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Achaian, Inc. v. Leemon Family LLC - 25 A.3d 800 (Del. Ch. 2011)

Rule:

The Delaware Limited Liability Company Act, Del. Code Ann. tit. 6, §§ 18-101 et seq., affords maximum contractual flexibility to provide in a limited liability company agreement the precise mechanism by which an assignee of a limited liability company interest may become a member.

Facts:

Omniglow, LLC, a Delaware limited liability company, was sold to three business entities, resulting to the same having three Members, each owning the following Membership “Interests”: (i) 50% were owned by the defendant Leemon Family LLC, a New York limited liability company controlled by its managing member, the individual defendant Ira Leemon (together, Leemon); (ii) 30% were owned by the non-party Randye M. Holland and Stanley M. Holland Trust, a revocable inter vivos trust controlled by non-parties Stanley and Randye Holland as trustees (Holland); and (iii) 20% were owned by the plaintiff Achaian, Inc., a Nevada corporation wholly owned by non-party William A. Heriot (Achaian). In 2010, Holland allegedly transferred and assigned its entire 30% interest to Achaian in a Purchase Agreement. Achaian then filed this action, claiming that it and Leemon were now deadlocked, 50/50, as to the management of Omniglow, and therefore, an order of dissolution was warranted under 6 Del. C. § 18-802. Leemon moved to dismiss the complaint under Rule 12(b)(6), arguing that Holland's assignment was only effective to give Achaian an additional 30% economic interest in Omniglow. Specifically, Leemon says that in order for Achaian to have received a 30% Membership Interest in Omniglow, the LLC Agreement required Leemon's consent to the assignment because, in its view, Achaian was in effect being readmitted as a Member with respect to its newly acquired 30% Interest.

Issue:

Under the Omniglow’s LLC Agreement, may Holland transfer its interest to Achaian without Leemon’s consent?

Answer:

Yes.

Conclusion:

The chancery court of Delaware held that the parties’ LLC agreement, when read as a whole, let an existing member without the other members’ consent, to transfer its entire interest, including voting rights, to another member, As such, when Holland transferred its entire 30% interest to Achaian, it resulted to Achaian and Leemon having equal management rights. Achaian therefore pled facts sufficient to support its judicial dissolution application. 

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