want to add or change anything. I will try and finish the rest
tomorrow.”33
Feiler had downloaded the template for the Draft Dissolution Agreement from
LegalZoom.34 The draft as edited explained that Arin and Feiler had entered into a
partnership “under the name USApparel Works LLC.”35 It stated that “the partners
hereby agree that effective 11/30/2021 the partnership shall dissolve.”36 The
document (albeit inconsistently with the prior statement) provided that Arin would
be the “sole owner and operator of USApparel Works LLC, after 11/30/2021” and
31
JX 20.
32
JX 21.
33
Id.
34
Feiler Dep. 25.
35
JX 21.
36
Id.
7
could “continue to transact business and incur any obligations on behalf of
himself.”37 The draft further provided that if Arin decided to cease operating
USApparel, Feiler would have the option of taking over sole ownership of the
Company.38
Arin told Feiler in an email later that day that the Draft Dissolution Agreement
“seem[ed] to capture the essence of [their] discussions.”39 Arin asked Feiler to send
a final draft of the agreement the next day and suggested that they “may have to get
some professional help . . . to make sure [they were] tying up the loose ends
properly.”40 Feiler acknowledged that “the legalese is probably incorrect” and that
he was simply attempting “to get the gist of [their] agreement down on paper so that
there [wa]s no misunderstanding.”41
On December 6, 2021, Feiler emailed Arin a revised version of the Draft
Dissolution Agreement.42 The cover email explained that he was attaching “a
finished partnership dissolution agreement.”43 He suggested that they should each
37
Id.
38
Id.
39
JX 22.
40
Id.
41
JX 25.
42
JX 24.
43
Id.
8
“hire a lawyer to check” the document but that it “cover[ed] the gist of [their]
agreement.”44
The primary terms of the “finished” document were consistent with the first
draft. Both provided that the “partnership” dissolved “effective 11/30/2021,” that
Arin would continue as the “sole owner and operator” of the Company “after
11/30/2021,” and that Feiler would have the option to take over if Arin decided to
cease operations.45 Both versions of the Draft Dissolution Agreement contemplated
that Delaware law would apply.
E. Discussions Continue.
On December 6, 2021, Feiler sent Arin an email containing a proposed
message to “colleagues [he] made while with USApparel.”46 The draft email stated
that Feiler wished to explain “why [he] left US Apparel Works so abruptly” and that
he and Arin had agreed “to move forward individually” with Arin taking over “as
sole owner and operator of US Apparel Works LLC.”47 After the two disagreed on
whether it was appropriate for Feiler to send the email, they discussed how to move
44
Id.
45
Id.
46
JX 26.
47
Id.
9
forward.48 Arin offered that they should “make a separation agreement that is
mutually acceptable even if not perfect.” He wrote:
We already agreed that you will be repaid the 25k loan and
you have a note making that clear. We agreed that your
T&E would be reimbursed as soon as the company can
afford it. We agreed that the machines are owned 50/50
and would not be included in any equity sale without your
permission. We agreed that should I decide not to move
forward, you would have the option to do so.49
F. Feiler Proposes an “Assignment Agreement.”
On December 7, 2021, Feiler contacted an attorney asking for advice “to
dissolve this partnership and rid myself of any obligations [Arin] might incur going
forward.”50
After speaking with an attorney, Feiler informed Arin that he wished to pursue
a different type of agreement than he had originally proposed.51 On December 9,
2021, Feiler sent Arin an email stating:
I believe the best way forward to us is for me to sign over
my interest in USApparel Works LLC. This will alleviate
any future liability concerns I have and will allow you to
run the company unfettered, with no interference, as you
see fit. If you agree to this[,] I will have a lawyer draw up
48
See JX 23; JX 27.
49
JX 27.
50
JX 28.
51
See JX 28; JX 30.
10
the papers, at my expense, and you can have your attorney
approve it.52
Later that day, Feiler sent Arin a draft “Assignment of Limited Liability
Interest Agreement” (the “Draft Assignment Agreement”).53 Section 2 of the Draft
Assignment Agreement contemplated that Feiler would assign his interest in
USApparel to Arin.54 Section 5 stated that USApparel owed Feiler $3,268.01 in
travel and other business expenses and that Feiler would be reimbursed when the
Company hit certain manufacturing volume thresholds.55 Section 6 provided that
USApparel and Arin would indemnify Feiler against any liabilities asserted by a
third party against Feiler in connection with USApparel.56 And Section 10 stated
that the Draft Assignment Agreement was governed by Indiana law and contained
an Indiana forum selection provision.57
On December 12, 2022, Arin told Feiler by email that he agreed with the plan
generally.58 But Arin expressed concern with certain specific terms of the Draft
52
JX 30.
53
JX 32.
54
Id.
55
Id.
56
Id.
57
Id.
58
JX 35.
11
Assignment Agreement.59 For example, Arin thought that the Indiana choice of law
and forum provisions were “unusual” because USApparel was a Delaware entity.60
Arin also noted that they had “already agreed to the commercial aspects of how to
separate” and “that [Feiler] w[ould] be absolved of any responsibility for the
[C]ompany’s obligations as of [November 30, 2021].”61 Arin concluded by saying
that they “would need to work with [Feiler’s] attorney to have [that prior
understanding] articulated clearly.”62
On December 13, 2021, a lawyer representing Feiler sent an email to Arin
stating that “based on [Arin’s December 12, 2021 email], Mr. Feiler [was] revoking
his offer to convey his interest in [USApparel] to [Arin].”63 The email explained
that “Feiler would consider making another offer provided either [Arin] or
[USApparel]” paid Feiler “[$]3,268.01 in travel and other business expenses
immediately.”64 That same day, Feiler wrote to Arin, “You now have a choice. Pay
the money for my [travel and expenses], as agreed, immediately. Indemnify me
59
Id. Arin seems to have believed that Feiler wanted him to sign both the Draft Dissolution
Agreement and the Draft Assignment Agreement when he sent the December 12, 2022
email. Id. It appears from the record that Feiler only intended for Arin to sign the Draft
Assignment Agreement. See JX 30, JX 32, JX 35.
60
JX 35.
61
Id.
62
Id.
63
JX 38.
64
Id.
12
from any liability concerning USApparel, after 11/30/2021 as we agreed[,] or we
can continue to escalate this agreement into court.”65
Between December 13, 2021 and early January 2022, Arin and Feiler
continued to discuss entering into a written agreement based on the Draft Dissolution
Agreement and Draft Assignment Agreement.66 At one point, they discussed Feiler
rejoining the Company as a “silent partner.”67 But those talks did not lead to an
executed contract.
Arin continues to operate the Company, as he has done since December 1,
2021.68 5high continues to contribute capital to USApparel as needed.69
G. Litigation Ensues.
On January 6 and 7, 2022, Feiler and his counsel sent the Company separate
purported demands for books and records pursuant to Section 18-305 of the
Delaware Limited Liability Company Act (the “LLC Act”).70 On January 10, Arin’s
counsel denied Feiler’s demand on the ground that Feiler was not a member of the
65
JX 39.
66
See JXs 39-47, 49-52.
67
JX 51.
68
Arin Aff. ¶ 8.
69
Id. ¶ 9.
70
Answer ¶¶ 32-33.
13
Company.71 On January 13, Feiler’s counsel sent a letter to Arin asserting that Feiler
remained a 50% member of USApparel.72
5high filed a complaint against Feiler in this court on January 31, 2022.73 The
complaint advances a single count for declaratory relief, seeking a declaration that
“Feiler resigned from all roles with USApparel, including as a member and as a
manager, effective as of November 30, 2021, and that 5high is the sole member of
USApparel.”74 AHJ&R was added as a defendant on February 16, 2022.75
Feiler answered the complaint and filed a counterclaim against 5high on
February 25, 2022, adding AHJ&R as a counter-plaintiff.76 The counterclaim is
styled as one for “Declaratory Judgment, Accounting and Pro Rata Distribution of
Profits.”77 Feiler and AHJ&R assert that they are entitled to a declaration that
“AHJ&R and/or Howard Feiler remains a 50% member of USApparel and remains
a Managing Member along with 5high pursuant to 6 Del. C. §18-402.”78 The
counterclaim also asks the court to order an equitable accounting of USApparel’s
71
Id. ¶ 34.
72
Id. ¶ 35.
73
Dkt. 1.
74
Id.
75
Dkt. 9.
76
Dkt. 16.
77
Answer at 21.
78
Dkt. 16.
14
finances to determine if the counter-plaintiffs are entitled to a distribution of
USApparel’s profits.79
A trial on a paper record was held on May 13, 2022.80 Feiler and AHJ&R did
not press their request for an equitable accounting or a distribution of USApparel’s
profits in briefing or at trial.
II. LEGAL ANALYSIS
The plaintiff and counter-plaintiffs bear the burden of proving their respective
claim and counterclaim by a preponderance of the evidence.81 “Proof by a
preponderance of the evidence means proof that something is more likely than
not.”82
Under the Delaware Declaratory Judgment Act, Delaware courts “have power
to declare rights, status and other legal relations whether or not further relief is or
could be claimed”83 so long as an “actual controversy” exists between the parties.84
79
Id.
80
Dkt. 39.
81
See Osborn v. Kemp, 2009 WL 2586783, at *4 (Del. Ch. Aug. 20, 2009) (“Typically, in
a post-trial opinion, the court evaluates the parties’ claims using a preponderance of the
evidence standard.”), aff’d, 991 A.2d 1153 (Del. 2010).
82
Revolution Retail Sys., v. Sentinel Techs., Inc., 2015 WL 6611601, at *9 (Del. Ch.
Oct. 30, 2015).
83
10 Del. C. § 6501.
84
Stroud v. Milliken Enters., 552 A.2d 476, 479-80 (Del. 1989) (explaining that an “actual
controversy” exists if it “involve[s] the rights or other legal relations of the party seeking
declaratory relief . . . [is] a controversy in which the claim of right or other legal interest is
15
An actual controversy exists in this case because the parties dispute whether Feiler
(or AHJ&R) is a member of USApparel based on events that occurred in December
2021.
5high contends that it is entitled to a declaration that it is the sole member of
USApparel for two reasons. First, 5high asserts that Feiler resigned and withdrew
as a member of USApparel on December 1, 2021.85 In the alternative, 5high
maintains that Arin and Feiler agreed to all material terms of an agreement for Feiler
to withdraw or transfer his interest to 5high.86
The defendants, for their part, contend that they are entitled to a declaration
that Feiler (or AHJ&R) remains a 50% member of USApparel. The defendants
argue that Feiler could not have resigned as a member of USApparel because the
Company did not have a written limited liability company agreement and the parties’
asserted against one who has an interest in contesting the claim . . . [is] between parties
whose interests are real and adverse . . . [and] the issue involved in the controversy [is] ripe
for judicial determination” (quoting Rollins Intern. v. Int’l Hydronics Corp., 303 A.2d 660,
662-63 (Del. 1973))).
85
Pl.’s Opening Br. 15-19 (Dkt. 29). It is unclear from the record whether Feiler had
transferred his membership interest in USApparel to AHJ&R. See supra notes 9-10, 77.
The parties’ briefs speak in terms of whether Feiler (not AHJ&R) resigned from USApparel
on December 1, 2021. See Pl.’s Opening Br. 15; Defs.’ Answering Br. 17-18 (Dkt. 34).
But if Feiler transferred his membership interest to AHJ&R, the question before the court
would technically be whether AHJ&R ceased to be a member of USApparel on December
1, 2021. My analysis will largely follow the briefs and speak in terms of whether Feiler
resigned from USApparel. But my conclusions would not change if Feiler had, in fact,
transferred his membership interest to AHJ&R. The only difference would be that AHJ&R,
rather than Feiler, would be the resigning party.
86
Pl.’s Opening Br. 19-24.
16
actions did not create an implied agreement.87 They also maintain that the parties
never reached a binding agreement for Feiler to withdraw or transfer his units to
5high.88
For the reasons explained below, I find that Feiler (or AHJ&R) left USApparel
on December 1, 2021.89 Accordingly, the plaintiff is entitled to a declaration that
5high is the sole member of USApparel.
A. Feiler Withdrew from USApparel on December 1, 2021.
The central question before the court is whether Feiler resigned from and
withdrew as a member of USApparel on December 1, 2021. Feiler argues that he
did not resign but merely expressed an intention to leave. He also claims that his
attempt to leave was unsuccessful because he and Arin understood that the terms of
Feiler’s departure would be in writing but no final agreement was reached. Both
arguments fail.
1. Feiler and Arin Reached an Implied Agreement on Withdrawal.
The evidence demonstrates that Feiler withdrew from USApparel on
December 1, 2021 pursuant to an implied agreement. “A member may resign from
a [Delaware] limited liability company only at the time or upon the happening of
87
Defs.’ Answering Br. 14-18.
88
Id. at 10-14.
89
Because I find that Feiler (or AHJ&R) resigned from USApparel, I do not address the
plaintiff’s alternative argument.
17
events specified in a limited liability company agreement and in accordance with the
limited liability company agreement.”90 An agreement governing a limited liability
company “as to the affairs of [the] limited liability company and the conduct of its
business” may be “written, oral, or implied.”91 In the absence of a limited liability
company agreement (or if the agreement is silent), a member must operate under the
default rules in the LLC Act and “may not withdraw prior to the dissolution and
winding up of the entity.”92
“An implied contract is one inferred from the conduct of the parties, though
not expressed in words.”93 “The legal effect of [express and implied contracts] are
identical; the distinction is based on the way in which mutual assent is manifested.”94
“In determining whether the parties’ conduct implies a contract in fact, their conduct
is evaluated from the perspective of a reasonable person, considering all of the
attendant circumstances.”95 “A party’s subjective intent or belief, does not
90
6 Del. C. § 18-603.
91
6 Del. C. § 18-101(9).
92
Levey v. Brownstone Asset Mgmt., LP, 2014 WL 3811237, at *7 (Del. Ch. Aug. 1, 2014)
(quoting 6 Del. C. § 18-603).
93
Cap. Mgmt. Co. v. Brown, 813 A.2d 1094, 1098 (Del. 2002) (quoting 17A Am. Jur.
2d. § 12 (1991)); P.C. Connection, Inc. v. Synygy Ltd., 2021 WL 57016, at *19 (Del. Ch.
Jan. 7, 2021) (“An implied contract is formed through the parties’ conduct.”).
94
P.C. Connection, 2021 WL 57016, at *19 (quoting 1 Williston on Contracts § 1:5 (4th ed.
1993)).
95
1 Williston on Contracts § 1:5 (4th ed. 2022).
18
determine whether an implied contract exists. The failure to object may be treated
as acceptance.”96
Here, the evidence establishes that Feiler manifested an intent to resign as a
member of USApparel on December 1, 2021. That day, Feiler informed Arin that
he was leaving the Company and asked that his $9,000 capital contribution check be
returned. Feiler informed several of USApparel’s employees, a major supplier, and
its sole customer that he was leaving the Company as of December 1. He canceled
a business credit card and asked to be removed from the Company’s bank account.97
He was explicit that Arin would remain as the “sole managing partner” and owner
of the Company.98
The defendants argue that Feiler did not “resign” because he never used that
term in his correspondence.99 But no magic words are required. Simply put, Feiler
left the Company. He repeatedly expressed his intention to leave USApparel
entirely—as evidenced by his actions and the language of his communications. The
96
Levey, 2014 WL 3811237, at *10; see Restatement (Second) of Contracts § 19(1) (1981)
(“The manifestation of assent may be made wholly or partly by written or spoken words or
by other acts or by failure to act.”).
97
See supra at 26-27.
98
E.g., JX 15; JX 17.
99
Defs.’ Answering Br. 17.
19
only reasonable conclusion an objective observer could draw is that Feiler was
severing ties with the Company.
The evidence in this case also establishes that 5high (through Arin) manifested
its acceptance of Feiler’s withdrawal. Arin made no effort to stop Feiler from exiting
USApparel. Arin returned Feiler’s $9,000 capital contribution check, requested that
the Company’s bank remove Feiler from its account (and signed paperwork to that
effect), and cut up Feiler’s corporate credit card—all at Feiler’s request.100
The facts of this case bear a resemblance to those in Levey v. Brownstone Asset
Management, LP.101 There, the court found that a member of a limited liability
company without a written limited liability company agreement had withdrawn
pursuant to an implied agreement. The member had told another member he was
quitting, provided a resignation letter, cut up his corporate credit card and building
access card, and turned over his office keys.102 The other member accepted the
departing member’s resignation.103
Here, as in Levey, the departing member evidenced an intent to withdraw
through his conduct and the remaining member manifested his acceptance of that
100
See supra at 22, 26-27.
101
2014 WL 3811237.
102
Id. at *4.
103
Id. at *8.
20
withdrawal. That implied agreement “modified the default provisions in the [LLC
Act] that otherwise prevent a . . . member from withdrawing before dissolution and
winding up.”104
2. The Parties’ Subsequent Negotiations Do Not Alter Their Implied
Agreement.
The defendants also argue that no agreement was formed allowing Feiler to
resign and withdraw from the Company because the parties subsequently undertook
negotiations on written agreements that were never finalized. But the fact that Arin
and Feiler wished to memorialize Feiler’s departure from the Company in a written
agreement does not mean that an implied agreement had not already been reached.
The evidence demonstrates that Feiler considered himself separated from the
Company after November 30, 2021 and that the parties were attempting to document
the specifics of what had already occurred and address their respective risks.
The parties did not understand what was legally required for Feiler to leave
USApparel. Their desire to negotiate a written agreement was an attempt to “t[ie]
up the loose ends properly.”105 Feiler did not want to be subject to liabilities related
to the Company. Arin sought to eliminate the risk that Feiler would later claim—as
he is now—that he still held a membership interest in the Company. Their
104
Id. at *10.
105
JX 22; see also JX 28; JX 30.
21
negotiations concerned the formalities of whether the Draft Dissolution Agreement
or Draft Assignment Agreement was the proper course to protect themselves.
There was no question, however, that Feiler had resigned from USApparel.
Feiler did not assert that he remained a member of USApparel until well into the
parties’ negotiations—which was inconsistent with his prior statements and actions.
And Arin consistently maintained that Feiler had left USApparel on December 1.
That was in the past—it had already been agreed to by the parties. Their implied
agreement did not provide that Feiler remained a member until they finalized a
written contract.
Because I have found that an implied agreement was reached on the matter of
Feiler’s resignation and withdrawal, I need not decide whether the Draft Dissolution
Agreement or Draft Assignment Agreement evidenced the parties’ agreement on all
material terms.
3. The Potential Value of Feiler’s Membership Interests.
Pursuant to the LLC Act, a member who resigns from a Delaware limited
liability company is entitled to receive “the fair value of such member’s limited
liability company interest as of the date of the resignation based upon such member’s
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right to share in distributions from the limited liability company” unless a limited
liability company agreement provides otherwise.106
At trial, the defendants’ counsel argued that the parties never agreed on a
return of Feiler’s equity in the Company.107 Yet they did not ask that the court award
Feiler the value of his interests in the event that the court found he was no longer a
member. Neither party briefed this issue.
Given the LLC Act’s default rule entitling a resigning member of an LLC to
a distribution equal to the fair market value of the member’s interest, the lack of
evidence that the parties reached an implied agreement that would modify the default
rule, and the parties’ failure to brief the issue, this decision should not be read to
indicate that Feiler is barred from later asserting that he is entitled to some value for
his interests in USApparel as of the date of his resignation.
III. CONCLUSION
For the reasons stated above, 5high is entitled to a declaration that Feiler
resigned from and withdrew as a member of USApparel on December 1, 2021 and
106
6 Del. C. § 18-604; Levey, 2014 WL 3811237, at *11 (“The statutory calculation is not
limited to the value of his capital account, but rather should represent the fair value of the
interest as of the date of withdrawal based upon the partner's right to share in distributions
from the entity.”).
107
Trial Tr. 34-35.
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that 5high is the sole member of USApparel. Feiler’s (or AHJ&R’s) request for a
declaration that he remains a member of USApparel is denied.108
The parties are directed to submit an agreed-upon form of final order to
implement this decision.
108
As noted above, the defendants’ counterclaim sought an equitable accounting of
finances for USApparel and a distribution to the defendants of their pro rata share of
USApparel profits since December 1, 2021. See Answer at 24. The defendants made no
mention of this request in their pretrial briefing or during trial. To the extent that request
for relief is not mooted by my finding that 5high is the sole member of the Company, it has
been waived. “Issues not briefed are deemed waived.” Emerald P’rs v. Berlin, 726 A.2d
1215, 1224 (Del. 1999).
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