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Haley v. Talcott - 864 A.2d 86 (Del. Ch. 2004)

Rule:

Del. Code Ann. tit. 6, § 18-802 of the Delaware Limited Liability Company Act permits the Delaware Court of Chancery to 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.

Facts:

Plaintiff Matthew James Haley and defendant Gregory L. Talcott formed defendant Matt & Greg Real Estate, LLC ("LLC") to own certain real property where Haley managed a restaurant that Talcott owned. Haley and Talcott were the only members of the LLC; each of them owned 50 percent of the LLC and each gave a personal guaranty for the LLC's debt to a bank. After Haley and Talcott had a falling out, Haley filed a lawsuit in Delaware chancery court against Talcott and the LLC seeking to have the LLC dissolved, pursuant to Del. Code Ann. tit. 6, § 18-802, because it was not reasonably practicable for it to continue the business of the company in conformity with the LLC agreement. Talcott responded that Haley was limited to a contractually-provided exit mechanism in the LLC agreement, by which he could buy out Haley. Haley filed a motion for summary judgment.

Issue:

Was Haley entitled to a judicial dissolution of the LLC because it was not reasonably practicable for it to continue the business of the company in conformity with the LLC agreement?

Answer:

Yes.

Conclusion:

The court granted Haley's motion for summary judgment. The court found that it was not reasonably practicable for the LLC to continue to carry on business in conformity with the LLC agreement, and thus could exercise its discretion and dissolve the LLC. Further, the exit mechanism was not a reasonable alternative, as it was not sufficient to provide an adequate remedy to Haley under the circumstances, as he would then be personally liable for the LLC's debt. Therefore, Haley was entitled to a judicial dissolution of the LLC.

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