Feeley v. NHAOCG, Ltd. Liab. Co. - 62 A.3d 649 (Del. Ch. 2012)

Rule:

Under the Delaware Limited Liability Company Act (LLC Act), there are two basic types of members: members who are also managers and exercise managerial functions in a member-managed LLC, and members who are passive investors like limited partners. Managers and managing members owe default fiduciary duties; passive members do not. As with a limited partnership, a "person" may owe fiduciary duties depending on whether that person controls a manager of the LLC or otherwise has a fiduciary relationship to the LLC. The phrase "to the extent that" recognizes these differing possibilities without implying that all members or all persons necessarily always or never owe default fiduciary duties.

Facts:

The parties formed the Oculus Capital Group, LLC (“Oculus”) as a Delaware limited liability company. The two members of Oculus are plaintiff AK-Feel, LLC ("AK-Feel" or "AFE"), a Delaware limited liability company, and defendant and counterclaim plaintiff NHAOCG, LLC ("NHA"), a New York limited liability company; AK-Feel was the managing member of Oculus. Plaintiff Christopher J. Feeley served as the managing member of AK-Feel, and in that capacity, controlled the activities of both AK-Feel and Oculus. NHA alleged that Feeley failed miserably in his managerial roles at Oculus. Dissatisfied with Feeley, the principals of NHA decided to end their relationship with Feeley and attempted to take over Oculus. Feeley and AK-Feel filed the present litigation, seeking to block NHA’s attempt. Subsequently, the parties entered into a stipulation resolving the near-term control issues. What remained were the NHA’s counterclaims, through which NHA sought to recover damages from AK-Feel and Feeley. AK-Feel and Feeley moved to dismiss the counterclaims. According to Feeley, any counterclaims against him necessarily arose out of the actions he took as President and CEO of Oculus, were related to his Employment Agreement, and therefore, must be arbitrated.

Issue:

Must all the claims against Feeley be arbitrated, thereby, warranting the dismissal of NHA’s counterclaims?

Answer:

No.

Conclusion:

The court held that the causes of action against Feeley, i.e., aiding and abetting the breach of AK-Feel, and breaching of duty in his capacity as the managing member, would exist and could be brought even without the Employment Agreement. The court noted that the NHA pleaded its causes of action without ever mentioning the Employment Agreement. Thus, those claims were not subject to arbitration. The court held that Feeley could be reached and potentially be held liable for breach of fiduciary duty in his capacity as the controller of AK-Feel. However, the court noted that in Count IV of the Complaint, NHA sought to hold Feeley liable only for breach of the duty of care; because Count IV only asserted claims against Feeley for gross negligence, the same was dismissed.